The culture of pain avoidance Posted by: McQ
on Saturday, December 27, 2008
Peter Schiff hits a homerun with his Wall Street Journal piece today. It is entitled "There's No Pain-Free Cure for Recession". For whatever reason, maybe it is the culture that has taken root in America, painless events, even decidedly negative ones, seems to have become a priority. And of course, such a priority plays into the hands of big government advocates. Conventional wisdom says no other institution has the tools to prevent the pain (although the history that supports that CW has been under serious attack for years). Of course the trade-off for this promised pain-free recovery is more government control and intrusion.
But Schiff points out reality doesn't quite work that way. We don't live in a pain-free world, and economics is no exception despite our desires:
Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.
On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.
It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.
I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.
As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.
But, of course, government isn't really talking about "belt tighting" in the truest sense. It is talking about debt and expanding the money supply. Neither of those sorts of actions are consequence free, despite the seeming belief they are. Money has got to come from somewhere. When finally the printing presses run, they create, as Schiff points out, "something out of nothing".
Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.
And creation of jobs in the government sector doesn't have a real productive effect either and as government expands its control, that effect becomes more pronounced and efficiency sufferes:
Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.
So where are we headed with the promise of over 8 trillion of taxed, borrowed or printed dollars to be pumped into the economy?
By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.
Most of the country has never been in a real inflationary or deflationary cycle. And stagflation sucks as well.
Our problem, it seems, is we're unwilling to endure the short-term pain necessary to correct the economic problems we face today. And, as Schiff points out, that seems to be contrary to our national character:
The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.
What we're staring at, given the fact that most now subscribe to putting "our faith in the power of government" is the "Japanese solution" - only on a scale unimagined by the world to this point. This will go on for years, possibly decades if the level of government intrusion being planned is executed. But there seems to be no stomach for the relatively fast track to recovery - let the recession occur and get it over with as quickly as possible. The unfortunate thing is with the US "leading" by ignoring the market solution in favor of the government intervention solution, the rest of the world is likely to suffer for the same length of time and for the same reasons.
painless events, even decidedly negative ones, seems to have become a priority
Because we’re basically a wuss nation.
Hey, look at Iraq. When we thought it would be a slam dunk, yay! We were all for it - even the Dems. Then when it got harder, well, we have to get out! NOW! It was a mistake in the first place! Never should’ve gone in!
I shudder to think about what this nation will do when we have to face some really hard choices - say a nuke Iran.
I shudder to think about what this nation will do when we have to face some really hard choices - say a nuke Iran.
I shudder to think what this nation will do if it has to deal with an invasion. Iran can be ignored as long as you are willing to sacrifice Israel. At least until putin sells them ICBMs and a few subs.
Basically I agree with Schiff’s analysis, though one thing the right has to recognize is that if the pain is essentially focused on the poor and marginalized while the wealthy simply say "that’s the only way out of recession," then the political pressure to spend more money and expand the debt will only increase. The pain has to be shared by the wealthy through higher taxes, and efforts have to be made to help those in poverty and hurt the most. Politically, that’s the only feasible alternative. Also, given how most investment in recent years has gone into speculative bubbles rather than increasing productive capacity, the private sector has also been very poor at using investment to increase production — that proves that low tax rates in order to promote investment. I think solutions are possible, but the pain must be shared. If not, then the politics of the next ten years could resemble the politics of the 30s.
Basically I agree with Schiff’s analysis, though I have a few trite cliches and leftist talking points to add. The pain has to be shared by the wealthy through higher taxes. Of course, in good times, we wise leftists say that the wealthy can afford new taxes because they’re doing so well, so we have proved unequivocally that no matter what the economic conditions, the right solution is to raise taxes on the rich.
Efforts have to be made to help those in poverty and hurt the most. And that’s not just a generic, meaningless leftist talking point, so stop saying that! And stop laughing! Politically, that’s the only feasible alternative. Yes, we got into the trouble by giving poor people money to buy houses they couldn’t afford, and so obviously we need to rescue them from their folly because they’re hurting so bad by giving them a whole lot more money. Why, many of them are on the verge of starving, and don’t start up with how obesity is a problem with the poor and 80% of them have air conditioning and 90% of them have cell phones, just don’t start! They’re suffering - that’s final, because we wise leftists know that poor people are always suffering no matter how much stuff they have. Besides, I decree it. It’s the same thing as with rich people. No matter what the economic condition, we need to shovel tons of money to the poor.
Also, given how most investment in recent years has gone into speculative bubbles rather than increasing productive capacity, the private sector has also been very poor at using investment to increase production. Yes, as we wise leftists always knew, the private sector just doesn’t know what it’s doing, and the wise hand of leftist-dominated government needs to take over for the good of everyone, of course. And, darn it, don’t start up with how government policies on housing and credit started the bubbles, just don’t start! I’m telling you, it’s that darned private sector at fault, and thing can only be cured by wise, benificent bureaucrats who have everyone’s best interests at heart.
That proves that low tax rates in order to promote investment.
*** Warning returned from routine "CheckEnglishGrammar" - sentence construction cannot be validated. Probable grammar fault.
I think solutions are possible, but the pain must be shared. And that’s not just generic, fatuous observations, no sir, those are genuine thoughtful analysis points that prove how much smarter I am than you dense righties. And if the pain isn’t shared, then the politics of the next ten years could resemble the politics of the 30s. Where the pain was shared by absolutely everybody. No, wait....
Don, if the pain isn’t spread fairly, then you will get class warfare, I guarantee it. It’s already started. For the first time in a long time I’m feeling good about the political direction of the US, and where our youth and our country is heading. Yeah, we’ll have some pain in the recession, but now the country has awoken to the economic lies of the past quarter century, and the Iraq failure is creating a powerful anti-militarist backlash in the public.
I’m actually starting to feel pretty good about this country, rather than the shame I’ve felt over the past nearly 20 years. That’s a good thing. (And politically, I’m enjoying watching the right wing aghast and confused by their sudden and deep fall from grace. Delicious!) The times, they are a-changing.
Don, if the pain isn’t spread fairly, then you will get class warfare, I guarantee it. Well, actually, I can guarantee class warfare from the left no matter what happens. It’s already started. For the first time in a long time I’m feeling good about the political direction of the US, and where our youth and our country is heading. Finally, wise leftists have taken over and the salvation of glorious socialist governance, er, I mean, enlightened post-modern leftist governance, is at hand. And the youth love it, and don’t start up with all this "if they’re not socialist when they’re twenty, they’ve got no heart, but if they’re still socialist when they’re forty, they’ve got no brains" stuff. I’m not forty yet, and even when I get there and I’m still more-or-less socialist, I’m still really, really smart. All the guys in faculty lounge say so, as well as my students, who are constantly praising me for my acumen.
Yeah, we’ll have some pain in the recession, but now the country has awoken to the economic lies of the past quarter century. Yes, it all started with those nasty Reagan people, and there were certainly no lies in the glorious administration of Jimmy Carter. If we had not had those Reagan lies, we could have continued Carter’s enlightened administration, and we would have had ten percent unemployment, 18% interest rates on mortgages, and 12% inflation, which would have forced us to endure the hardship that we wicked Americans deserve. Finally we’re going to get to that, and I for one can’t wait.
And the Iraq failure is creating a powerful anti-militarist backlash in the public. Yes, you just wait, we’ll see giant anti-military demonstrations in every city any time now. Today’s youth all know how wicked and deranged the military is, and don’t start up with how recruitment rates are still high, you hear me, just don’t start! Those are just the ignorant, uneducated, red-state fools that have always been the backbone of the military.
I’m actually starting to feel pretty good about this country, rather than the shame I’ve felt over the past nearly 20 years. Yes, I love seeing us suffer. Only through intense suffering can we atone for the sins of our past.
That’s a good thing. And politically, I’m enjoying watching the right wing aghast and confused by their sudden and deep fall from grace. Delicious! It allows me to drop my faux moderate facade of objectivity and libertarian pretenses and come right out and say it. You righties suck and you got just what you deserved, especially you deranged military types and all the QandO commenters that make fun of me. We wise leftists are taking over, and you can’t stop us. Long live the glorious leftist revolution! The times, they are a-changing.
We are not talking about simple pain avoidance here, but denial.
We do have programs in place that assist people who are hurting economically, and those will kick in automatically for people displaced by the recession. These include unemployment benefits, earned income tax credits (if you have to switch to a crummy job), welfare, food stamps, job training programs, cheap community colleges, educational loans, etc.
This is the equivalent of taking some codeine when you’re in pain, and is a reasonable policy.
What we are talking about here is a cancer patient deciding chemo sounds too tough and he’d rather take some herbal medicine from a faith healer, thank you. Or something to this effect. The UAW is a great example...their host body is dying but they refuse to face it.