Saved From Total Collapse?
I’m neither a high-flying trader or an Ivy League (as if that indicates truth) student of economics. I claim only common sense, which submersion in both academic abstractions and the conventional economic wisdom of over 75 years can tend to deteriorate.
On FOX News Sunday, the program began with interviews of White House Press Secretary Robert Gibbs, and then US Senator from Texas John Cornyn. Gibbs of course quickly zeroed in on the problems that Barack Obama “inherited” as an explanation for the discontent in the country, specifically expressed in Tuesday’s election of a Republican Senator in Massachusetts to replace Ted Kennedy. And, he said Ben Bernanke must be reaffirmed as Fed Chairman; that Bernanke with his cheap money and flooding the system with liquidity and Obama’s lavish government spending, had “saved us from another Great Depression,” as we’ve heard so many times. Of course, The Great Depression would not have been so great, had not FDR run in with guns of federal intervention a’blazin, stretching the financial woes to beyond ten years.
And Cornyn, citing Bernanke’s Fed policy of cheap money that brought the 2008 collapse on, expressed that he would not be voting for Bernanke’s reconfirmation, even while conceding that Bernanke had done a good job “once the crisis was created” and that he “probably mitigated a lot of the harm.” ALL liberal economists and commercial theorists, and most conservative ones, many of whom I personally like a lot, would tend to agree with Cornyn, whom I also like. They were all raised in the Keynesian age, to which a relative few have not capitulated. Conservative writer and commentator George F. Will is one of those exceedingly bright people who seems to soak up literature like a sponge absorbs water. I’ve read his writings for almost 35 years and he is matchlessly illustrative, citing an incredible breadth of both fiction and non-fiction sources. He didn’t elaborate on his own assessment, but commenting on a policy action many years ago, the pragmatic Will allowed as Richard Nixon once had, “We’re all Keynesians, now.” Probably only in my twenties then, I was among the relative few who reacted, “No, I’m not.”
Keynes was one of the theorists who rose to prominence in the late 19th and early 20th centuries, who rushed in the wake of scientific accomplishments, to make a “science” of their given field. First Darwin of biological development, then Marx of social construction, then Freud of human behavior, and around the same time Keynes of economics. All were misguided, reducing human complexities to mechanical manipulation. The earlier landmark work of economics had been Adam Smith’s (An Inquiry Into The Nature And Causes Of) The Wealth Of Nations. Smith was not a calculator of economic movements and policies. He was a philosopher of human inclinations, interactions, and morality. Today, those who promote a natural development of wealth based on human intentions and not collective planning, are more disposed to The Austrian School of Economics of Ludwig von Mises and Friederich von Hayek.
Today it is said with certainty that the macro-management policies of spending and easy money, “saved us from complete collapse.” Even the multi-billionaire investment yardstick Warren Buffett was shown saying that he thought Bernanke’s huge injection of artificial liquidity surely saved us from “the precipice” as Obama always claims credit for. And Buffett would like forewarning of Bernake’s non-confirmation, to sell his stock beforehand. But, while it may be true that the copious flow of synthetic money (created currency not created wealth) and massive government spending (even though this was more political payoff than project-directed), can moderate the trajectory of a decline, it also moderates and lengthens the recovery. That’s what happened in The Great Depression with FDR’s activism and it appears to be what is happening now. The ordinary rapid growth out of recession doesn’t happen. “Too big to fail” was the justification for bailing out financial, insurance, and auto companies. And, some companies would have failed and jobs would have been lost. But once consumers reestablished their balance, the markets still would have been there to be serviced. Now, both consumers and companies are nervous and afraid to move.
For example, had General Motors failed, there would have been a lot of lost jobs. But, there still would have been a demand for producing and buying automobiles. GM’s marketing would have been bought or replaced by other companies who would have to hire people to service their market-share, probably with better products. As with AIG and financial firms who were hung by securities bundled with bad loans lent at government pressure, so GM and Chrysler were burdened with government-enforced union labor and government manufacturing mandates. If government coercion could not be moderated in Detroit, new car production might need to be relocated. I’m all for trade labor organizing to defend themselves; but government coercion is wrong and foolish as results have shown, first in loss of market share and now in financial imbalance. In their size and cooperation with government is the implicit assurance for all of these companies that higher risk is backed by government reinforcement.
I’m not too focused on Bernanke. I think it was bad policy where bad policy is the convention. I wouldn’t suppose he would be replaced by Obama with someone radically different. Obama and the Democratic congressional leaders are collectivists who want to manage the collective. Tax relief is the obvious way out of the recession. But, they will let the tax-cuts brought about under Bush expire: the ones they call “for the rich” but were for all taxpayers. They may well get around to some nonsense like “tax-credits for new hires”: that is, tax credits for YOU if you run your business OUR way. After all, Obama went to HARVARD, you know.