The August employment report, ZERO new jobs, was a wake up call. What’s going on?
The mainstream press has gone to great lengths to convince us that the wise economists in their lofty heights of academia have broken economics down to a science. They’d like us to believe the economy is like some purposely-built machine that can be understood, and if it can be understood then it can be managed, tweaked, poked and prodded, “stimulated,” goosed back into life. All we need to do is just find the right knob and twist it the right way.
This idea of the managed economy is the most pervasive view in Washington. Both major parties have swallowed it hook, line, and sinker. While they may differ on how to redistribute the wealth created by the productive economy, they stand firmly together in their belief that they have a right to manage it. The tax and regulatory state is their joint creation. It is their ally and their trusted friend. It is the vehicle they use to deliver on promises, both to constituents and to contributors. A tax break here, and public project there, a regulatory favor over there to “create jobs.”
Decades of this behavior have brought us to the condition where we all believe the government manages the economy and should continue to do so. What’s the political watchword of the day? “It’s the economy, stupid.” Why do we re-elect politicians if the economy is strong? Because we have encouraged them to take over and manage the economy, and because we believe they are able to do so. Isn’t that obvious?
Four years into this economic crisis, and all indications are that we are now entering into the second leg down. I warned you about this three months ago with my piece “Brace Brace Brace” in May of this year.
If nothing else, what should be clear to you by now is that the political class’s management of the economy is a catastrophic failure.
I’ve often made the case that we’ve been living in a 30 year-long credit bubble, courtesy of the Fed.
For the past three decades, each time the economy has slowed the Federal Reserve Bank has “rescued” the economy by lowering interest rates. This has the simple effect of making it easier to borrow money. After a few months’ time, this can be seen as a pickup in economic activity. Each time, the federal government has boosted deficit spending, and then held it permanently at the new level. Each time, until now, this has seemed to work, and politicians and the electorate have quickly gotten back to business as usual.
Thus, an entire generation has adopted a simplistic belief system:
1. Economic fundamentals don’t matter
2. Any economic slowdown will be brief
3. Someone else who is competent is handling the economy so I don’t need to worry about it.
The entire existing political class is fully vested in this paradigm. It keeps them in power. Anytime the economy slowed, they’ve cooperated with the Fed to put the pedal to the metal, keep unemployment low, keep the masses happy and, most importantly, maintain the status quo.
This management of the economy sends good money after bad. What would have been short but necessary corrections are prevented from taking place. The Fed “manages” interest rates ever lower in order keep people employed and spending; the federal government increases its deficit spending in a kind of permanent “stimulus” in order to maintain the appearance of economic “growth.” This process has continued over the past 30 years to the point where interest rates now are at record-breaking lows, and the federal deficit is at record-breaking highs.
And do you know what? This time, it’s not working. The economy not only isn’t growing, even some mainstream observers are starting to say it looks like the beginning of another leg down. This time, there’s already so much debt that lower interest rates aren’t having the desired effect. This time, the federal deficits are so high even a moron can see they’re unsustainable. Democrats and recent Nobel Prize-winning economists can’t see this; draw your own conclusions.
The political class, along with the academic economists, are apoplectic: “What are we to do? What other measures can we initiate to better manage the economy and create jobs?” The entire political class is accustomed to the Fed coming to the rescue. It’s not working, and they’re panicking. This isn’t supposed to be happening. But it is.
Nowhere, ever, do they consider discussing the truth: no politician ever created anything. The public debate is never about getting the political system off the backs of the productive economy and letting it create wealth and jobs. Yes, it really IS that simple; painful, yes, but that is what is needed. However, we’ll never get there while the public debate is always about “how can the political process do something.”
The debate is controlled. The newly food stamp-dependent are hidden inside their homes; there are no bread lines. The unemployed are not visibly waiting in employment lines; they, too, are safely out of sight at home, getting checks in the mail. It has always been that way, also, for America’s permanent unemployed. The pretence of normalcy is all-important. The real urgency of the situation is carefully hidden from sight. 40% of our monthly budget goes onto the credit card. It’s insane. Lives and families are being destroyed, right now, by the incompetence of the economy-managers. All of it out of sight.
And, by the way, damn those Tea Partiers for insisting we stop borrowing so much money. How can we continue the pretence of normalcy if we stop borrowing money? Let’s do a poll that shows their “public approval” is waning. That way we can begin to convince the public that the Tea Partiers are wrong and the masters of the universe really do know what they’re doing. Back to your regularly scheduled programming; the solution to our unpayable debt problem is more unpayable debt! Hallelujeah!
No board of wise men, whether elected or appointed, is capable of correctly managing an economy made up of 300 million individuals and more than a hundred million products. The attempt is sheer madness and is doomed to fail. And it has failed, hasn’t it? Look around you. Yet, the political class persists, aided and abetted by the central bankers. And I am certain they will continue to persist, right up until the bitter end.
And when the end comes, what will their response be? Still greater levels of control. The economic interventions undertaken up to now have no precedent in history. Right now, we are living in a bastardized kind of de facto economic martial law. When the next crisis comes, we will be treated to the “de jure” kind. The next “New Deal” will be dressed up in “Hope” and “Change,” but it will be followed by “or else.”
What is needed, of course, is for the politicians to stop their meddling and let the free market be free. It isn’t perfect, but 150 years of American history are a testament to its creative and productive power, to its ability to raise living standards. It is far better than the managed disaster that continues to unfold right before our eyes.
It’s sad that so many people find genuine liberty so frightening. If you’ve studied American history, you know it wasn’t always that way.
Where is the Congressional constituency for willingly giving up power over the economy? Where is the majority that actually still believes in America? I don’t see it. While a few brave souls in Washington “get it,” nearly all the rest are still trapped in the managed-economy paradigm. They clearly don’t know what to do. They are incompetent, certainly. But it’s worse than that. They’re part of the problem.
You can see it on their deer-in-the-headlight faces:
“This isn’t supposed to be happening.”