Posted by
Andrews on Friday, March 06, 2009 2:25:20 PM
I normally am
opposed to economic fear mongering. In fact, I have argued that the current problems have been magnified by the irresponsible way in which the press and politicians have talked down the economy, and talked up the crisis, in order to achieve their ends. However, in this case, it is not irresponsible fear mongering, but a legitimate warning.
Our present government efforts to bring about an economic "recovery" of some form are centered not so much on "stimulus", despite public claims, as they are on restoring the relatively moderate inflation we had prior to the collapse. I have
written on this before, so I won't go into it in great detail. However, the basic idea seems to be this,
what we spend the money on does not matter so much as the fact that we
SPEND, spend a considerable amount, and, most importantly, that we create the money we spend through inflation of the money supply. According to most Keynesian and neo-Keynesian theories, such spending will result in both economic activity and a massive reduction in unemployment.
The truth is a bit different. For the past decade and a half we have been in a
relatively mild inflationary period. As with most early inflation, it created the appearance of economic growth, but actually resulted in poor allocation of resources. Twice it has begun to self-correct, during the dot-com crash and the slump preceding 9/11. Both times the government stepped in with increased inflation, making the underlying problem worse, but putting off the inevitable deflationary event.
Now that we are facing our third deflationary event, the state is once again trying to get us out of it by postponing the crash. They hope that by inflating more, mainly though "stimulus packages" and massive normal budgets, they will be able to postpone the inevitable until they are out of office.
And they might be able to do so. Were the consumer inclined to go along.
However, that is where the panic comes in. Despite efforts to create absurdly low mortgage interest rates, offering tax breaks for home buyers, and so on, the public seems reluctant to play along. After the dot-com bust, the public didn't avoid the stock market, just tech stocks. Similarly, after 9/11, the public did not eschew all credit, they happily made purchases and allowed the new money to enter the flow of commerce.
This time, they seem a bit different. Having been hit by the housing collapse, the subprime collapse, and the liquidity crisis which followed, they seem reluctant to spend the newly minted money as the government wishes.
And that bodes ill. If the new money is not gobbled up, if the market does not accept the increased money supply, if they show a lack of confidence in the dollar, that seems an ideal setup to put us on the path to hyperinflation. If the public is less than enthusiastic about the currency, all the new money in the world will not create a new economic boom. Instead it will serve only to drive prices ever higher,a problem the government will doubtless try to remedy through increased new spending and printing, resulting in the familiar hyperinflationary spiral.
Well, I suppose time will tell. The best solution would be to allow the economy to correct itself and get out of the business of printing money entirely, but the first half has only been sued once that I recall (1981-2) and the second half has never been even proposed, so I doubt the government will be trying that solution any time soon. So, the best we can hope to see is the consumers being suckered in one more time, participating in the inflationary fraud one last time, and putting off our eventual hard time for a few more years.
It is kind of sad that our leaders think postponing the inevitable (at the expense of making it worse) is the best solution to a problem. Whatever happened to leaders who had the nerve to actually face hard times, tell us the truth, and who thought it their job to help us through the rough patches rather than tell us what we want to hear and put off the bad times so their successors get the blame?
I guess they disappeared along with the voters who would support them. We're just left with
whining voters and pandering politicians.
POSTSCRIPT
Here is a list of my writing on the economic situation (sorry for the length, but I have been writing on this for over a year):
And you got rich?
A Quick Thought On The Housing "Crisis"
Two Perspectives
Inventing a Crisis
Inventing a Crisis II
Inventing a Crisis III
And Here It Comes Again
To Correct Debra Saunders
Another Thought on the Housing "Crisis"
Hooray For Phil Gramm!
Confirmation
I Hate Election Years
If We Took Them Seriously...
The Crisis Ratchet
Hooray For Debra Saunders!
Maybe It Isn't a Crisis After All
Quick Economic Update
An Unfortunate Consequence
Bringing Some Good Out of Our Financial Problems
Direct Your Anger Properly
Some Brief Thoughts on the Bailout
Living Beyond Their Means
A Question
Face The Music, Don't Try to Buy Votes
A Final Comment on the Futility of a Bailout
A Question For Republican Politicians
$700 Billion?
Asking Yet Again
Clarification of My Opposition to the Bailout
Greed
A Little More On CEO Salaries
Greed Part 2
A Bit Disappointed
Laughable Talk About the Bailout
A Short Question
The Excuse Making Begins
More Bad Excuses
More Bad Excuses II
Well, It Was Bound to Happen...
Repeating the Errors of FDR
One More Senseless Defense
Doing Nothing
A Question
Economic Question
It Is Ending Already
How Does That Work?
It Is Nice To Get Confirmation
Are You Serious?
I Think I Finally Got It, and... Eh
And the Excuses Begin
Things You Won't Hear on the News Until Wednesday
Our Financial Problems
Critique of Krauthammer
I Must Keep Asking
Monetary Issues Made Simple Part I
Et Tu, Town Hall?
Thanks For Saving My Stocks
More Confirmation
Perception and Reality
Crisis?
And Still More Confirmation
Monetary Issues Made Simple Part II
Silly Panic
Apparently I Was Not Alone
Hair of the Dog?
More Bailout Silliness
Playing Cassandra
John Stossel Imitates Me
Brief Comment
Remember I Predicted It
Microloans and the Community Investment Act
Walter Williams Imitates Me
Impatience
Experts and Unintended Consequences
An Analogy
Economic Illiteracy
Excuse Me?
The Reagan Lesson
Congressional Madness
One More Disturbing Quote
CNN's Keynesian Nonsense
Nationalization Rumors
A Question of Numbers
A New Solution?
Why?
I Should Not Watch Financial News
Can We Stop Now?
Beware When Politicians Agree
Government as Indulgent Parent
The Real Reason for the Bailout
An Unnamed Source in Doug MacKinnon's Piece Imitates Me and I am NOT Flattered
Revisiting Old Thoughts on Our Economic Situation
Well, Some Get It
I Wonder
An Analogy From Past Inflation
Perception and Inflation
How To Continue the Economic Problems
Another Bad Idea
Pointless or Destructive
John Stossel Imitates Me Again
Thomas Sowell Imitates Me
Making Lemonade
Continuing to Repeat Errors
Why"Negative" Economic Indicators Are A Good Thing
Recipe For Disaster
Not Entirely to Blame
How To Resolve Our Current Problems
Dick Morris Gets His Economics Wrong
Everyone Deserves Inadequate Housing
A Few Questions for Proponents of ANY Stimulus Bill
Sorry Peggy, Wrong on This One
Explaining Past Crashes
Killing the Railroads
We're From the Government and We're Here To Help You
Misunderstanding Economics
A Brief Question About Deficits
Environmentalism For The Economy?
National Debt
More Confirmation
More Frightening Financial News
Didn't I Say This?
The Limits of "Scientific" Management
The Inflation Engine
The Forgotten Fact
Perverse Incentives
Private Versus Public Sector
Quote of the Day
Changing the Measurements
An Economic Query
Interesting Reading
Fasten Your Seatbelts
Crippling Business
Technocrats
Nation of Debtors
The Dow
Then again, this list does prevent me from having to repeat myself constantly.