Jim Grichar (aka Exx-Gman)
by Jim Grichar
its late August, the time of year that Federal Reserve Board Chairman
Alan Greenspan makes his annual pilgrimage to Jackson Hole, Wyoming
for a meeting with many of the world’s central bankers, international
bankers and financiers, economists and other economic movers and
shakers. Sponsored by the Kansas City Federal Reserve Bank, people
network and discuss the state of the economy, but the prime purpose
is to find out if any problems in banking or finance are likely
to disrupt economic growth and how the world’s central bankers can
provide a fix if the problem is serious.
year, Greenspan sometimes referred to as "The Maestro," the title of
a puff piece book written about him by Bob Woodward tried to shuck
and jive his way out of responsibility for creating and then puncturing
the turn of the century stock market bubble that led to trillions
of dollars in losses for many investors and the subsequent weak
economic recovery. The attempted coverup by Greenspan and the rest
of the Federal Reserve, an exercise designed to help them escape
blame for this economic debacle, has flopped. More recently, they
even tried to switch the debate from the shaky recovery to their
attempt to prevent prices from declining. Financial markets caught
onto that one quickly and promptly sold bonds, raising longer-term
Greenspan and his Fed colleagues do, the markets are on to them.
Numerous articles in LewRockwell.com, Mises.org,
and even in some of the so-called mainstream media have explained
and exposed, in startling detail, the role of central banking in
the stock market boom and collapse and weak economic recovery. Even
noted Wall Street investor Jim Rogers in a recent appearance on
one of Fox News Channel’s weekend money shows (he is usually a regular) has publicly blamed Greenspan for the economic mess. The "Maestro’s"
legacy as a monetary manipulator extraordinaire has been deflated
faster than the stock market bubble.
kind of story Greenspan and his buddies have in store for us this
year remains to be seen.
the meeting of the Jackson Hole-in-the-Wall gang, which most of
the public seem to think is a help to economic growth, stability
and prosperity, should cause people to stop and think about the
implications for the right to life, liberty, and property that arise
from government attempts to manage the economy. In fact, the Hole-in-the-Wall
gang is doing nothing more than plotting ways of stealing your money.
with and without government economic policy
analyze the malicious nature of macroeconomics and understand why
it is a subtle, yet extremely serious, assault on the right to life,
liberty and property, one needs to compare what
life would be like both with and without central government attempts
to manage the economy.
the sake of this argument, and to avoid debates about whether government
is even necessary (see Hans-Hermann Hoppe’s Democracy:
The God That Failed for a thorough analysis of monarchical
forms of government versus democracies and, of equal importance,
why government is not necessary), picture yourself as living in
a United States that is operating under the Articles of Confederation,
a situation in which the central government had extremely limited
powers, powers more circumscribed than those granted under the subsequent
Constitution. The central government would have to rely on militia
forces raised by state governments in order to raise an army for
defense against invaders. It would have extremely limited authority
to raise revenue on its own, with strict limits on the maximum amount
that could be raised by such taxing authority.
central government would be required to balance its budget every
year. It would have no role in coining money so that it could not
create a central bank and inflate the currency by issuing fiat money.
and local governments, however bothersome or obnoxious they might
become, would be subject to competition that is, residents could
sell their property and move to more desirable states. This competition
would have kept state and local taxes under control, including any
"tariffs" that one state might levy on imports from another
state or states, as well as burdensome regulations or other infringements
on the right to life, liberty and property.
such conditions, industry and commerce would flourish. The public
would choose a form of money independent of government fiat or control.
The money chosen by the free market would enhance commerce, the
specialization/division of labor, economic growth, and long-term
wealth accumulation. Individuals, families and businesses within
the context of voluntary exchange in which there was extremely minor
government interference (few regulations and very low taxes) would
be able to earn, save and invest depending upon their time preferences,
opportunities available, skills, resource endowments, and a freely
arrived at natural rate of interest and a freely arrived at general
price level. In the case of recessions or depressions, wages and
prices would decline, malinvestments would be liquidated, and the
economy would recover by itself, once again leading to full employment.
that type of world with the one we actually have, one in which governments
and their central banks inflict macroeconomic policies on their
citizens. These policies are nothing more than an attempt by government
to control interest rates and incomes, all in the name of supposedly
providing long-term economic growth while avoiding recessions and
depressions and the big bogeyman declines in the general price
have always been interested in gaining more power, especially power
to manage the economy. The Great Depression, a result of government
economic mismanagement, unfortunately gave them a chance to do it.
The rationale for government economic meddling was provided by John
Maynard Keynes, who in the mid-1930's came out with his view of
the overall economy. Keynes had several claims: 1) people tend to
over-save and under-consume; 2) business investment was highly unstable,
being subject to wildly fluctuating expectations; 3) prices and
wages were no longer flexible, that is, the unemployed would not
voluntarily cut their wages to get a job and businesses could not
cut their prices because of contracts with unions and other considerations;
4) attempts by the various central banks to stimulate the economy
by increasing credit during deep recessions or depressions would
fail; and, 5) by implication, the economy would be stuck with chronic
unemployment, unlike the world that preceded it, in which recessions
and depressions were automatically corrected by free market forces.
In sum, the Keynesian view provided a rationale for socialism, for
the government to increase sharply spending and taxing and to eventually
use fiat money as a way of financing, in part, the heavy deficit
spending he believed was needed to bring about economic recovery.
attempt to manage the economy as Keynes suggested, governments needed
to collect and analyze various types of data to produce estimates
of national income and product the basis for estimating gross
domestic product. With such data, governments eventually built statistical
models of the economy so that they could estimate the impact of
changes in interest rates, changes in taxes, and changes in government
spending on the overall economy. This led to government efforts
to fine tune overall economic activity via manipulation of credit,
interest rates, taxes and government spending.
a lot has happened since Keynes introduced his theory, most so-called
mainstream economists adhere to its basic propositions, with the
exception of Keynes’ views on the ineffectiveness of monetary policy.
Based upon the work of Milton Friedman and others, most so-called
mainstream economists now adhere to the proposition that the central
bank can alter the amount of money and credit and thus influence
real economic activity, at least in the short-intermediate term.
debates about the effectiveness of fiscal versus monetary policy,
the real bottom line is that governments use economic models to
attempt to fine tune economic activity. And this is all based upon
the shaky assumption that people behave like robots, that is, that
people do not react to changes in government economic policy that
go against what they want to do.
good example of this is the recent sluggish U.S. economic recovery
(following the cheap-credit fueled boom of the 1990's and the subsequent
stock market bust and recession). Despite a massive federal government
budget deficit (mammoth spending increases, lower revenue due to
the sluggish economy and some modest tax cuts) and Federal Reserve
attempts to jump-start a recovery by cutting interest rates and
flooding the economy with cheap credit, economic growth has thus
far been insufficient to reduce unemployment.
genesis of this economic malaise goes back to the 1990's. Throughout
the mid-late 1990's, the Fed avoided a slowdown in U.S. economic
activity or even a recession several times by reducing interest
rates and flooding the economy with cheaper credit. In bailing out
the economy from recession by lowering interest rates below the
natural level, Greenspan and Company as well as their political
masters were really telling the public this: You fools are
not spending enough and are saving too much. This may lead to the
unemployment of some who refuse to cut the wage they demand or the
price at which they sell. As politicians who want to acquire, maintain
and expand our power over you, the ignorant masses, we are going
to pander to those who by their own voluntary actions have created
their own unemployment. We will take your income and wealth to buy
the votes of these people. Be assured, fools, that sometime in the
future you will come to appreciate, and may indeed be a beneficiary
of, similar help. So shut up and don’t complain about the socialized
the central government, via its massive taxing and spending and
via the manipulation of interest rates and the money supply by its
central bank: 1) steals from future generations by running massive
budget deficits; 2) steals from current higher income earners by
taxing them at drastically higher rates; 3) turns over the fruits
of its fiscal theft to politically favored groups in order to win
their votes; 4) steals from savers and subsidizes debtors by having
the central bank flood the economy with cheap credit; and 5) steals
from all holders of money by inflating the currency and thus reducing
the value of money.
the government’s macroeconomic thievery has thus far failed to jump-start
a real economic recovery, one that would reduce unemployment. And
that is because these efforts are bucking a strong desire of savers
and investors to earn a decent rate of return on their wealth. By
cutting interest rates, the Fed is keeping alive shaky businesses.
Savers and investors cannot be sure of the soundness of specific
firms and therefore continue to "hunker down," awaiting
a true cleansing out of the poorly managed and inefficient firms
so that they can then invest in those businesses that are operating
on a sound basis. Until the public becomes convinced that this liquidation
of bad investments has been completed, it will confound government
attempts to jump-start a recovery.
addition to the theft described above, central banking with fiat
money has created the problem of trade imbalances. Look at the United
States, a country whose currency is used as a reserve currency by
other nations and whose businesses and financial markets are viewed
as superior avenues for saving. It continues to run massive trade
and current account deficits and market participants are worried
about the increasing possibility of a major fall in the value of
the dollar on foreign exchange markets. Under a privatized money
system, say one based upon gold and possibly silver, worries about
trade imbalances and capital flows would disappear. With money flowing
out of the country to pay for a level of imports that exceeded exports
and no counterbalancing capital inflows, domestic prices would decline
to an extent necessary to bring imports and exports back into balance.
For those countries running massive trade and current account surpluses,
and with no counterbalancing capital flows, then domestic prices
would rise sufficiently to bring imports and exports into balance.
And this action would occur without the need for any government
intervention. There would be no need for protective or other tariffs
and certainly no need for a trade bureaucracy telling us how much
extra we have to pay for textiles, steel, or other products.
problem of chronic U.S. trade and current account deficits may be
one of the reasons that some economists notably Robert Mundell are calling for the institution of a world central bank that would
be responsible for managing one fiat currency that would be used
throughout the world. This may be the view of the one worlders those who want the UN to be the monopoly government running the
world, but pulling off such a change would be extremely difficult.
Under a private money, which would be acceptable around the world,
imbalances would be quickly corrected by falling domestic wages
and prices in deficit countries and rising wages and prices in surplus
countries. Under a socialized system of one fiat money for the world,
we would still have central bankers succumbing to political pressure
to inflate the currency in order to prevent declines in wages and
prices. Other government officials would attempt to prop up wages
and prices by using fiscal policy. In the end, favored groups would
get access to credit and get tax breaks and fiscal subsidies while
unfavored groups would be mulcted. Thus, macroeconomic thievery
long as governments are in charge of managing economic policy, macroeconomic
thievery will continue and expand. Whatever the folks at Jackson
Hole talk about, one thing you can be sure of is that Greenspan
and Company are not going to admit that what they do is nothing
more than theft.
Grichar (aka Exx-Gman) [send
him mail], formerly an economist with the federal government,
writes to "un-spin" the federal government's attempt to con the
teaches economics part-time at a community college and provides
economic consulting services to the private sector.
© 2003 LewRockwell.com