printThe Wall Street Journal has a dilemma. How does an anti-Obama, Keynesian outfit treat the putative economic recovery. Here’s the compromise: “We’re not going to have a strong recovery … It’s likely going to be a pretty sluggish affair.”
The truth is much worse. But you already knew it. A couple of weeks back I warned against accepting the media-congressional-presidential complex’s contention that slight upticks in the GDP were indicators of a recovery. In “…Like A Housewarming For The Homeless” I explained that,
the GDP statistic is consumption-driven: it measures the kind of economic Brownian motion of which less is required. ‘This statistic is constructed in accordance with the view that what drives an economy is not the production of wealth but rather its consumption,’ confirms (Austrian) economist Frank Shostak. ‘What matters here is demand for final goods and services. Since consumer outlays are the largest part of overall demand, it is commonly held that consumer demand sets in motion economic growth.’
The temporary bump in the economy is due to the halcyon stimulative high—the effects of all the fiat funny-money floating around and further distorting production patterns.
Says Peter Schiff, the Austrian economics wizard who has yet to be wrong: We are now in an even deeper hole than when the crisis began. Rather than wrapping up a recession, we are actually sinking into a depression. If things look better now, it’s just because we are in the eye of the storm“:
By interfering with the unpleasant forces of the recession, we simply trade short-term gain for long-term pain. By propping up inefficient companies that should fail, we deprive more effective companies of the capital they need to grow. By holding up over-valued asset prices, we prevent the prudent or less well-off from snatching them up and, in doing so, creating a new price equilibrium based upon reality. By maintaining artificially low interest rates, we discourage the very savings that are so critical to capital formation and future economic growth. In addition, the false economic signals the Fed sends the market prevent a more efficient re-allocation of resources from taking place and leads to even more bad economic decision being made. By running such huge deficits, we further crowd-out private enterprise by making it harder for businesses to invest or hire
The verbose Donny Deutsch, a lefty business-cum-mediaman, who’s proving too much of a rightist for the front fems who anchor MSNBC programs, declared the “Clunkers for Cash” give-away, wealth-distribution initiative an example of economic innovation. Inoculate yourselves:
The recently passed “cash for clunkers” program (currently on-hold, as it ran out of funding in one week) is a perfect example of how government policy can make the economy worse. By incentivizing Americans to destroy fully paid-for cars so they can go deeper into debt buying brand new ones, the government weakens an already crippled economy. The last thing we want to do is subsidize Americans to go deeper into debt by buying more stuff. Don’t they realize that is precisely the behavior that got us into this mess?
Think about it this way. If your friend were in trouble because he had too much debt, would you encourage him to take on even more? Wouldn’t a real sign of progress be a reduction of debt, even if he had to cut back on his everyday expenses? What is true for an individual is also true for a collection of individuals, even if they call themselves a ‘government.’ If, as a country, we are even deeper into debt now than we were before, we are worse off. Period. The fact that the additional debt enabled better short-term GDP numbers is a long-term negative.
So Obama is trying to ‘postpone’ the recession that Bush himself postponed. Each time the fundamentals don’t change, the dollar goes down a notch in value, the debt grows larger. The US is going the way of the Soviet Union. The differences are that the agony will last longer because the US has rich friends that lent it too much money, or is it ‘lent them the rope they will hang themselves with’ ? Also, this time the oligarchs have already stolen what they could before instead of after the collapse.
Yes, deflation purges malinvestments but brutally. Monetary deflation (money destruction) is the flip side of monetary inflation (money creation). Both are features of the dishonest and unstable (government backed) fractional reserve banking system. Two wrongs do not make a right but, in this case ,deflation is a rough, cruel way to purge malinvestments.
That said, it is time to replace the dishonest/unstable fractional reserve banking model. Ideally, this would be a return to free banking but this time with strong guarantees against government privilege.
How many more Great Depressions can we survive?
The continuing generation of fiat money is frightening. But since when has the government known any better in the last several decades? All the media pundits claimed that no economist predicted what has transpired. But in fact, Schiff along with other Austrians did know what was coming down the pike by simply understanding the business cycle and “bursting bubbles.” “Meltdown” by Thomas E. Woods is a great read on this subject. The government’s take on the economy reminds me of a person who, being $10,000 in debt, begins to hoop and holler upon receiving a credit card in the mail with a $15,000 credit limit and proclaims he’s now 5K in the black. (Unfortunately, I have friends who actually think that way.)
Recessions are often unpleasant but are supposed to purge out bad investment (just like a person with a fever fights germs). In the case of “cash for clunkers”, saving parasitical auto dealers, saving inefficient jobs, increasing the minimum wage, imposing new costs and regulations on industry, subsidizing corn growning for ethanol use …. – the US government is MAKING THINGS WORSE. We are increasing inefficiency, increasing waste, destroying capital (like cash for clunkers). It is pathetic and disgusting to watch both parties – with the Democrats leading the lemmings for now – run to the edge of the cliff.
I made the mistake of listening to Joe Bidden speak about the economy. He rambled on about the “21st century economy” based on “green jobs” and health care “reform.” These people really believe that central planning of two of the most important sectors (Energy and Health care) will revolutionize the economy and undo the damage of countless years of mismanagement. Refurbishing government buildings (green jobs) will turn us into China! He even suggested that the inhabitants of government housing projects would be the ones to fill these “Green jobs” installing solar panels or double paned glass in “their” buildings. The real question is: Do they believe their insane ideas or do they just say whatever they think will get them votes?
To say “saving parasitical auto dealers” joins the enemy, so to speak. That is if you look at middlemen as parasites. Businesses are not parasites, that dubious honor goes to Washington and to be honest, some parts of the parasitical government are necessary and beneficial to order. No, Myron is correct that the fault for the deficit remains with the government “cash distributors” who decided to single various parts of private industry out for “saving the auto industry.” But we need to remember that it is only the government that is at fault, blame sharing muddles the argument. The question of should the private sector fail in order to rebuild a stable economy, has a clear answer- yes. Maybe if government failed too, we might even be able to fix that mess too; however, we need to stay on the point that it is the fixation of our national leadership’s deficit consumer policy, which as John Adams said “creates a society of slaves,” that is the problem.
I’m certainly no economist, and I’m certainly not right all the time. In November of 2007, however, I did write a brief essay entitled “World Depression II,” explaining my opinion that the depression we’re now entering will be much worse than the Great Depression.