Friday, September 2, 2011

My Crackpot Ideas


"To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble." Paul Krugman, 2002.


I always tell people I'm a free market guy, in which people respond: "Oh yeah, me too."  Then I ask them what they think about America in which they reply: "Oh yeah America is awesome, what's not to love."  So either we are engaged in the cognitive dissonance of a lifetime or we have wholly perverted the definition of free market, like a Catholic school girl uniform. 

You see, a free market doesn't bail out failure.  A free market doesn't give a shit about stability.  A free market doesn''t really care about morality.  But D you say, we want stability and morality.  Bullshit no you don't; you think you do because that's what you have been taught.  The truth is stability is just another word for stagnation.  And who decides morality?  The government?  No one entity should have that kind of power.  You like democracy?  Nothing is more democratic than voting through the free market.

In 2000, as the tech bubble collapsed and Main st flirted with recession, Alan Greenspan decided he has seen enough.  He turned on the spigots via low interest rates to spur lending.  Mainstream economics 101.  Instead of letting the mal-investments (which is what the bubble was) work itself out of the system so we can organically grow again, the Fed decided to play drug dealer and inject the markets with more amphetamines, even though it was the exact same easy money that led us to the crash in the first place.  With this spinach, Wall St Popeye lent that shit out to anybody with a pulse who wanted a house.  A few years later, it turns out certain properties were overvalued, underwater, and their mortgages which were repackaged and sold to all corners of Earth were losing value by the day.  Soon, we crashed again and like the definition of insanity, we lowered interest rates until we couldn't anymore and then attempted to flood the banks with liquidity via quantitative easing.  Meanwhile, unemployment has stayed above 9% with 400k new claims weekly.  Mainstream economics's answer was more fiscal and monetary stimulus.  Once again, humans feel the need to play God and can't fathom the notion that we just don't know the answer.

That's the beauty of free markets. You don't need to know the answer.  What's the price of an Apple computer?  Well set a price and find out.  Sell out too quick?  Raise that shit.  It's a ghost town?  Lower the price.  You made a company and it failed?  Well that's a lesson for everyone else.  That's how a free market society grows intellectually and efficient in the long run.  Without failure, we would still be living in caves rolling around with an oval wheel.  Imagine if they had bailouts back then.  Oval Wheel Co employs the whole cave.  Thus it must not fail!  Fuck Joe Lowbrow over there who has a good idea about a circle wheel.

Does stimulus work?  Yeah of course, money is money.  And if people got more, they would spend it.  But we can't call ourselves a free market anymore.  And we can't harangue other countries around the world for not being free anymore.  A stimulus based economy is three steps away from fascism.  If we incentivize failure and free money, where is the need to invent, build or learn?  I don't have any answers, but I wish President Obama and his advisers come out and say that neither do they.  They were the same ones who oversaw the economy as it tanked.  How can we let them hold the map if they were the ones who got us lost in the first place?  Have some faith in your constituents Mr. President. 

Ah yes, then there is the Great Depression.  That's the crown jewel for government intervention of our economy.  Look at Herbert Hoover, they say.  Look at how he stood by as we slunk into a depression.  It was his laissez-faire attitude that deepened the malaise.  I am not saying that idea is completely wrong, but it should not be unassailable and used as a premise for further argument.  This needs to be debated and accepted arguably as there is plenty evidence of his interventionist ways; look no further than the Smoot-Hawley Act and his public work programs that rivaled FDR's (where do you think Hoover Dam came from? That egomaniacal bastard!) 

So here's my crackpot idea: mainstream economists are not stupid.  They had it "wrong" but that's because they were told to get it wrong.  The government is not the victim in crony capitalism; it is a willing partner who is tired of seeing the private sector making all that loot.  Thus, by inserting itself as a savior at every hint of economic trouble, the government has positioned itself as a drug dealer, content on creating a large swath of dependent Americans who now have no choice but to continue the charade of stimulus and easing.  The real victims are savers, mostly older individuals and those not savvy enough to invest intelligently (that's most people).  This is why the Fed and the government becomes nervous every time the stock market swoons.  They know because of our inflationary policies of the last thirty years, we have cornered the average American's savings into high yielding and high risk investments.  If those were to fall apart, we may finally wake up from the American Dream and realize just how far we have fallen. 



TL;DR: Vote for Ron Paul.  JUST KIDDING.

TL;DR for real:

1. By bailing out troubled industries and companies in the name of stability, we are mortgaging our future as we choose stagnation over painful progress.
2. By offering unbridled stimulus, we incentivize laziness and inefficiency, which eventually drags us into a centrally planned economy.

The answer?  Set inflation target of 0% and use the MIT Billion Price Project as a benchmark.  No need for gold-backed currency.  Lower taxes drastically for the middle class as we cut the federal budget to bare bones (and perhaps raise them for the top few percentile).  All government welfare programs are closed except one, which will take anyone who cannot afford to live on their own.  They will live like soldiers in barracks, where their dwellings are inspected randomly and assigned jobs according to their strengths.  They will be paid a decent wage, but not enough to live like royalty.  They will live in a dignified manner, but still be incentivized enough to save enough and live on their own. 

Like Bill Starr said, the strongest shall survive.