Sometimes the cure for a problem is unpleasant. For example, if you ingest a noxious, toxic substance, you will vomit it up. However, in most cases, we recognize that this unpleasant remedy is necessary. Yes, vomiting is bad, and generally vomiting is a bad thing, but in this case, no one would think to suggest that you should force yourself not only to keep the poison down, but swallow more of it as well.

So, why do we lack this common sense when it comes to economics?

We have been meddling with the monetary system since sometime before the civil war when we developed a system of pyramiding banks upon banks, creating a demand for treasury notes and allowing coordinated inflation of the money supply. However, the real problems came with the creation of the Federal Reserve system, centralizing inflation in one place.

The argument for central banking was that the old "free" system allowed unrestrained creation of funds resulting in the "boom-bust cycle". Of course the previous system was not free, but even ignoring that, despite the claims, within a decade and a half we had gone form the biggest inflationary boom ("the roaring 20's") to the biggest deflationary bust (the Great Depression). So the supposed fix proved worse than the nominal problem.

And that has continued to be the pattern through today. The break with gold has made it easier for the government to inflate and has made the inflation possible on a scale unimaginable int he past, but the pattern itself has not changed. The government begins to spend, living far beyond its means, and as a result the money supply increases. This early inflation leads to a slight surge in the markets. Granted, it tends to flow into economically unsound directions, but this early on no one can tell, so they think it is some sort of beneficial "activity". So, trying to cash in on that boom, the state begins to inflate for the sake of inflation, keeping interest low and money cheap.

This new round of inflation leads to all sorts of apparently beneficial growth. Of course, as with the dot-coms, the housing boom, the S&L misallocations of the late 70's and early 80's, the stock boom of the 1920's, and every other inflation driven boom, this activity is channeled into unsound directions, but it is not obvious from the inside. To those living through the time it appears that the economy is surging, many are getting rich, and everyone is doing generally better. Of course, prices are rising as well, and savings are slowly eroding, and those paper profits will eventually turn out to be illusory, but that realization is in the future. For the time being, everyone thinks things are great, and the government does all it can to keep it going.

And then, something happens. It could be something obvious like a stock market crash or bank failures. It could be something subtle, such as prices rising just a little too fast, or housing starts dropping off. However, something happens that causes the entire inflationary bubble to burst. And suddenly we find ourselves facing the real costs of all that monetary meddling.

Which brings me back to my original analogy. We are here faced with two options. We can purge ourselves of the inflationary poison, allow the markets to correct themselves. It will hurt, but in the end, the markets will be stronger.

Or, we can take more of the poison, try to start up the inflationary engine one more time, hoping to postpone the eventual accounting for another few years. This is what happened following the dot-com crash, when Clinton flooded the market with new money, hoping to put off the crash, with the results we see around us. However, there is a cost. If you put off a crash, you do so by even more inflation, making the eventual crash even worse. In other words, you might be able to avoid having to face the music, but only by sticking your children with even worse.

And that, in a nutshell is what Obama, and Bush before him, proposed. These "stimulus" packages, these bailouts, they are nothing but a new inflationary pressure. And as a result, if they "work", the only thing they will succeed in doing is postponing the crash a few years, and make worse the crash which we will eventually face.

You cannot avoid consequences forever. Sooner or later you must face the music. Why not just face it now, starting the future with a clean slate, and a stronger economy, rather than spend a fortune in order to, at best, put off the consequences another few years?

POSTSCRIPT

I wrote many, many essays on inflation, a full list of which can be found in the postscript to "A Reason to be Afraid". However, the posts specifically relevant to this essay are:

Two Perspectives
Inventing a Crisis
Inventing a Crisis II
Inventing a Crisis III
Monetary Issues Made Simple Part I
Monetary Issues Made Simple Part II
Hair of the Dog?
Microloans and the Community Reinvestment Act
The Reagan Lesson
CNN's Keynesian Nonsense
The Real Reason for the Bailout
An Analogy From Past Inflation
Why"Negative" Economic Indicators Are A Good Thing
Explaining Past Crashes
The Inflation Engine

Let me know if I missed any, as my rather copious writing on this topic means I sometimes forget one or two.

POSTSCRIPT II

I realized after I wrote this that my title assumed a stronger connection to my initial analogy. However, as my analogy lent itself to slightly too graphic descriptions, I let it go without too much effort to tie them together. So, to explain, my title refers to efforts to resist natural processes, such as the market's natural tendency to correct itself, processes which can be uncomfortable, but which, in the long run, prove beneficial. My point being that when we try to fight these processes, such as by resisting the brief deflationary correction, trying instead to substitute our own judgment for the market forces, we end up doing more harm than good.