Posted on 03/26/2012 9:47:31 AM PDT by Ernest_at_the_Beach
We all have a pretty good idea of why the Soviet Union collapsed: it’s because its state-run planned economy wasn’t as efficient as its rivals in the free-market West. The lesson we’ve learned from this is that capitalism won the political argument. But it’s a false lesson, because capitalism didn’t. The problems that made the Soviet Union such a failure are now endemic in the West. To give one tiny example, in my Sunday paper last weekend was a story about how the Culture Secretary, Jeremy Hunt, is launching ‘a drive to encourage Britons to holiday in their own country… with discounts worth a fifth on breaks booked during the Olympic year’.
Who is paying for this scheme? You are, of course. The government has no money of its own. It finances its expenditure in one of three main ways: through taxation; through borrowing; through money-printing. So whether through confiscation from the present generation (tax) or future generations (borrowing, money printing), the government has decided on your and your children’s behalf that rather than allowing you to keep your money to spend on trivia like food, healthcare, education etc it would be better deployed on a whizzo scheme to discourage British people from taking their holidays abroad.
Put like that it sounds stupid, doesn’t it? But that’s how we ought to put it, every time. Until we can educate ourselves that, as Frederic Bastiat put it, ‘Government is the great fiction through which everybody endeavours to live at the expense of everybody else’, we will never get out of the ginormous heap of economic and sociopolitical ordure in which we find ourselves buried up to the neck.
It is in the nature of politicians to imagine that doing something will always make things better than if they had done nothing. The Soviets tested this notion to destruction. Despite being as richly endowed in natural resources as any people on earth, they lived in penury because of the way the resources were allocated: not by the market but by bureaucratic planners. This led to squandering, hoarding and inefficiency on an epic scale.
In his superb Basic Economics, Thomas Sowell quotes two Russian economists on the Soviet Union’s failures: ‘To make one ton of copper we use about 1,000 kilowatt hours of electrical energy, as against 300 in West Germany. To produce one ton of cement we use twice the amount of energy that Japan does.’
Again, the idiocy of this seems obvious. So why do so many of us fail to apply the same lofty scorn, say, to our coalition’s plans to divert precious scarce resources to wind-farm building? Or its brilliant scheme to enrich Siemens, despoil the Chilterns, and further indebt the economy by enabling rich commuters to shave 20 minutes off their travel time from Birmingham to London?
One answer is that we are a nation of economic illiterates. I’m not claiming to be the world’s greatest expert in this regard. But I have, of late, been doing my best to educate myself because I’m becoming increasingly worried that our political class is conducting a dangerous experiment which is steering us towards an economic catastrophe of perhaps unprecedented magnitude.
I’m thinking particularly of money-printing: ‘quantitative easing’, as it’s euphemistically known. Vince Cable described it the other day as an ‘unorthodox’ experiment whose impacts were ‘very imperfectly understood’: probably the first time he’s talked a glimmer of sense. Cable went on to say that the alternative to QE was ‘probably a disaster’ — which is where we diverge. Sure, almost every economic commentator you read appears to agree that QE is the necessary evil that saved our economy from armageddon. But a decade ago, pretty much every expert you read was in full agreement that ‘decarbonisation’ was the only solution to the deadly threat of anthropogenic global warming. I recognise just the same bastard alliance of junk science, appeals to authority, vested interests and half-baked chattering class received ideas working to promote the ‘QE: our only hope’ meme.
A key plank in the argument for QE is the Keynesian concept of ‘aggregate demand’. In times of recession, we’re assured by the experts, the government needs to do what the private sector won’t: spend money like there’s no tomorrow, thus stimulating the economy back into health. It’s a superficially persuasive theory: even if you’re just paying workers to dig holes in the ground and then fill them up again (a much more useful project than HS2), at least you’ll have people with money in their pockets to go out and spend on beer, fags, lottery tickets and so on, thus providing income to publicans, newsagents etc.
What the theory ignores is the basic truth outlined at the beginning. Governments — be they Joe Stalin’s, Barack Obama’s or Dave Cameron’s — are crap at allocating scarce resources. Whichever method they use to finance their meddling, and money printing is probably the most dangerous of the lot, they’re stealing from the (relatively) lean, productive and efficient private sector and squandering it on boondoggles like Solyndra or the Edinburgh tram disaster.
For me, QE — and the need for a return to sound money — is the most urgent story of our time. It’s why recently I’ve become involved with www.cobdencentre.org and www.bogpaper.com, both of which discuss these issues from the perspective of those Austrian school economists (Von Mises, Hayek, etc) who saw the current crisis coming a mile off — and probably offer the only real escape route. Hope for the best, prepare for the worst, that’s what I say. If, as I fear, there’s a shitstorm around the corner then Bogpaper could be just what you need….
,This article was originally published at The Spectator
But I haven't found a search facility...
fyi
——I recognise just the same bastard alliance of junk science, appeals to authority, vested interests and half-baked chattering class received ideas working to promote the ‘QE: our only hope’ meme.-—
Despite all the paeans to “critical thinking skills,” this is why logic was removed from govt schools.
Ah so....
There is no peaceful way back from here.
I think rising interest rates will stop the 'can kicking' (that's now being done) because we'll be at the end of the road.
Government schools stopped teaching logic because everything they taught was illogical.
But it is really a Global thing....not easily recognized however.
Thank You....
Wilkommen in Weimar Amerika.
See link at #9....
bump
I don’t know about you, but I CONSTANTLY misunderestimate the ability of the US Government to delay the inevitable, even if there are hiccups along the way.
OK, that was more Bush speak than plain English, so to restate...
I always underestimate the ability of the government to delay the ultimate day of reckoning. So when you say you think rising interst rates will cause us to have to face our soaring debt and deal with it, I have to wonder if that will be the case.
I agree they can’t put the economic collapse off forever. I agree that the longer they put it off, the worse it will be. But put it off, they can and they will and I’m sure I will be dumbfounded that they were so successful at doing so.
If you think the crash will come in the next five years, I have to wonder if the government can’t put it off for 20.
I have a real grudging respect for the ability of the government to delay the day of reckoning.
I'm wondering if anyone has a detailed timeline of that period, leading up to that moment. Of late I half-joked "checks & balances? who cares about the balance so long as the checks cash?" The half-serious part asks about when those government checks won't cash, and what precursor indicators there will be. Why could the USSR not just print promissory notes - checks - anyway until they stopped cashing? At what point will US banks stop accepting government checks? What is the correct question I'm getting at here?
"We pretend to work, and they pretend to pay us."
That link does not work.
A man was asked once how he went bankrupt. His answer, “Two ways, gradually, then suddenly.”
Kinda like Jesus coming back, no man knows the day or hour.
Don't worry about that; those government checks will always "cash" ... the Benbernank will see to that.
The problem is that as the supply of dollars approaches infinity, the value of each individual dollar approaches zero.
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