WEST RIVER, MARYLAND – Yesterday, the bipartisan boondoggle – the proposed $908 billion bailout led by Mitt Romney – got stuck in the Swamp.
Nancy Pelosi said it was too little. Mitch McConnell said it was too much.
So, the pols put their heads together and came up with a short-term fix. Here’s The Washington Post:
House approves one-week spending bill as stimulus talks drag on
The House of Representatives on Wednesday approved a one-week extension in funding for the federal government, a move aimed at giving lawmakers more time to hammer out agreements on spending bills and emergency economic relief.
But wait… The government is broke… already headed to a $2 trillion deficit for fiscal year 2021. Its pockets are empty. Its bank account is overdrawn. It has already looked under the seat cushions; there is nothing there.
How, then, could it possibly help people in need?
That’s just one question…
“And why should it?” is another. Why does anyone think giving out fake money to offset a real downturn is a good idea? Or even giving out real money, for that matter?
If the economy needs a reset… a recession to reprice assets and clean out bad investments and bad businesses… why stop it?
Why should the unemployment rate be below 5% and not above 10%? Why should the Dow be near 30,000… rather than closer to 15,000?
Why not just let the chips fall where they may, in other words?
Where’s the science behind that?
In 1919-1920, the Spanish Flu killed 675,000 Americans. Far worse than the coronavirus; that would be the equivalent to about 1.8 million deaths today. Then, the economy went into a depression.
Did the government leap to its feet?
Nope, it played dead. No big deficits. No quantitative easing (QE). No bailouts. No checks to nobody.
Unemployment rose to 8.7% in 1921, according to economist Christina Romer. But the Harding administration did, by today’s standards, almost nothing.
Or worse than nothing. Instead of stimulating the economy, arguably, it suppressed it… by cutting spending and running a surplus.
Oh, what heartless swine!
But how did the economists of 1921 know what the unemployment rate should be? How do today’s economists know better?
After all, capitalism works by relentlessly destroying some jobs… thus making workers available for new skills, new enterprises, and new industries.
If the unemployment rate were zero, progress would stop.
But progress is exactly what happened after 1921 – with little help (or hindrance) from the feds. Christina Romer says that by 1923, the unemployment rate was back below 5%.
According to today’s economic scientists, when an economy goes limp, the authorities must have “the courage to act” (in Ben Bernanke’s hagiographic words). They need to supply the starch that the markets lack.
Otherwise… well… Otherwise what?
We don’t know, either.
Economics is no real science. It is mostly quackery mixed with flimflam.
But its practitioners nevertheless have Ph.Ds. And in the 20th century, they tried to upgrade their discipline from a subset of moral philosophy – don’t spend more than you earn! – to a pseudo-science, with numbers… formulae… sigmas… alphas… and deltas, too.
We saw yesterday that the foundational science of today’s money system – monetarism – was a terrible mistake. It failed to appreciate the importance of the traditional gold standard. It thought it could do better with the Federal Reserve standard.
But while the U.S. dollar of 1913 (when the Fed was created) was just as good as the dollar of 1791 (when the dollar was created), the dollar of 2020 is worth, relatively, only about 3 cents!
Because in a crisis, the temptation to “print” more money is always irresistible. The Fed’s balance sheet – a measure of how much printing is going on – was only 6% of U.S. GDP in 2008. By the end of 2021, it will likely be near 50%.
Where’s the science behind that?
The Fed says we should have a 2% inflation target. Not 1%. Not 10%. What does science say about that?
It says that interest rates need to be around zero… or less. Where did that come from?
The feds believe they have to fight a downturn with more cash and credit – even giving out $1,200 checks to millions of Americans, the vast majority of whom were still working and collecting salaries. Huh? What science tells them to do that?
Note that when we talk about “science,” we’re not talking about engineering. Applied, practical engineering absorbs the lessons of the past… and, while innovating and experimenting, it always returns to what works.
Roman bridge-builders, for example, put up bridges that are still in use 2,000 years later – like the Pons Fabricius in Rome. To show his confidence, the architect stood beneath its arches as the scaffold was removed.
This served two very useful purposes: It focused the architect’s attention on what would be, for him, a matter of life and death… and it removed incompetents from the professional pool… as well as the gene pool.
If we only had a Pons Fabricius for the financial engineers! What a delight it would be to see them all crowded under an enormous arch.
Ms. Yellen, who just three years ago, promised no more financial crises in “our lifetimes” – surely, she would be there.
And Mr. Bernanke.
And there, too, we would find the complete quack, Steven Mnuchin… along with Paul Krugman… Joseph Stiglitz… Jeffrey Sachs… and many others.
What a wonderful opportunity! Quick… Take down the scaffold!
Like what you’re reading? Send your thoughts to [email protected].