Wednesday, April 02, 2008

Dumb, and Dumber (and Dumbest): Bernanke, Paulson and Bush neck and neck (and neck)...

... for Moron of the Year.

Hellooo..... it's the economy, stupid(s).

A few years ago I bought Brian Simpson's, Money Banking and the Business Cycle. It's an excellent course, with a very simply premise: that the business cycle of boom and bust that we've all become so familiar with over the last few decades is caused by government intervention in the banking industry, namely the FED as the chief instigator of monetary policy. I work in an industry that is very much cyclical and affected by this cycle moreso than others, and was curious about this thesis. It made sense once I listened to it.

And now, today, I get to watch every move Simpson said is typical of the cycle being played out in real life, with almost complete predictability. It is as if the hysterical Wesley Mooches of the world are there before my eye.

First we have the FED, and Ben Bernake. After causing this financial crisis with a loose dollar policy, they lately resort to tactics that are sure to bring us recession. First, as the threat of an economic slowdown looms, they are quick to drop interest rates, the last move a whopping 0.75%, in the hopes of "stimulating" the economy. Second, in the hopes of "stabilizing" the financial industry, they inject capital in the form of subsidies, bail-outs and other forms of corporate welfare.

This stuns me. It really does. The problem in the first place was excess liquidity, caused by the FED. Injecting even more capital, in these two forms is compounding the problem, not fixing it. This is the fundamental aspect that Simpson highlights in his course. It stems from a fundamentally Keynesian notion that government regulators can fundamentally stimulate demand. It ignores one of the basic laws of economics, Say's Law, which says that supply constitutes it's own demand. That supply is inexorably linked to demand. Injecting excess liquidity only temporarily boosts demand. The unintended consequence is that it also destroys supply, and in doing so the long term response of demand is a slump, and ultimately recession. The FED needs to mop up liquidity, not provide more of it. This is exactly the wrong move to make.

What is more stupid that this sort of monetary policy? Treasury secretary Henry Paulson proposing that the solution to avoid this sort of incident again is to grant the agency that came up with this failed monetary policy, broader regulatory authority! This stems from the idea that somehow the market has failed and it is regulators that must prevent such an occurrence. This is the moral equivalent of putting the fox in charge of the hen house, and it accepts the same premise that was accepted by Elliot Spitzer in his recent tirade that I blogged about last month. The irony is that while Spitzer was explicitly bashing Rand in that statement and while Paulson represents himself as a friend of free market capitalism, they both exemplify the worst of the regulators of Atlas Shrugged, with their near hysterical belief that government is our last hope.

And finally, who has done the most to hurt the cause of laissez faire capitalism in the last years than anyone, from the largest increase in socialized medicine to allowing this sort of financial debacle to occur on his watch? Our own version Mr. Thompson? None other than the present administration and President Bush.

People sometimes tell me when they read Atlas Shrugged that Rand's scenarios are overblown, that nothing like that really happens. Just look around. Honestly, you can't make up stuff this bad.

Honestly, my heart hurts. I see our oil executives and our banking executives being hauled before congressional committees and have to take a browbeating for supposedly causing this crisis, and I watch their pitiful excuses. Where is our Hank Rearden? When will one of these executives assert his right to his profits? When will one of these executives point the finger where it needs to be pointed and demand the thing that is the only solution to these problems. Government get out! Laissez faire!

2 comments:

Anonymous said...

Homer Simpson is in charge of the economy.

Regards

Kendall J said...

doh!