Monday, October 10, 2011

The invisible hand is clutching our throat



The economy is on everybody's mind these days. No one, aside from a few professionals, thinks about the economy when it is good. It's like your health: You only think of it when you are sick. Here are a few thoughts that are rattling around in my head, these days.

1. The bailouts were categorically mistaken. When businesses fail they should collapse. This is as natural, and as necessary, as fallen leaves providing mulch for the forest floor. When businesses fail in the normal and proper way, the people who take the losses are those who invested in questionable schemes and the rest of us get off scot free. New opportunities are created for new businesses that will seek to avoid the mistakes of their predecessors. This leads to improved business practices and a better economy over time, but of course that only works if people bear their own risks and take their own losses.

2. I knew just what was wrong when I heard Dubya gabbling about violating free market principles to save the free market.  I knew we were doing something stupid and self defeating. There would have been severe short-term disruptions in the economy if nothing had been done. So we traded that for long drawn out suffering with no end in sight. That was not an intelligent tradeoff.  We should have taken our medicine--ridden out the crash, then gotten on with our lives and rebuilding the economy.

3. But, having committed ourselves to the course of bailouts and takeovers and 'quantitative easing' (over my objections) we are now stuck with it. If we could claw back the TARP money and all the rest, the same thing would happen that the government's interference was meant to avert, the collapse of some firms that are called too big to fail and short term disruptions to the  delivery of goods and services. There is some reason to suppose the crunch would be worse now than it would have been had it occurred a few years back, for we are now maxed out on public debt.

4. We have at best postponed the inevitable reckoning. At worst, we have distorted the economy in ways that assure a Greater Depression. I am not an economist. I have some measure of business experience and it has taught me to respect the 'invisible hand' economists talk about. TANSTAAFL! Instead of dealing with our problems in ways that honestly confronted over-valued assets and runaway debt, we have masked the underlying problem with more debt. So far as I can see, the present economic policy is composed entirely of moonbeams.We can't get traction for a real recovery because we won't face the real problems.

5. I used to think it was neat being a fiscal conservative because in the long term, anyway, you are always right, regardless. If people do stupid things with money it will catch up with them. This is true when great nations or big companies do it, just as it is true for individuals. Now I'm not feeling so good about being right--it's all right to be smug when you have money, but I don't.

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