Cargo Cult Economics

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In a recent email exchange about our larger social situation Robert Klassen used a term that simply jumped off the computer screen at me.

Cargo Cult.

It may not hit you the same way, but it sure raised the wattage of the lights in my world. I turned to Wikipedia for a few details and didn’t need to even page down to see all that I needed.

Members, leaders, and prophets of cargo cults maintain that the manufactured goods ("cargo") of the non-native culture have been created by spiritual means, such as through their deities and ancestors, and are intended for the local indigenous people, but that, unfairly, the foreigners have gained control of these objects through attraction of these material goods to themselves by malice or mistake.

Now let me rewrite that passage from the standpoint of politicians, reporters, most academic economists, executive branch administrators, and quite a few heads of corporations:

Members, leaders, and prophets of the government-regulated economy cults maintain that the manufactured goods (productive economy) of the Free Market have been created by spiritual or ideological means (Gaia or egalitarian socialism/Keynesian-monetarist policy, respectively), and are intended for the cult’s members, but that, unfairly, the Free-Market capitalists have gained control of these objects through attraction of this wealth to themselves by malice and greed.

Like Cargo Cultists in New Guinea, truly these people don’t know any better. Even highly placed and widely quoted professional economists are as ignorant of the source of economic wealth as were stone age tribesmen whose first contact with technology was with people landing airplanes in the jungle.

The cultists’ spending on (or cheering for) the bailouts, stimulus payments, and infrastructure "investments" is based on the belief that it is money that causes economic prosperity, just like cargo cultists thought that if they built straw models of airplanes and recreated airstrips the "cargo" would return.

When I go to the store to buy something with money, the only reason I have money to spend is because someone paid me to produce what it is I do at work. My job lasts only so long as I produce in value for my employer more than I cost to employ, and my job’s security exists only so long as my employer’s production is profitable.

As I see it, it is production that makes the human world go around and supports our wonderful standard of living. Money is a useful accounting of that production, unless fraud is involved (e.g. fractional reserve banking and central bank operations as a whole).

Why do Cargo Cult Economists cling so tightly to the notion that spending alone can solve the problems of the day?

I think part of the answer is that they have no way to define productivity. Instead of seeing productivity as action that yields something that can be sold profitably on the free market, they appear to cling to the Labor Theory of Value where labor alone defines value produced.

They seem to think that all it takes to make a job is a worker and someone to pay him. If no employer stands ready to do so, the manager of a government program can hire him to dig a ditch and fill it in. A job is a job.

In the news recently was an employee sit-in at defunct Republic Windows in Chicago. The company lost its credit line from Bank of America and a major investor recently wrote off a twelve million dollar investment in the company as valueless.

The employees are demanding severance and accrued vacation pay as mandated by federal law. Apparently unbeknownst to them, their work was producing nothing of value, defined as things sold at a profit. The company produced losses, not profits, which revealed that anyone working there was engaged in unproductive work, no matter how many windows they made.

Politicians with the state of Illinois and city of Chicago threatened to end their business ties with Bank of America if the bank didn’t somehow help the employees get what they wanted. In this microcosm we see that membership in Cargo Cult Economics is nearly universal. Jobs aren’t endeavors that produce economically viable goods and services, they’re just something that takes up time, requires some kind of effort, and results in a paycheck. All that matters is work, not that what is produced is economically viable. The idiotic Labor Theory of Value is clearly part and parcel of Cargo Cult Economics.

Spending on make-work jobs and economically non-viable production generates nothing but waste. It wastes the money of those people taxed (extorted) to pay for it and it wastes the time of those doing the work when they should be out developing new skills in other jobs that, when so employed, produce profits. Such spending also steals money from the suppliers of goods and services taxpayers would have preferred to purchase; society as a whole gets poorer with every cycle.

Instead of progress we get regress.

Welcome to Obamanomics, a sect of the Keynesian denomination of Cargo Cult Economics.

All the spending in the world will not change economic fact. If the Big Three carmakers are not able to produce their products at a profit, they are already dead. Reanimating them will not preserve jobs, it will only put off the painful adjustments while destroying the very wealth needed to rebuild in new industries. If they go bankrupt then their valuable assets will be acquired by someone else who will try to produce cars at a profit. A lot of people will lose their jobs, but that is already unavoidable. People were lured into blind alleys of work by sirens singing songs full of false promises. Those sirens mostly receive government paychecks, and are Cargo Cult Economists to the core.

Near the beginning of the 21st century we collectively suffer from painfully incorrect theory that sewed crippling economic weakness into the fabric of our world for over 100 years. Government interference yielded a vast invisible wasteland of nonviable businesses, corrupt money, and misallocated capital including people who now perform work that is the equivalent of digging a hole and then filling it in. Though many of us invested college degrees and/or decades in developing our skills, nothing will change the fact that there is no useful application of those skills in many organizations as they exist. Now that the accumulated weight of all these errors has triggered the avalanche of collapse, no intervention will stop inviolable economic law from revealing what is real and what was mirage.

A whole lot of jobs are going to disappear, and a whole lot of us are going to have our lives disrupted, and there’s nothing we can do but wish for it to occur swiftly so those of us who are displaced can correctly analyze the new conditions and make the best of our skills or acquire new ones.

Unfortunately, no effort succeeds in breaking the cultists’ beliefs in palpably wrong theory. Even as their actions yield desert in place of verdant fields, they redouble their efforts like 18th century physicians opening another vein when the initial bleeding of the patient didn’t cure their infection.

There’s little we can do except poke ridicule at these cultists and their silly antics. They’re in charge, and they have armies of citizens who fervently want to believe that those antics will cause prosperity to resume raining from the sky.

Get free of debt and prepare for a long economic winter. Hibernation may be best.

December 11, 2008

David Calderwood [send him mail] a businessman, artist, and author of the novel Revolutionary Language, selected January 2000 Freedom Book of the Month at Free-market.net.

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