Thursday, February 25, 2010

Keynesian Economics:Fire in the Hole

These days it is getting harder and harder to be bummed by the the endless torrent of bad political and economic news finding its way to my desktop. The sun is returning to Wyoming and the sparkling days and slanting sun on our snow capped peaks is a better physic to the soul than any antidepressant. As a carpenter I find myself at our local lumberyards from time to time. There are few carpenters at the order desks these days and few orders. Jackson Hole has 5 lumber yards and if the foot traffic I see in them is any indication, there will be fewer of them pretty soon. The gossip is that one or two will be gone by the summer . Tax receipts are off , for rent signs are everywhere and rumors abound of local banks and even the local ski hill possibly going under . But thank goodness our Wyoming legislators in Cheyenne are manning the fort promising no change in the country's most lenient DUI laws("You can't take away a guys license. How is he going to get to work!?") and repeal of concealed weapons permits. Now anyone may be able to pack their piece in plain view anywhere they want: "No Obama is gonna take away my gun!"
Our elected, appointed and bought and sold representatives in the District of Corruption continue to shovel manure out the front door to a waiting unquestioning media. Timmy, our Secretary of money said yesterday in his best Keynesianeese Catch 22 logic that "without growth we cannot begin the process of fiscal responsibility." I guess that means we don't get fiscal responsibility any time soon. So he called for more spending, more QE, more stimulus,more debt. The only way to fix a debt laden economy and get back to that Amurican Dream is more shovel ready projects and more money shoveling. That's how these Keynesian imbiciles think. Paul Krugman and Joe Stiglitz keep telling us that if the current level of stimulus isn't working, that we're not shoveling enough. Their solution to a fiasco caused by debt is to take on more debt, prop up more banks so we can get them loaning again and get the old American consumer consuming again gorging on cheap Chinese junk at Walmart and overpriced american cars and vinyl McMansions in distant suburbs. Thirty years of bogus neoclassical economic assumptions have destroyed what used to be a pretty nice country. But Timmy says we need to continue to borrow to get our growth back. Unless you are JP MorganChase or Gold-in-Sacks. you have to pay interest on what you borrow. To pay back the principal and the interest, you need growth. And what happens if you don't have growth? You can't pay your loan off. Therein lies a fallacy of Lord Keynes and his deluded followers. You cannot just keep assuming debt ad infinitum hoping that growth will retire the debt.Once the debt becomes too large, default will become inevitable. We have had exponential economic and population and productivity growth as a consequence of the industrial age and this growth was achieved by work which was accomplished by ever more efficient machines and technological innovations running on virtually free energy. Growth was easily achieved if for example one man could run a machine which could do the work of 100 men in one day. These machines created prodigious increases in productivity and wealth creation and spawned a generation of economic thinkers who labored to understand and explain the workings of this new economic machine inside the box of the Industrial age but now that the Industrial Age is coming to a close, they continue to use the same models and assumptions and policies that seemed to explain the functions of money and capital and labor within an industrial economy. Most economists ignore the role of fossil energy within such an economy. Without this free seemingly inexhaustible source of energy, the Industrial revolution would not have occurred in the manner that it has. The world population would not be approaching7 Billion people. The US would not be carpeted with strip malls and nail salons and suburban shitboxes linked by millions of miles of asphalt and concrete highways. Simply put, energy facilitated this transformation of society and the disappearance of free fossil energy dooms this economic model and despite the Panglossian promises of Exxon that our fuel will soon come from algae allowing this wondrous profligate dream to continue unabated, simply put, it ain't gonna happen and our something for nothing society will soon be undergoing wrenching changes. Our politicos don't get it, our citizens don't get it. This massive wealth creation has led to an entitlement mentality in which we Americans representing 5% of the population get to consume 30% of the world's resources playing our version of a zero sum wealth and power game. As Americans we are entitled to live and work and travel where we want spend and consume what we want and receive pension and health benefits at the end of our fulfilling lives. We elect leaders who promise these benefits. Again, simply put,it ain't gonna happen. We have millions of unionized state and municipal workers who have been promised unimaginably generous benefits.
Cops and firemen in California with a high school education drawing 6 figure incomes retire on 6 figure incomes in their 40's and 50's with lifetime health benefits.Both the States and the Federal Government have immense unfunded promises totalling over $50 Trillion dollars, a sum as large as the entire GDP of the world. We do not have a government that is telling us that we need to learn to find better and cheaper ways to travel and grow food and clothe and house and educate ourselves. We instead have leaders who tell us to shop and spend and drive and eat. We will consume and borrow our way back to prosperity, and most of the baying sheep just keep grazing and shitting, oblivious to the wolf of economic reality that will soon tear them to pieces.

2 comments:

Unknown said...

You need to give people a guidebook to what they should do:

1. Don't go into debt.
2. Own some gold.
3. Downsize your lifestyle. Enjoy the simpler things in life.
4. Be wary of Wall Street.

I continue this discussion on my blog, www.InSearchOfThePerfectInvestment.com. Please visit.

sv koho said...

Harry, I am a loyal reader of your blog and I derive useful insights and enjoyment from your fine efforts. The Jewish jokes are sometimes waft over my rural brain but I respect your cheerful optimistic mien. I have offered what I think are useful strategies in our looming post industrial future and they all include the four items you have listed as well as many others in previous blogs. Come out and visit us sometime.