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We're Not In 1995 Any More Obama as the Dying God

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The Dirty Secret of Economics

by Christopher Chantrill
August 13, 2011 at 12:27 pm

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NEVER MIND about the debt ceiling. Here’s a more important question for you. How come after 235 years of modern economics we are stuck in a lackluster economic recovery from the worst business recession since the 1930s? On Friday the news came in that GDP growth was a mere 1.3 percent in the second quarter, and first quarter growth was revised to 0.4 percent. How is that possible?

Weren’t we told, over and over, that with modern economics we now knew how to moderate the business cycle? And weren’t we told that, even if a recession should occur, we now had the tools to get out of it, pronto? So what went wrong?

The answer is as old as the hills. Knowledge is a two-edged sword. It can be used for good: economics gives us the tools to understand the ways of commerce and guide businesses and consumers to non-inflationary growth. Or it can be used to game the system: to pile up bigger debt and more ingenious subsidies so politicians can do a better job of plundering the economy and rewarding their supporters.

When Adam Smith came out with The Wealth of Nations he advanced two startling notions. One notion was the “invisible hand,” that businessmen following their selfish interests seemed to be guided into benefiting others in order to benefit themselves. The other notion was a critique of mercantilism, the eternal idea that a state got strong and powerful by exporting goods and piling up gold in its treasury. On the contrary, Smith argued, it was labor that increased wealth, not gold and silver. Then along came David Ricardo and “comparative advantage.” He resolved the “make or buy” issue by arguing that we should only make what we are best at and buy the rest.

Notice what didn’t happen next. Governments didn’t say, OK, we get it. We’ll stop protecting domestic industry; we’ll stop worrying about exports; we’ll stop worrying about a strong manufacturing sector. We will just write the laws to help labor do its thing and comparative advantage work its magic. Not a bit of it.

Oh, the Brits eventually repealed the Corn Laws that protected the landed nobility with grain import tariffs. They lowered tariffs on manufactured goods too. And some governments followed their example.

But mainly governments continued their bad old ways of subsidizing the powerful and shoveling cheap credit at political favorites. It’s the way of the warrior. You gather up a raiding party with the promise of spoils and plunder, and then after the election, er, raid, and a nice little bit of rapine, you distribute the spoils among your supporters. Unfortunately the policy of plunder and cheap credit leads to runs on banks, panics, crashes, and the inevitable recession during which the suckers are gently relieved of their bankrupt assets, and bottom feeders build a new base for economic growth.

That’s when the politicians call in the economists, as the baseball manager calls in the relief pitcher: Get us out of the jam, they cry!

It’s the moment at which the economists could show what they are made of. They could tell the politicians that the only way to get out of the jam is to cut the spending, cut the subsidies, cut the tax rates, cut the regulation, stop the cheap credit, and get a life. But they don’t. They are seduced by the politicians, and by the prospect of power, fame, and the love of beautiful women, and they say to the politicians: how about more of the same stupidity that got us here in the first place? Here’s a cunning plan for more cheap credit, more construction contracts for the chaps that keep up to date on their political contributions, more targeted tax cuts for your supporters and maybe reelection.

Thus did economics get seduced into gaming the economy instead of growing it.

You are a genius; you need an increase in your research grant, say the politicians. You need a column in The New York Times, say the mentioners. And everyone lives happily ever after except the American people who get more lousy economic policy.

We complain a lot about the ways of corporations and politicians, and how they need more supervision. But there is a much bigger crisis. It is the moral bankruptcy of the experts. They will do anything for a government grant.

When Prussian Minister of Education Wilhelm von Humboldt funded the first research university 200 years ago, he struck political gold. Today the intellectual and scholarly elite is completely bought and paid for by the politicians, churning out endless politically useful research on demand for the practitioners of power. The climate scientists are the worst, but the social scientists, including economists, come in a close second.

Until we demand that economics serves the people, not the politicians, we can expect more big financial panics, more sovereign defaults, and more anemic recoveries. No secret about that.

Christopher Chantrill blogs at www.roadtothemiddleclass.com.

Buy his Road to the Middle Class.

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Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.”  —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison


Civil Society

“Civil Society”—a complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churches—builds, in turn, on the family, the primary instrument by which people are socialized into their culture and given the skills that allow them to live in broader society and through which the values and knowledge of that society are transmitted across the generations.
Francis Fukuyama, Trust


Hugo on Genius

“Tear down theory, poetic systems... No more rules, no more models... Genius conjures up rather than learns... ” —Victor Hugo
César Graña, Bohemian versus Bourgeois


Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State


Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings, and that a refusal to use the means appointed was a damning sin.”
Finke, Stark, The Churching of America, 1776-1990


Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh


Postmodernism

A writer who says that there are no truths, or that all truth is ’merely relative’, is asking you not to believe him. So don’t.
Roger Scruton, Modern Philosophy


Faith and Politics

As far as the Catholic Church is concerned, the principal focus of her interventions in the public arena is the protection and promotion of the dignity of the person, and she is thereby consciously drawing particular attention to principles which are not negotiable... [1.] protection of life in all its stages, from the first moment of conception until natural death; [2.] recognition and promotion of the natural structure of the family... [3.] the protection of the right of parents to educate their children.
Pope Benedict XVI, Speech to European Peoples Party, 2006


China and Christianity

At first, we thought [the power of the West] was because you had more powerful guns than we had. Then we thought it was because you had the best political system. Next we focused on your economic system. But in the past twenty years, we have realized that the heart of your culture is your religion: Christianity.
David Aikman, Jesus in Beijing


Religion, Property, and Family

But the only religions that have survived are those which support property and the family. Thus the outlook for communism, which is both anti-property and anti-family, (and also anti-religion), is not promising.
F.A. Hayek, The Fatal Conceit


Conservatism

Conservatism is the philosophy of society. Its ethic is fraternity and its characteristic is authority — the non-coercive social persuasion which operates in a family or a community. It says ‘we should...’.
Danny Kruger, On Fraternity


US Life in 1842

Families helped each other putting up homes and barns. Together, they built churches, schools, and common civic buildings. They collaborated to build roads and bridges. They took pride in being free persons, independent, and self-reliant; but the texture of their lives was cooperative and fraternal.
Michael Novak, The Spirit of Democratic Capitalism


presented by Christopher Chantrill

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