Homo Economicus



As if the actual economic news, that is, the actual numbers and facts about the greater/general economy weren't depressing enough, there is the interpretation of said data by the media, business commentators, and political types to contend with. Also, there are myriad policy suggestions being "debated," suggested, passed, and implemented. And through it all, principles have taken their usual back seat.



There are a few main areas where I have some big time bones to pick however. They are 1) capitalism, 2) Keynes vs. supply-siders, 3) "stimulus" packages, and 4) doing "something" vs. doing "nothing."





Capitalism



It is often said in this present recession that a main culprit was capitalism. The argument runs that rapacious, greedy, and unregulated people in the financial markets and elsewhere ran hog wild while erstwhile pro-capitalist regulators appointed by a pro-capitalist president (Bush) gave a nod, a wink, a nudge, and a "say no more!" and then dutifully turned their backs on the resulting "free market" in derivatives or whatever. The remarkable thing is that this narrative is uttered in perfect seriousness and with a straight face. Not only is it as if capitalism ever actually existed in the United States (which at its peak of economic freedom in the 19th century was, at most, highly capitalistic), but it's as if capitalism existed in someone's actual lifetime. Not only that, within the last several years even! And here all of us capitalists were despairing about the mixed economy when we had capitalism all along!

Of course in reality, all this "capitalism is at fault" and "capitalism existed" stuff is non-sense. No sector of the American economy, except the black market, is unregulated. No sector functions without a federal agency and bureaucrats looming over it with regulations, statutes, and people ready to levy fines and penalties whenever legally required to do so. Jail awaits for whatever economic "crimes" are deemed most heinous. I know I felt safer without Martha Stewart prowling the streets. Most of these sections all have State agencies to deal with as well. The notion that the American economy is a free capitalist economy is a subterfuge, accepted even by erstwhile friends of capitalism, foisted by capitalism's enemies. The American economy is, like nearly every economy in the Western world, a mixed economy. It has free, competitive and capitalistic elements, in some cases quite a bit more than other Western economies. It also has closed, public/government, command elements which are anything but capitalism.

To say capitalism is at fault for the current situation is like blaming God for it. Sure, many people believe it exists, but it, in fact, does not. Or there has certainly been no credible proof offered by claimants, for either, that they exist. And that which does not exist cannot properly be blamed for anything. Fannie Mae and Freddie Mac are government created and supported corporations operating under government laws and regulations which required them to do certain things (i.e. lend to high-risk people in order to meet an arbitrary government mandated goal of housing ownership) with the explicit guarantee that if and when the shit hit the fan, i.e. now, the government would merely tax, borrow, and print enough money to cover the losses. This is capitalism? Certainly not. It is merely symptomatic of the return -- a return which began a long time ago -- to the machinations of planners and manipulators that existed in the age before capitalism's tragically brief triumph (to the extend that it had one in the late 18th and early 19th centuries). Colbert, Richelieu, Buckingham, and Raleigh could not have concocted better schemes to use public/private firms to effect arbitrary government goals and policies which then greatly distorted not only the most directly effected markets, but the whole economy as a result. The infamous "South Sea Bubble" was mere child's play.

As the practise of lending to risky people and not imposing a cost for that risk (i.e. much higher interest) is contrary to sound business practise and contrary to reality (for it is certain that many of these loans would never have occurred without government interference) the government set up an affront to reality -- essentially a contradiction. Now, only if incredibly lucky could the government and the rest of us escape the consequences; by which I mean, some how some way, people otherwise deemed bad loan risks would almost to a man actually prove otherwise. Reality is not a kind opponent. Fighting her is, like fighting the collectivist Borg in Star Trek, futile. The contradiction corrected itself and these loans became "toxic;" as in, no one was ever going to be paying them back. The ramifications of hundreds of billions of dollars of these toxic assets, guaranteed by an irresponsible government with the complicit support of its citizens who have never once stood to halt these encroachments, these regulations, these interventions, is now all around us.

Of course banks won't lend whatever money the government gives them. They have learned a painful lesson. Any business being run by people in their right minds ought to be cautious if they survived intact. Financial institutions far-sighted enough to realize this was not a good deal to begin with are certainly not going to suddenly switch from the astute decision making they have thus far shown and begin making a plethora of hasty and ill-timed loans merely because politicians want their voters to stop yelling at them. Until these bad loans work their way out of the system, leaving behind the wreckage of everything and everyone they have consumed, no one should expect "easy" credit nor should they desire banks to continue bad loan practises.

One note here before moving on. Not having access to "easy" credit is not the same as not having access to credit at all. It merely means that the price of money (interest) and the terms of loans will be higher and stricter. This is an expected correction to the mistakes we have just witnessed. The government pumping in money is merely going to delay the return of reality and create more miserable problems in that some of the institutions will not learn the lesson and make more disastrous loans and cause more of these same episodes.


Keynes vs. supply-siders

The prognosticators on "both" sides of the political spectrum seem to only consider two schools of economic "thought." One, associated with liberals and Democrats, and typified by the economic ravings of Paul Krugman is based in the tradition associated with the British economist John Maynard Keynes. Keynes, of course, the guru of the great depression who advocated abandonment of long-term thinking, rejected the gold standard, and promoted "who cares about inflation" government spending as a way to jar an economy back to life, is like a bad penny. He has more lives than "Toonces the Driving Cat;" every time one assumes that Keynesian economics has died finally, there it is again. The "alternative" to Keynesian economics, often associated with conservatives and Republicans, and built around Milton Friedman and Arthur Laffer, advocates manipulation of monetary policy (interest rates, the printing press, etc.) and tax rates to promote economic growth and job creation, while avoiding the alleged inevitability of an unregulated "boom/bust cycle" of capitalism.

These are both simply policy alternatives which embrace the same fundamental principles. If you don't believe that then I suggest you read Rush Limbaugh's laughably absurd editorial from the Wall Street Journal of 29 January 2009. Limbaugh's bipartisan "stimulus" is merely to "spend" the same $900 billion that's currently bandied about for the package on capital hill (see more on this below) but more evenly between President Obama's Keynesian preferences for random government spending on anything and everything and Limbaugh's supply-side preferences for tax rate manipulation. Both approaches are impossible without first accepting the premise that the government has a right to interfere in the economy, expropriate wealth, and redistribute it at will for whatever purpose. Limbaugh's "half" of the package may be more amenable if one is forced to accept one part or another, but he's willing to spend non-existant money, nearly $500 billion, on Obama's stuff while he's at it. He is countenancing, but with slightly different distributions, the premise of having your cake while also eating it. What is the point of cutting taxes while also spending half a trillion dollars you don't have? Taxes will just have to be raised later to pay it back, with interest, and avoid a default crisis.

Notice as well, that while the Democrats in congress and the white house are expounding new regulations and agencies in the package they are proposing, the "alternative" ideas expounded by the Republicans include no regulatory and bureaucratic reductions. You might say that this is because of their minority status -- they need to ask for and get what is realistic. But when they were in complete power of both the law making and law enforcing branches, Republicans still did not do either of these. In fact, they did just as their opponents are doing, just in different areas, or even in the same areas but in different ways. Window dressing never cost so much.

The reason is obvious. While they may dispute which regulations and manipulations are better and which chips should go where, they do not dispute the principles upon which the regulations, manipulations and chip shuffling are based. Keynesians and supply-siders, far from being widely divergent intellectual enemies, are merely different sides of another bad penny. The bitterness between them? No one wants to be on the side facing the pavement.


"Stimulus" Packages

Stimulus packages are the order of the day. Bush had them, a couple of them at various times actually, and under our new regime of perpetual change, we still have them, only bigger. Theoretically, or perhaps more appropriately, rhetorically, a stimulus package is supposed to "stimulate" the economy sort of like hitting a joint in precisely the right way in order to cause the desired reaction. The problem with stimulus packages as they are conceived of in Washington, D.C., and the current one in particular, is that it's not precisely clear what is being stimulated. To say, let's pass a bill to stimulate "the economy" inevitably begs an obvious question: what part of the economy? The government does not have enough resources to "stimulate" the whole economy even if it wanted to do so, and thus the law of scarcity requires choices to be made and for preferences and priorities to be defined. In so doing, squeaky wheels and crying babes inevitably win out, regardless of any actual stimulus effect.

The classic example of the current package is the tens of millions of dollars going to the National Endowment for the Arts. When pressed for the conceivable reason why and the related question of how this will stimulate the economy when hundreds of billions directly to banks and consumers failed is simply, "artists are losing jobs too." I'm still shocked that artists have jobs in the first place considering the state of modern art, but that's beside the point. Anything and everything anyone, in Congress, can think of has made it into the bill. Unemployment benefits are being expanded and extended, which will have the result of keeping people unemployed longer while also increasing the number of unemployed since it's now even more attractive than it had been. Medicaid is being extended from the poor to the unemployed, again, making the latter status even more palatable. State governments are being subsidized so that their poorly planned and deficit-ridden budgets are either greatly ameliorated or even "balanced." Public works projects of every shape and size, which are merely temporary jobs for mostly skilled union workers, litter the bill at every turn. Contraception is funded under the horrific notion that more people cost the government more money in benefits and entitlements and should thus be discouraged. The list is endless and woe unto those brave souls at Citizens Against Government Waste, The Wall Street Journal and elsewhere who are trying to sift through it all.

Actually stimulating the economy? This bill will stimulate statists, collectivists, hippies, acolytes, "artists," and whoever else gets a piece of it, but the economy? No.


Doing "something" vs. doing "nothing"

President Obama and nearly every other talking head, jabbering congressman, and self-proclaimed "expert" bewails the danger of doing "nothing." Of course what they mean by nothing is: not passing any new regulations, stimulus packages, taxes, etc. But not doing those things, of course, is doing something (doing nothing is literally impossible without all of us dieing), just not the something the President and his mob of drones desire.

Many somethings could be done, including the current trading game between tax manipulation and runaway spending. But one could easily imagine a government deciding to wait and see what happened under the previous round of bailouts and legislation, to see if that "worked" before deciding the next response, if any. That would be something.

One could imagine a government deciding to scale itself back to be within itself a little more. To start saving and paying down its debt a little like most of its responsible citizens are currently attempting to do.

And one could dream of a government learning from its many and wide mistakes, and reversing course, deregulating (gradually to avoid chaos) the various sectors of the economy, withdrawing itself from monetary and tax manipulation.......yes, one can dream.

The point here is not that anything other than what is happening now will happen, but that these other alternatives are "something" and not "nothing" as everyone keeps saying. They may not be the "something" you or they support, but to pretend that this current proposed solution is the only one, is ridiculously and maliciously false.

Ironic that in this age of enlightened "change," the old shamelessness of false alternatives, fearful hectoring, and outright deception continue without missing a beat.