You know things are bad when people start writing about fixing capitalism.
Since the only thing that ever really goes wrong in the market is the result of government interference — and in that we include the actions of the central bank — you might think that somebody, somewhere, would make the connection that a lot less government and a deal more honest money would be all the fix we needed.
But, sadly, no!
Even that bastion of Wall Street, CBS Marketwatch, got in on the act, posing the question, Do we need a New, New Deal?
Given that the last one managed to destroy the vestiges of the free republic of the Founding Fathers — as well as keeping anything up to 11 million people out selling apples on street corners for the best part of nine long years — you’d think what we needed was more of a New Repeal, not a New Deal.
Go on! Be radical and advocate a root and branch reform to abolish all the harmful agencies left over from the first New Deal — the FDIC, Fannie Mae, the HUD, and all the other alphabet soup wealth destroyers. Scrap all the egalitarian redistribution and welfarism, all the regulations and restrictions, and re-institute a proper gold standard, while closing the Fed and scrapping the unconstitutional income withholding taxes.
Now that would be not so much a New Deal as a Great Deal!
But, no, that snooty old Lefty patrician, John Galbraith — unrepentant at being on the wrong side of just about every economic argument for the better part of a century — whined peevishly:
If we simply wait for the private sector to recover from this rather enormous shock to its system, we are going to be waiting for a long time and a lot of people are going to be without jobs.
What we found in the late 1990s is that we have nothing to fear from full employment (Oh,Keynes, though art truly blessed!). Government policy, working with the private sector, ought to be able to deliver a high level of employment. We do have a huge number of unmet public needs in this country and we could meet them.
Well, sorry JK, but if they really were such pressing needs, you could rest assured the private sector would already be meeting them, that is unless the Fed and Congress were, between them, wastefully misdirecting effort into Telecom bubbles, Nasdaqmania, the housing boom and the War on Terra.
At the very least, the federal government could come together in a bipartisan way to fill the budget gap that’s forcing state and local governments to raise taxes, cut services or lay off workers, Galbraith concluded.
If you remember the caveat that bipartisan only means that the Ins and the Outs — in temporary agreement on the whys and wherefores of keeping themselves in power — are picking both your pockets at the same time, this should occasion a shiver down the spine of any right thinking individual.
But, it gets worse!
While decrying the current move for ever more regulations, the supposed doyen of free markets, Milton Friedman — who, as Murray Rothbard pointed out is only different to the rest in that he wants a mandatory limit to central bank inflation — sprang to the Fed’s defence, saying Greenspan did what he could to warn the public of ‘irrational exuberance’ and, moreover, Sir Alan has been the most effective chairman in the history of the Federal Reserve.
Milton didn’t expand, unfortunately on quite what Greenspan was effective at, but I’m sure it would have been at odds with what any less blinkered observer might adduce.
Friedman then went on to praise Greenspan’s Fed for taking unusual pre-emptive measures to cut rates even before the recession began. It’s a major explanation of why the recession was so mild.
Those whom the Gods would destroy, they first drive mad, indeed!
Then, the same article consulted another velvet-cushioned socialist, ex-Fed Vice Chairman Alan Blinder, who told the online magazine that Greenspan could have pricked the bubble by raising interest rates, but that would have destroyed the economy.
Phew! That was close! And we thought the astronomical loss of wealth and the frustration of so many dreams which we’ve suffered thanks to the Fed’s criminal laxity and Greenspan’s obsessive promotion of the Cargo Cult of technology was almost too much to bear — but obviously, it would have been a whole lot worse had he actually throttled back on the monetary fuel at any stage.
Speculative markets tend to go to extremes, Blinder said, ignoring the critical role of money and credit in these. There’s both a dark side, which we are seeing now; and a bright side to those excesses.
Just as well the Empire is about to strike back, O Jedi master.
Blinder, however, could see the silver lining in this very non-golden cloud:
For example, the great railroad speculation at the end of the 19th century wound up with stocks falling to earth just as Internet stocks did recently, but left us with lots of railroads.
Newt Gingrich — Remember him? The Revolutionary-turned-Neocon hawk who was going to give us small government for — oh, all of about 100 days or so, back in the days of Clinton I — cited the same analogy.
More people kept travelling by rail and fewer people travelled by stagecoach and that happened without regard to the stock market.
As usual, Ludwig von Mises had anticipated these arguments — and utterly refuted them — long before, in his magnum opus, Human Action
Advocates of credit expansion have furthermore emphasized that some of the malinvestments made in the boom later become profitable. These investments, they say, were made too early, i.e., at a date when the state of the supply of capital goods and the valuations of the consumers did not yet allow their construction. However, the havoc caused was not too bad, as these projects would have been executed anyway at a later date.
It may be admitted that this description is adequate with regard to some instances of malinvestment induced by a boom. But nobody would dare to assert that the statement is correct with regard to all projects whose execution has been encouraged by the illusions created by the easy money policy.
However this may be, it cannot influence the consequences of the boom and cannot undo or deaden the ensuing depression. The effects of the malinvestment appear without regard to whether or not these malinvestments will appear as sound investments at a later time under changed conditions.
When, in 1845, a railroad was constructed in England which would not have been constructed in the absence of credit expansion, conditions in the following years were not affected by the prospect that, in 1870 or 1880, the capital goods required for its construction would be available.
The gain which later resulted from the fact that the railroad concerned did nrot have to be built by a fresh expenditure of capital and labour, was, in 1847, no compensation for the losses incurred by its premature construction.
But then, as Sir Al told us a week or two back, we can’t be expected to learn from musty old books, can we, not when there are so many exciting new technological developments to keep abreast of… ?