Think Progress? Ha! (Mises Canada)
Thursday May 16th, 2013
Think Progress, the hilariously named "progressive" front group for the Democratic Party, recently penned one of the most hysterical pieces I've seen. That's really saying something in our age.
The basic theory of the piece is that the Federal Reserve's out of control printing is massive, nearly unprecedented, (both correct) and working to help the economy (wildly, childishly incorrect.) TP asks, "The question is straightforward: When the economy is in a deep slump, and the government makes things worse by cutting spending, how much can monetary policy do to help?"
Loaded for bear right out of the gate. First, and most important to this central question: THE UNITED STATES FEDERAL GOVERNMENT HAS NOT CUT SPENDING. AT ALL. NOT EVEN ONE PENNY. Spending in 2013 will outpace spending 2012, just as it did in 2011, and 2010, ad infinitum. There is simply no getting around this fact. Spending has not been cut. And that doesn't bode well for a piece based entirely on a faulty premise.
So we follow TP down a rabbit hole to the second part of their question: how much can "monetary policy" do to help? It's important, see: "The answer could reshape the way we argue about economic policy, with profound implications for progressives' economic priorities -- and big opportunities, if they can seize them." Yes, if economic law can be proven "beatable," then all that nasty reality will stop getting in the way of "progressive economic priorities."
And so the refresher course begins. "First, a quick refresher. Just like blood carries nutrients to the cells of the body, enabling them to function, the flow of money though an economy enables people to keep buying, selling, and earning incomes."
No. Double no. A thousand-times no. Money doesn't "flow" through an economy. It is the medium by which individuals exchange. It does not move on its own. Money does not enable people to "keep buying, selling, and earning incomes." It does not magically appear (wait! Ignore the Fed for a moment) and enable people to buy, sell, or earn an income. Individuals produce in order to exchange with others. They could, and have, do this without money. Money simply alleviates the double-coincidence of wants problem.
"Keeping the supply of money in line with the economy's changing needs is the job of the Federal Reserve, and normally it does so by adjusting interest rates. Raising them sucks money out of the economy and reins in inflation. Cutting them pumps money into the economy, boosting wages and job growth."
First, the so-called job of the Federal Reserve is to keep inflation low and employment high. (This is a so-called job because attempting to do so by adjusting the supply of money is a fool's errand that was proven empirically false during Stagflation.) And what the hell is "keeping the supply of money in line with the economy's changing needs?" The economy is not a tangible, physical entity. It is the summation of the actions of individuals. It is not a pet dog that needs to be fed and let outside. It doesn't have anything, let alone needs. And what exactly is the right supply for which needs? We are left to ponder this question.
True, raising interest rates tends to tamp down on inflation -- especially inflation properly defined, that is the supply of money. But does cutting interest rates really boost wages and job growth? Well, that depends. It does, or at least can, in the industries receiving the freshly-printed dough. But whether or not these boosted wages and job growth are, as the progressives are wont to say, sustainable, is another matter altogether. And regardless of the cooked CPI inflation numbers, there is not a person in America who is not feeling the pinch of inflation. Groceries, energy, etc. have been rising for, well, forever (Conveniently, these "volatile" figures are not taken into account in the CPI.)
"And most of the time, most economists agree this is the primary tool for guiding the economy out of its periodic slumps." How many times are we going to hear about the majority of economists, who have been disastrously wrong about absolutely everything for decades?
TP then points out the sad GDP growth numbers for 2013. These numbers themselves are a total fabrication. They are nearly meaningless since GDP counts government spending as "growth." Realistically, the +2.5% figure given for the first quarter of 2013 could mean a contracting economy, since government spending has skyrocketed and private growth is likely stagnant.
"This despite multiple rounds of "quantitative easing," an attempt by the Fed to get around the zero lower bound by purchasing huge numbers of financial instruments, thus injecting money into the economy."
This new money isn't just going. Contra Helicopter Ben Bernanke and his predecessor Milton Friedman,the money is going to specific places, and specific people. Usually for a specific reason; nothing more complicated than plain old graft. Where the money goes affects the structure of production, and does so over time. When the Fed buys $85 billion worth of anything, the money first goes to the seller. Then the seller uses the money for another purpose, and so on. The money isn't magically spread evenly throughout the economy. Such a construction is absurd.
TP then makes the argument that this "accommodative" monetary policy is keeping a floor under economic growth. Again, this argument falls flat on its face, for the reasons mentioned above and because of time. The policy of wild prime-pumping got us in this mess in the first place. The prime-pumping from the Fed has real effects. It creates real illusions throughout the sectors that generally receive the new money first. What should come to mind is the housing bubble. Of course, the writers at TP blame the 2007 crisis, mislabeled as the 2008 crisis, on a mysterious deregulated, free market that didn't exist then and doesn't exist now. The housing bubble was created by the accommodative policy in the wake of the Dot-Com Crash -- the very same policies being touted by TP as the solution to today's problems. Who could forget Paul Krugman's call for a housing bubble to replace the burst dot-com bubble? (This point deserves an aside: Keynesians aren't stupid. As economist Bill Anderson points out, they are not economists but rather political operatives.Krugman knew and knows full well what Fed pumping does, as is proved by his statement.)
The TP solution of growing our way out of the economic slump will not happen when the Fed is printing like they stole the press and the government is wildly increasing spending. All growth, just like all spending, is not alike. The clarion call for "demand" is utterly meaningless in the context used. The economy does not grow if the Fed's money goes to an airplane manufacturer that has no customers for its new planes. Demand is what individuals want and can buy. The economy does not grow if the government is spending money to watch prawns on crack cocaine. The economy grows when production is increasing for the purpose of satisfying actual demand from real people.
Anyone concerned about the human race and the fates of real people should be extremely concerned that the "progressives" are taking a political interest in pushing for even more of the monetary crankism that has afflicted the American economy for decades. If there's one thing about "progressives," it's that they steadfastly refuse to let economic law, facts, history, or any other silly little realities get in the way of total State domination over our lives.
Derek is a writer in Virginia, following the Rothbardian ethic and living by the Misesian motto, Tu Ne Cede Malis.