Saturday, October 3, 2009

Oh Say, Can You See?

In the classic battle of the economists, I have long held a position favoring Jean-Baptiste Say and Say's Law which stated that in a free market society, goods and services are produced in exchange for other goods and services and that absent interference from power-hungry politicians and unscrupulous bankers, everything would ultimately balance in economics. (And even including them - there is a balance, however dishonest and unfair). Not would balance, must balance.

But there is a dark side to Say's Law stating that , saving, which he called hoarding, is irrational. It withdraws product from the equation, affecting the economy leaving an inequality that must be compensated for to restore balance. Left alone, this would be recession, underconsumption and its following unemployment. This is Keynes' paradox of thrift. Paradox because what is good for the individual is not similarly good for the economy as a whole.
You, and I, must prepare for our futures. We must prepare for our old age and infirmity, and future needs. We can not retire and service our debt. This is the paradox of debt. Production is withdrawn from the economy not just to save, but also to pay down debt. This leaves an empty spot in our economy that must be accounted for. It is a mathematical certainty.

For many decades now, our masters, the bankers and politicians have sold us on a Keynesian treadmill. Not as a certain group that we call Liberals* have scolded us for, [over] consumption.
No, rather it is as another group, the Progressives, true Liberals, have driven us to consumption beyond our means (through media and advertising); and when that is insufficient, they drive the government to consume as our proxy, the whole time chiding us for our individual profligacy. Still economics is a mathematics and as a mathematics, it is a science not an art - no matter how much they protest it to be. It must always balance ultimately. It is a mathematical certainty.

The problem arises from a presumption that any system be it Keynesian, Marxist, or any other humanly introduced system can see enough of the economic process from a remote observation control point to direct the economy in anything but a wrong direction wherever they should attempt to point it. This is an obvious vanity to believe that mere mortals can control an economy. This is not to say that they cannot affect an economy; nor even that it perforce must be totally bad. No, I am merely stating that since economics is an equality every change to the left side of the equation is met by our old buddy Newton "To every action there is always an equal and opposite reaction". This is far more general than even Newton imagined. There will be an equal change on the right side of the equation. The economic changes caused by the meddling of the political governing class must in every class have their unintended consequences. It is a mathematical certainty.

The decades of Keynesian overspending have created their own paradox of debt. The holes in the road that the government borrowing tried to prevent will be met with a doubled hole when ultimately paid for - not just the original hole, but the one caused by the absence of substance generated at the time. This is why the recession in 1929, although smaller that the one in 1921 created a longer and deeper depression and why the current recession promises to be worse. We, as a society, have not yet learned to leave things alone. We have not yet learned to tend to ourselves and our families and trust the laws of mathematics to restore order and not self-serving politicians in far off Washington, DC. It IS a mathematical certainty.


*I say "we call Liberals", because their position is most often diametrically opposed to the "Liberals" in power, the Progressives. They are so wedded to a "them or us" mentality they do not objectively analyze the actions of the people on their supposed team. This is how we can have a cynical, self-serving, Chicago machine, Obama administration so adored by people who would never stand for 1% of that corruption from Republicans. Hence the women's groups support of the misogynistic Bill Clinton, or the environmentalists unquestioning support of President Obama's (and his wife's) flight(s) to Copenhagen this week is search of the elusive Chicago Olympics.

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