Why it’s Impossible for Government Policy to Fix the Economy

Why it’s Impossible for Government Policy to Fix the Economy

“Do something!” is a common refrain clueless voters and politician like to rally around when it comes to “fixing” our Humpty Dumpty economy.

To which I usually protest: “No – don’t do anything!”  Because government can only harm the economy by getting involved – as we’ve seen once again over the last three years.

It’s essentially a rerun of the Great Depression – where Hoover, and then FDR, plowed forth recklessly with government programs and fixes.  Not only did none of them “work” – but they only served to prolong the pain (See: How Herbert Hoover put the “Great” in Great Depression).

Now that I’ve teed things up – and gotten myself a bit fired up in the process – I’ll turn things over to David Galland, who’s going to shred the economic do-gooders of today…

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Profiting from Policy

by David Galland, Managing Director, Casey Research

These days, it’s hard to draw any conclusion other than that the train is gaining speed on wobbly tracks perched over a rickety bridge.

Most notably, unemployment has again risen – to 9.8% from 9.6% – very much not the direction things should be headed given the amount of money the government has pumped into the economy. The latest data shows that this nation of 310 million souls managed to add just 39,000 jobs in November. That, unfortunately, falls short of even keeping up with a population growth of about 1% – doing just that requires generating a net of about 250,000 jobs a month. As for eating away at the millions of unemployed and the many millions more who are underemployed… oh, well.

Of course, the mainstream financial media wastes no time in pointing to this latest dismalia as proof positive that the Fed’s recent decision to energetically restoke the money machine with upwards of $100 billion a month was the right decision. This despite the clear evidence that adding debt to debt is having no real effect, except begetting more debt.

This is a lesson that, so far, appears to be making no headway in the cognitions of Washington’s policy makers, even with the latest election results delivering a sharp rap across the knuckles to the power elite.

Evidence of that truth came to me during a recent drive to do sundry errands. After flipping through the stations, I ended up listening to a program on National Public Radio with a moderator quizzing a couple of congresspersons – one still in power and the other dismissed by voters in the midterm elections.

In conversing with the latter, the reporter asked if the Democrat congressman’s loss wasn’t a clear sign of voter frustration. To which the ex-official blathered on about the number of filibusters threatened by the Republicans over the last couple of years as a reason why the Obama Congress was unable to get its business done.

But, interjected the reporter, the Democrat-controlled Congress passed all manner of legislation – healthcare, financial reform, environmental bills, etc., etc – so isn’t it more a case of voters being upset about the quality and scale of the legislation passed, and not the dearth of it?

Whereupon the ex-Con began to illustrate his point by spouting off about some wastewater bill that was turned back by the Republicans, even though it would have unleashed another $15 billion in federal spending “so important to putting Americans back to work.”

But wait, again interjected the reporter, wouldn’t many people listening to this program say to themselves, this guy just doesn’t get it? That we don’t want the federal government to keep spending billions of taxpayer money on these make-work projects?

Without missing a beat, the ex-Con flipped like a freshly landed mackerel and argued against his position of just seconds before, saying, “This isn’t about the money! It’s about clean water for all Americans!”

At which point the reporter cleared his throat and ended the interview.

Next up was an angry Democrat of some influence. The congresswoman’s anger was directed first at the findings of the Deficit Reduction Commission that the spending cuts must be widespread if they are to be sufficient, and then at the administration for even thinking about extending the Bush tax cuts for people earning over $250K.

Oh, how I wish I was able to do proper justice to her diatribe here – I can’t, but I will do my best.

In her world view, the poor huddled masses of America – being defined as anyone with an income of under $250,000 a year – had nothing to do with the financial crisis, and so why should they be held even a little bit responsible for helping to foot the bill? No, no – it was the greedy fat cats that brought this fresh hell upon us, and so it is they, and they alone, who should be made to pay… and pay.

Of course, nowhere in the discussion was there mention of the role that the many-tentacled government  played in all of this… of the loose money, the looser spending, the wars, the unbridled enthusiasm for a steady diet of pork, and… and…

If there were some mega-computer capable of fairly allocating the financial pain based on the contribution each of us has made to this mess, and then assess taxes accordingly, I suspect the end result would leave past and present members of the Fed living in cardboard boxes, and 97% of past and present members of Congress shuffling in gutters looking for cigarette stubs… at least when they weren’t fighting over discarded clothes with executives of the big financial institutions, NGOs, and the Treasury Department.

Having wiped all of those individuals out to the bone, the burden could then shift to the military-industrial complex that has so effectively pursued its symbiotic and very, very costly “Don’t Ask (where the money went), Don’t Tell (the truth)” policy for decades now.

It could then lay the hooks into anyone who ever took a government-backed loan – big or small – without first taking the time to do a serious calculation as to their ability to repay it, or the unscrupulous lenders who knew that the loans they were originating were going to end up in default with the tab ultimately being dropped on the government.

In fact, were such a mega-computer able to do the calculation, I strongly suggest it would only be after many further layers that the pain, fairly allocated, would reach the rank and file business community, the sole real engine of growth in this economy.

I refer, of course, to the very same individuals so steadily derided by the vote-seeking politicos, despite the fact that it is these long-suffering entrepreneurs who wake up every new day to risk everything in their efforts to create new jobs, despite the heavy glop of bureaucracy on their backs every step of the way.

Yet it is the few that succeed, against all odds and a constant battering of taxes and regulations, that this particular congressperson sees as the villains. In other words, she has pretty much reversed the proper order of accountability – as one would expect in a system where all that matters is vote gaining.

When the talk turned to the administration’s apparent willingness to accept an across-the-board extension of the Bush tax reductions as part of a compromise to also extend unemployment benefits (at 42%, the situation of the long-term unemployed is becoming a serious problem), the congresswoman was almost apoplectic. In addition to the views just exposed, about the wealthy needing to pay for their many sins, she was astounded that anyone could hold up the unemployment extension, given the poor shape of the economy.

How can anyone argue against the direct benefits to our struggling economy of putting money in the pockets of people who most need it, she asked with dismay in her voice. Adding in support of her view that it should be obvious to all that the recipients of the money will turn right around and spend it on the necessities and that will give the economy just the boost it needs.

Hmm, I thought as I drove down the road. All we need to improve the economy is to give people money.

Why, it’s simplicity itself! And now that I get it, I think people should just quit their whining about fiscal probity and all of that, and just let ‘er rip. Don’t stop with small change, encourage the Treasury to start cranking out checks in princely sums to everyone!

Thousands, millions, even! In no time at all, America’s salad days will be back.

Of course I’m being cynical. But the point I’m trying to make is important, because while I am exaggerating, the economic concept so ardently championed by the congresswoman is accepted at face value by most of the government and all of the administration’s favorite economists.

More than that, because it is accepted, it is policy.

In this construct money is, at best, an abstraction: it has reached the point that the government, and most people, actually believe the stuff falls from the proverbial tree. Money is no longer a medium for saving or transacting with the fruits of one’s labor, but instead is a commodity – albeit unique in that it has unlimited supply.

It does not, however, enjoy unlimited demand. For now, the demand is certainly there. But as the supply increases, individuals and institutions are correctly wary of the effects of dilution… debasement… inflation, pick your term.

The alternative forms of money – the sound kind – are getting a lot of attention because more and more people actually “get it.” They are beginning to recognize the fictions that the politicians and bureaucrats believe in and are taking measures to protect themselves and to profit.

Before moving on, I would mention that I know someone who works as a manager in the Department of Motor Vehicles. A few days ago she told me that, other than a relatively brief flurry during the Cash for Clunkers program, the pace of car registrations has been slow ever since the crisis began and has shown absolutely no improvement since that program ended.

In fact, the only increase in the DMV’s workload has come from the processing of suspended driver’s licenses.

As the latest unemployment figures show and my friend’s first-hand observations confirm, this economy is not recovering. And, per the rise in license suspensions, the government is becoming increasingly aggressive in fine-generating enforcement actions.

In relationship to the second of those data points, if you’re going to imbibe this holiday season, don’t drive.

Finally, please don’t misunderstand my comments above as being insensitive to the plight of the unemployed. I personally know far too many people in that situation whose prospects of ever regaining their prior lifestyles is now almost non-existent to be cavalier about the topic.

The only realistic way I can help – because I can’t and won’t put my own family’s future at risk by trying to help everyone – is doing my part to build and maintain a business that, by offering a tangible value to clients, is able to keep a lot of people productively employed.

Therefore, it angers me to no end to listen as the morons maintained in power by the equally moronic masses make rude noises about the entrepreneurial class and otherwise meddle in matters about which they have no actual understanding and, as a consequence, continue doing great damage to the economy.

Something has got to change… and will, before this is over.

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[Though you can’t change the out-of-control spending habits of the government or the currency debasement they’re causing, what you can do is protect yourself… with alternative forms of money, “the sound kind,” as David says. BIG GOLD is the go-to advisory for all things gold, silver, large-cap gold stocks and top-performing funds. Try it for only $79 per year – with 3-month money-back guarantee. Details here.]

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