Monday, July 05, 2010

On the Economy

One of my favorite authors, D.G. Garan, wrote compellingly in his book The Key to the Sciences of Man on a great many topics, including economics. Here's a prescient excerpt:
The increase in consumption of the "consumer confidence", about which the economists are always so concerned, never needs any help or stimulation. The consuming masses are always ready to start spending at crazy speed, using every possible form of credit, as soon as they are sure of employment. But possibilities of employment are directly proportional to the amount of capital invested, even as Keynesian theory recognizes; and consumption is what decreases capital. Fortunately there always are savings, by the industrialists producers, as they "exploit" the consumers and labor. ... Thus economy grows in spite of the concerns of economists...
Stimulation of economy, through heightened consumption and consumer confidence , is part of the general modern use of stimulation in all fields as the great remedy. ... In economic adjustment the seemingly invigorating increase in consumption decreases the capital accumulation which is the real source of economic vigor. If economic expansion derived from the "scientifically" clearly invigorating effects of increased consumption, we would instantly have a utopian continuous economic expansion. For there is nothing easier and more self enforcing than consumption. People with good common sense know this, but the economists can always prove that increase in consumption is the way to stimulate economy. Hence the perennial controversies, on the highest levels of our economic policy making.
And so we get Stimulus I, and are suffering the push for Stimulus II, even though economic stimulation by the government, which consumes our current and future savings, will make things worse. The American people know instinctively that in times of uncertainty in the economy, saving is the safest approach, provided you can trust your government to refrain from printing money, or from inflationary policies in general. Left alone, we will accumulate the capital necessary for economic recovery, and in less time that might be imagined by the nitwits in government.

And here lies the most unfortunate aspect of the economy. There's no way to know, as in to show with absolute certainty, which approach at a given time is best for the economy. We were told, and many in the public accepted, that Stimulus I was absolutely necessary because no matter how stupid the stimulus was, and no matter the debt we incurred at the time, without the Stimulus NOW! we would be worse off for the considerable future. Oh to be able to back up two years and re-run the economy with no government intervention at all.


Blogger Russell said...

"Oh to be able to back up two years and re-run the economy with no government intervention at all."

As long as there is the Federal Reserve, that isn't possible.

"provided you can trust your government to refrain from printing money"

That what the Fed does!

The biggest problem we face is that we are debt based economy due to decades, of Keynesian monetary policies from Hoover on up to Obama. Until that changes, we will be always in this boom-bust-near complete collapse of the financial world.

7/05/2010 4:12 PM  
Blogger carnaby said...


7/05/2010 5:46 PM  

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