What is this Election About?

I don’t think people who have not studied economics can grasp the magnitude of what’s been done to us, and how swiftly all our modern world-wide extended order can grind to a halt.

I hope everyone understands that the money, including all future earnings of your children and grandchildren, has been spent, and that we are SIXTEEN TRILLION DOLLARS in the hole. (This is but the federal debt: state and local debts may be ten times this.)

Borrowed money represents a promise against future labor.

That means that no labor performed for the next several decades will have any value. The result is the same whether the debt is paid or repudiated: the result in either case is a collapse of the credit market and an end of the holding value of the dollar.

The collapse will happen as suddenly as a run on the bank. Foreign lenders who are currently bankrolling most of our National Debt will suddenly realize that they are unlikely to get repaid. And so they will sell treasury bonds and other loan instruments as fast as they can; and once one debtor sees the other selling, the price will drop precipitously, causing more to sell quickly and below cost.

Do you remember what caused the recession we are in? Since the newspapers bent heaven and earth to hide the causes, perhaps even well informed people do not know, but ask any sober (i.e. non-Keynesian) economist.

The current depression was caused  by government interference in the housing loan market. The government in effect forced banks to make loans to would-be homeowners who could not repay. These mortgages were, in effect, IOU’s with little chance of being repaid. The state-run banks known as Freddie and Fanny, cunningly bundled the debt instruments in with other more valuable debts, and short sold them to unwary foreign investors. Because, now, by fiat, everyone could afford a house, the housing market expanded, and people paid for their houses with what was basically brightly colored Monopoly Money. The banks, led by Freddie and Fannie, passed the Monopoly Money to the unwary, and when the debts came due, the same thing that happened during the Great Depression happened again: the market tried to correct, and the government stopped the market correction.

If that is too technical, let me simplify. Money represents work. A dollar in the hand is worth more than a dollar to you tomorrow, and the difference between a dollar in the hand and a hypothetical dollar tomorrow is interest. When people have a lot of money to lend and spend, the law of supply and demand drives the interest rate, the price of borrowing money, down. When the people have little money to lend and spend, the interest rate goes up.

Businessmen know when it is a wise time to borrow and invest by the interest rate. Low interest rate means they can borrow money enough to invest in a factory or start a business, pay wages, hired workmen, make widgets, and, since people have a lot of money to lend and spend, find customers.

When the state interferes with the credit cycle, it creates a low interest rate by fiat. This is like the state commanding you to sell some good or service at a rate or wage lower than it is naturally worth. Business can borrow money from the bank, which is where are the workingmen store their money, to start a business or erect a factory, hire men, make widgets. When it comes time to find customers, however, it turns out there that is not a lot of money to lend and spend after all. The businessman was given a false signal: the red light of the economy was made to flash green, telling him it was safe to go.

Well, not just one or two unwise businessmen are affected by this state-mandated traffic wreck, all businesses that borrow money or sell goods. The whole economy is affected. It is fashionable to blame greedy businessmen, but a moment’s reflection should show that the businessmen are just as greedy before and after a bust, and that if it were caused by unwise investment, the industries where the investment was more cautious would not be effected. No, scientifically speaking, the cause must be proportional to the effect. Only the government has the ability to create malinvestments across all sectors of the economy at once.

So the businessmen who put up factories that they cannot afford built widgets the customers cannot afford. They fire their workers and sell the factory for scrap, at a loss, and cannot repay the banks. The banks are short of funds, and cannot repay their customers, who suddenly realize their money is not secure in the bank. This may cause a run on the bank, or the bank customer may simply find his savings wiped out. Either way, the workingmen find themselves with their savings gone at the same time they are out of a job, and they are surrounded by a pile of useless widgets no one wants and no one can afford.

Stock prices naturally plummet, because factories doomed to fail are no longer good investment. The same logic which causes a run on the bank causes a flight into real values: people with money buy gold or land or other hard good better able to store their value than investment in new factories. The result is widespread unemployment, no new jobs opening up, no new factories being built, and no money for investment.

The market naturally wants to raise the price of interest to have the interest rate reflect the lack of money to invest, and the government, eager to borrow more money to spend its way out of debt (pause a moment, dear reader, to reflect on the utter insanity of the concept of borrowing and spending your way out of debt) commands the banks not to raise interest rates. So the market does not correct, and a one-season market cycle turns into a five or ten year permanent feature.

Wage and price controls, additional regulations, public works boondoggles, and raising taxes all likewise slow the recovery, by evaporating the money supply. When there is no money to lend and spend, no one can borrow money, build a factory, hire hands and make widgets. If the tax man or the regulatory agency takes the money away, or makes it unprofitable to build a factory or invest, then there is no money to lend and spend.

How do you get more money to lend and spend? The popular myth is that the World War solved the Great Depression. That is total bullshit, pardon my language. If wars solved depressions, the same economic effect as a large war could be produced by shooting half your young male workforce, taking all the factories that made guns and bombs and tanks and planes, and putting all the goods produced by those factories into a big pit and blowing it up with a bomb. If you think that lowers the price of goods and services, you are insane, or you are a Keynesian. (Read Bastiat’s essay on what happens when a hoodlum breaks a pane of glass.)

The events of the Great Depression is what happened to us here and now again, except that instead of Hoover style direct interference with the money supply, the government did the same crooked scheme for the same crooked reason with the housing market. Instead of too many widgets, we had too many houses. When the Republicans tried to prevent Freddie and Fannie from making loans to men who could not repay, they were called “racists.” The money was all loaned out and then it was gone.

Gone. Do we understand that word, dear readers? It means that the human labor, your labor, the work you do when you are not reading articles on the internet, was wasted. Your work, instead of being put to productive use, was stored in the form of money, and the value of the money was destroyed by government actions.

Obama’s reaction was far, far more destructive of the economy than FDR’s. He inflated the currency, which lowers its holding value, and makes people want to spent it and consume it before the value is lost, and robs investors and lenders and transfers wealth to borrowers, so that wise investors and lenders stop investing and lending. Obama then dumped countless “Continentals” (worthless paper money) into the hands of certain businesses who were friends and political allies of his, but who had no products their customers wanted. So for the last three years, the factories have been making widgets no one wants, such as GM cars and Solyndra solar panels.

And he borrowed your children’s income for their entire lives to do it, and then your grandchildren’s income. No exaggeration and no metaphor can make the astronomical amount of money wasted real to the reader’s imagination. We borrowed all the money in the world. There is no more to borrow. It’s gone.

I expect to see a fifty percent unemployment rate in the next three years, and a total collapse of the international monetary system. I have heard unsubstantiated rumors that OPEC is demanding payments in gold rather than greenbacks, and I would not be a bit surprised if that turns out to be true. I expect to see a run on the banks, hyperinflation, a repudiation of the national debt, and same thing that happened to the Deutschmark in Germany between the wars will happened to the American greenback.

The only way to get out of debt is to work. The only way to work is to leave the productive people alone, and let the goods pass. This amount of debt will require more than a generation of work to get us back to the level of being broke. How we will pay for food and necessaries in the interim, I cannot imagine.




  1. Comment by Tom Simon:

    Foreign lenders who are currently bankrolling most of our National Debt will suddenly realize that they are unlikely to get repaid.

    Only one quibble: That has already happened. Even the Chinese have largely stopped buying American treasury bonds. The biggest buyer of U.S. sovereign debt now is the Federal Reserve, which pays for it by printing money. So far this has not caused runaway inflation, only because after losing their shirts at Three-Card Monte in 2008, the banks have been swallowing up trillions in capital to re-establish their required level of reserves. The banks are now better capitalized than they have been in many years — which means those printed dollars are finding their way into the economy. Add to that yet another ‘QE’ program — this time an open-ended one, a blatant promise to print excessive amounts of money for the indefinite future — and you have the recipe for the same kind of monetary collapse that happened in post-WWI Germany and post-Cold-War Russia.

    No matter who wins this year’s election (and I am sorely afraid that Romney is a gone goose), that unpayable debt, and those trillions in freshly-printed funny money, will remain. I advise you to invest in wheelbarrows. One of those times is approaching when you will need a wheelbarrow full of cash to buy a loaf of bread. Then on your way to the store, someone will mug you for the wheelbarrow, leaving the cash lying in the road.

    • Comment by John C Wright:

      Myself, I predict a Romney landslide. The press reports and polls are simply Pravda-style lies. Or do you think Chris Matthews is accurately reporting likely voter opinions? The polls consist of asking Democrats how they will vote, and lo and behold, they show either an even race, or a slight advantage for Obama.

      • Comment by Tom Simon:

        Ah, but they are only polling the living, znd the dead come out to vote for the Democrats. Why do you think the Democratic Party has pulled out every stop to prevent voter-ID laws from being enacted?

      • Comment by Alan Silverman:

        There are places online where people bet their real money on real-world outcomes (Intrade is one such location). Last I checked, those places are heavily favoring Obama to win; meaning that if you bet on Romney, and he wins, you stand to make a good deal of money.

        If you are so assured of your prediction, are you willing to put your money where your mouth is?

        (Or does Catholicism has a moral prohibition on gambling? I forget which denominations of Christianity do.)

        • Comment by John C Wright:

          Are you asking me to wager money on the outcome of an election? I believe in the doctrine of free will and in the depravity of the human heart. The future of human actions is innately unpredictable.

          My comment was that the polls are crooked. Yes, I will wager money on that. I used to work in the newspaper biz, so I know how it works. The polls showing Obama ahead are lies, being spread to discourage Republican voters, or lies being told by people who believe them because that is part of their world view. The Messiah cannot loose Ohio!

          In my changepurse is four quarters, three dimes and a nickle, my rosary beads, and the button that fell off my pants because I am too poor to afford a new pair until next week. I assume you will give me two to one odds? If I win, you owe me two sets of beads, two buttons, and two dollars seventy cents?

          But what, praytell, will you accept as proof definitive enough to settle the wager beyond question? Whose testimony will you accept as final?

          Starting in 1992, every Pew poll appears to lean to one direction — always towards the Democrat, and by an average of more than 5 percentage points.

          October 1988 — Bush 50 Dukakis 42; Actual Result Bush +7.6 (Call this one spot on.)
          Late October 1992 — Clinton 44 Bush 34; Actual Result: Clinton +5.5 (Skew against Republican candidate +5.5)
          November 1996 — Clinton +51 Dole 32; Actual Result Clinton +8.5 (Skew against Republican candidate +10.5)
          November 2000 — Gore 45; Bush 41 (Skew against Republican Candidate +3.5)
          November 2004 — Kerry 46; Bush 45 (Skew against Republican Candidate +3.4)
          November 2008 — Obama 50 McCain 39 (Skew against Republican + 3.8)

          The 2010 midterm elections were famously called a shellacking — but beforehand the pollsters had the races as neck and neck.

          I say the all the pollsters except Rasmussen have oversampled Democrats by 2 to 5 percent, because that is what they have done in the past, and they have no reason to change their methods. I am willing to wager my buck thirty-five and loose button on the point, but I cannot imagine what we would use to arbitrate the wager.

          • Comment by Alan Silverman:

            I’m not contesting the possibility that the polls provide an inaccurate representation of the voting public, and trying to wager on that isn’t one I’d be willing to make. You have noted some of the difficulties of obtaining definitive proof, and there are many other problems. Not to mention that I agree with you that they’re less than accurate.

            You are not the first person I have heard predicting a Romney landslide. And with each person I encounter predicting that, I point out that if they really believe it, that there is a way they can make money. There have been one or two who have taken me up on that, and are indeed betting their money; some retreat because they are stating what they want to happen, not what they think will actually happen. But I do think a response of “I predict Romney will win, but I’m not confident enough to outlay money” is fair; it’s just that if you’re virtually certain of an event happening in the future, why not make money from it?

            (The point occurred to me when I recalled someone long ago saying something to the effect of “If you really believe the oil companies are running everything and make tons of profit, then buy their stock”.)

            ((I do find it interesting that over-reporting a candidate would discourage the other team; I’d think it’d discourage the candidate’s team because “we’re already winning”. I guess it’s gambling that the former outweigh the latter))

            • Comment by John C Wright:

              I think you are confusing two different kinds of prediction, or, more likely, speaking with people with no scientific training. My statement, if you parsed it out, would go something like this: the polls are inaccurate and weighted to the Democratic side. If those inaccuracies are compensated for, Romney is ahead by two to five percentage points, which is enough to sweep him easily into office.

              Whereupon you ask, quite reasonably, if this is a prediction of the future, why not make money wagering on it?

              Whereupon I answer, also reasonably, that an accurate poll is not the same as a crystal ball. I am not making a statement about the future, but about the data.

              If there was a sudden international incident, or a sudden change in the fortunes of the nation, or an embarrassing sneeze or fart by a candidate during a debate, or if a flying monkey fell from the sky and struck one candidate a glancing blow on the skull — do you see my point? Scientifically speaking, the polls do not take into account any of the factors which go into making the outcome aside from the present opinion of the selected group of speakers as to how they currently plan to vote. And who can even count those other factors?

              If it rains on election day, people who do not carry umbrellas may be under-represented at the polls, which may change the outcome of the election in a closely contested state.

              You cannot expect me to wager on the rain. Even meteorologists do not.

              The number of dead people voting cannot be polled, but, given Democrat support among the dead, they will turn out in record numbers this election. Last estimate I heard was over two million voter registrations were fraudulent, either of dead people or people voting by absentee ballot in two states. Obviously neither pollsters nor policemen can count or tally these votes.

              In sum, I cannot vouch for how accurately the polls would predict the future even if they were accurate. Persons planning to vote for one candidate or the other might change their minds for any reason or no reason. Men have free will.

              All I can vouch for is that the current polls, by oversampling Democrats, are an even LESS accurate predictor of the future than they would be were they honest and accurate.

              But I would not bet on the future even on the basis of an honest and accurate poll, because persons polled can only declare present intent, not future behavior, and they are not taking an oath and a solemn vow to the pollster not to change their minds.

              • Comment by Alan Silverman:

                I must have misunderstood. I took your statement:

                I predict a Romney landslide.

                To be a prediction about the future, with evidence being that you don’t trust the polls. I did not understand it as a conclusion drawn from your prediction that the polls are wrong.

                Though I still don’t entirely understand your vehement rejection of the idea of gambling on it. Is it that you find the idea of gambling morally reprehensible itself? Or the idea of gambling on what a person will do (as opposed to say, a roulette wheel)? Or are you simply convinced that the outcome of an election (as opposed to a roulette wheel) is so entirely unpredictable that attempting to predict it is entirely folly?

                • Comment by John C Wright:

                  I am not sure I understand the point of gambling. You introduce it here as a method of testing the firmness of my convictions. Surely if I were convinced, I would not mind losing precious money on it. However, I do not want anyone to be convinced of the truth or falsehood of what I say based on the firmness of my convictions. If my words are reasonable and logical when spoken in a hesitating and timid voice, they are equally as logical when spoken in a deep and manly bass, ringing with confidence. To convince someone by such means is worthless; he will be convinced again of the opposite point of view as soon as he hears someone with a deeper voice than mine.

                  Economically, gambling makes no sense. Suppose I am running a lottery where I sell one hundred tickets at a dollar a piece. In order for me to make a profit, the kitty has to be less than one hundred dollars, let us suppose for example, ninety. So if you bought every ticket, to make your chance one hundred percent, you would only win the kitty, ninety bucks. You have spent one hundred bucks to get ninety, suffering a ten dollar loss. By the same token if you buy only half the tickets for fifty bucks, if you win you get ninety, but if not you get zero, and so the average winnings is forty-five. Likewise if you buy a quarter or an eighth or a tenth or only one ticket at all, your average is always less than your payout. That being the case, it is statistically wise to play as little as possible, because the less times you play, the greater the chance that you will beat the averages, and to beat the averages entirely, play not at all.

                  What is really going on of course is a transfer payment between you and the other participants in the lottery, with the transferee being selected at random. The appeal, insofar as I can tell with my cold ultra-rational Houyhnhnm logic, is based on the illusion created when each participant overestimates his chance of winning. The illusion is that you will get your neighbor’s contribution to the kitty if the odds favor you, as free money. However, an unselfish man concerned with his neighbor’s good as much as with his own would not want to get his neighbor’s contribution.

                  Obviously this is not the appeal of gambling. It is not an economic calculation. It is the thrill, the romance of the unknown, the prospect of getting something for nothing.

                  Again, betting on a horse race or a ball team is different. There the gamblers are wagering their skill at picking out good horseflesh or winning teams based on their knowledge of the skills and talents involved. That I see as much more reasonable; it is a symbolic gesture, like a pagan sacrifice, to show loyalty to the team, and to be rewarded by the gods of superstition for your loyalty.

                  But, no, the Catholic Church teaches this: “2413 Games of chance (card games, etc.) or wagers are not in themselves contrary to justice. They become morally unacceptable when they deprive someone of what is necessary to provide for his needs and those of others. The passion for gambling risks becoming an enslavement. Unfair wagers and cheating at games constitute grave matter, unless the damage inflicted is so slight that the one who suffers it cannot reasonably consider it significant.”

                  Remember, the Catholics are the fun guys, the original church, and the Puritans and Protestants and Moslems and Mormons who broke away from us all did so to have less fun, fewer sacraments, no saints, no strong drink, no stained glass or fine statues, nor bells and incense, and, in the case of Moslems, a sad drop in the number of the persons of the Trinity. Austerity is the hallmark of our monks and their laity. And they have no sacrament of confession. They are too proud to ask for help, I suppose, or consider the poor overworked Priest to be some sort of tyrant because he listens for hours on end to allour boring and degrading sins.

                  • Comment by Alan Silverman:

                    Hm, that is reasonable. I rarely gamble for similar reasons.

                    Although, if my office-mates are pooling money for a lottery because the jackpot has gotten up to a certain high amount, I tend to chip in, for two reasons: 1. camaraderie of collectively having the “what I would do if we won” fantasy, and 2. insurance that I won’t be the only person left in the group if my group does win. I figure those are worth the five bucks to me.

    • Comment by Sean Michael:

      No one seems to have mentioned, or thought of, one consequence of the possible Great Crash I fear is all too likely to come. That is, fifty percent unemployment will make it IMPOSSIBLE to prevent scams like Social Security from collapsing. No way can the lie of SS any longer be funded by FICA taxes. Not unless the gov’t wants to use inflated, worthless Weimar style dollars for SS. The gov’t is already having trouble funding SS with the “mere” 20 percent real unemployment level we have now.

      Ever since 1978 I knew SS was a lie, a cynical rip off, a Ponzi scam. I never trusted it.

      Sean M. Brooks

      • Comment by Alan Silverman:

        If unemployment hits 50%, I think there would be more significant problems than SS collapsing.

        • Comment by Sean Michael:

          Hi, Alan:

          True, but SS is a perfect example and symbol of the waste and bungling we have seen from the gov’t since FDR’s time.

          Sean M. Brooks

        • Comment by Mary:

          Nothing is more important than SS collapsing. The elderly will be glad to tell you even though its impending insolvency has been announced on a regular basis for decades, and they did nothing.

          • Comment by Sean Michael:

            Hi, Mary!

            If we are going to have a mandatory old age “pension,” FDR and the Democrats chose the worse possible way of funding it. Nothing real has been done to reform or abolish SS because it has been fanatically defended by the Evil Party as a sacred cow to be adored and worshiped forever. And the GOP has either been too cowed or too impotent to do anything about SS.

            But something has to be done about entitlement and welfare programs like SS. And only the GOP at least sometimes tries to propose reforms. So, despite its flaws, I’m voting, as always, for the GOP.

            Sean M. Brooks

          • Comment by Alan Silverman:

            Nothing is more important than SS collapsing.

            I’m not talking about importance. I’m just saying, if unemployment hits 50%, the solvency of SS would be among the least of our worries. Providing for one’s family, avoiding crime, even fundamental survival–I think those would end up occupying a lot more of people’s concerns than whether or not government-funded retirement will be there in a couple decades.

            Also, I’m surprised. I’d have thought the repeal of the PPACA would be more important than eliminating SS.

  2. Comment by Gian:

    Is it honest to blame Obama by name as if Republicans do not support identical policies?
    It was under Bush that TARP with $787 Billion was passed. Where did Bush find $787 Billion?. Was it not money printing?.

    Did Bush himself not encourage housing bubble? Did all Repubicans oppose him?.
    It is wonder that with Presidency and both Houses being Republican for years, the same years in which seeds of the current recession were sown, you find only Obama to blame.

    • Comment by John C Wright:

      Is it honest to blame Obama by name as if Republicans do not support identical policies?

      Yes, for there is a difference in degree as well as kind in the policies.

      It was under Bush that TARP with $787 Billion was passed. Where did Bush find $787 Billion?. Was it not money printing?.

      Suffice it to say that I blame the Bush Administration in no uncertain terms for their malfeasance and their bad, nay, idiotic economic policies. But the Community Reinvestment Act, and Freddie and Fanny, were not created by Bush.

      Did Bush himself not encourage housing bubble?


      Did all Republicans oppose him?

      What kind of question is that? Do you mean all Republicans who have ever lived without exception whatsoever? The Republican Party in general, and as part of its recurring platform, favors smaller government, lower taxes, and regrets the type of bone-heading interference with the market that giveaway welfare state boondoggles like this represent. The Republican Party is also to be pictured as severely retarded, dishonest, drooling nose-pickers, who betray their principles frequently and with glee. No one who reads up on politics is unaware of the large and vocal faction in the Republican Party who opposed the big-spending “compassionate conservatism” championed by Bush. No one who reads rightwing publicans is unaware of the constant stream of criticism directed at Bush by the fiscally conservative wing of the Party.
      By way of contrast, there is no fiscally conservative wing of the Democrat Party, and the criticism within the Dems against their big-spending and Depression-causing administrations are charges that the Administration is not moving quickly enough toward socialism and total command of the economy.
      So I reject your criticism as dishonest, unfounded, and betraying no sense of proportion or common sense: The murderer saying the jaywalker cannot criticism him, because both broke the law.

  3. Comment by Gian:

    “I expect to see a run on the banks, hyperinflation, a repudiation of the national debt, and same thing that happened to the Mark in German”

    And followed by Nationalists in power?

    • Comment by John C Wright:

      The rise of National Socialism in Germany was a political and not an economic event. It was not caused by hyperinflation. Hyperinflation was caused by the Wiemar Republic printing up fiat currency in order to consume the war-debt owed to France. I used it as an example, not because it came in time before the rise of the Hitlerites to power, but because it is an extreme example of inflation. I am not positing that inflation causes Nazism. I am positing that printing fiat currency causes, indeed, is, inflation.

      I cannot tell if you are making a joke, or trying to be sarcastic and failing, or merely making a random comment because I mentioned Germany. You have this habit of writing stream-of-consciousness remarks whose bearing on the topic I can never seem to grasp.

      • Comment by Stephen J.:

        “The rise of National Socialism in Germany was a political and not an economic event. It was not caused by hyperinflation.”

        No, but the hyperinflation and the subsequent economic misery were very strong contributing factors to the national sentiment upon which the National Socialists capitalized, in order to be elected. Political events are powerfully influenced by economic events, and vice versa — as per this very election.

        That said, and treating the topic seriously, while historically economic misery has more than once created fertile ground for totalitarian movements to take political control, I am not sure I see this happening in the United States. Unlike Germany, Russia or China, the American self-image is much less a product of a distinct prior historical ethnicity and much more a product of a shared commitment to a particular philosophy of governance. Germans could vote in a fascist government without ceasing to think themselves Germans, because their “German-ness” predated any particular rule of law; what makes an American an American is a very specific rule of law, and I think even now that the majority of Americans know that to vote in a government that wholly and openly overthrows the Constitution would be to forsake their identity. People will vote with amazing speed against their own economic self-interest if the alternative is to give up who they are (which is one of the only ways I can understand the Arab Spring uprisings, truthfully).

        Which is why, as Jonah Goldberg has written, if a truly totalitarian movement ever takes power it will have to do so in the guise of positive improvement, of gradual, incremental transformation, of smiling salesmanship — tactics very hard to pull off in a time of real misery and turmoil. Even Obama’s Democrats (for I personally believe Obama himself is more convenient figurehead for crony profiteering than even he realizes) were only able to get as far as they did from a perfect storm of circumstance: moral guilt, exhaustion of the opponents, and the collusion of a media establishment so desperate to be the makers of a Historical Moment of Social Justice that they sacrificed their last pretenses of objectivity to do it. Say what you will about the (occasional) boorishness of Americans in peace and wealth: Americans in hard times have always stepped up to the plate, and usually for the better.

        • Comment by John C Wright:

          No, but the hyperinflation and the subsequent economic misery were very strong contributing factors to the national sentiment upon which the National Socialists capitalized, in order to be elected.

          Maybe so, but I will leave predicting political events to prophets, to whom God has revealed the secrets of the human heart and the unpredictable madnesses of crowd.

          Economics involves only the contemplation of certain invariable relationships between market events, such as when you print up fiat currency, the more you print the less it is worth. Technically speaking, economics does not predict anything at all, unless you call it a prediction to say “there ain’t no such thing as a free lunch” or to say, “whatever you reward, all else being equal, you get more of.”

          I am predicting more inflation in the future because we are currently inflating the currency, and the gain or goal sought by the policy of inflation is only served during the interval between the printing of the money and its effect on the market. Prices go up when the fiat money floods the market, and then wages go up to compensate, and after the compensation, the ratio between prices and wage is the same as before, and so the government is under the same incentive as before to inflate the currency more. Unless the government changes its policy, the same cause will lead to the same effect.

          Gian, for reasons I cannot speculate, introduced the concept that this was somehow predictive of the rise of “nationalism” whatever that means. I will say that socialist nostrums to kill the rich and take their stuff are certainly more popular during times of chaos and tumult and economic depression, and any snake oil salesman running for office who promises a return to the happy days without doing the work needed to create the value money represents will be lauded and applauded by all the selfish and stupid impulses in the sinful heart of man.

          The point of economics is to tell people that you cannot get something for nothing. The point of politics is to tell people that you can, and, when elected, to pretend to get something for nothing by robbing whoever is the richest yet weakest members in the economy, or, by debt, rob the defenseless future generation.

  4. Comment by ladyhobbit:

    President Obama campaigned by condemning former President Bush for overspending. Then he spent much, much more. I wasn’t surprised, but perhaps some of those who voted for him were.

    Many Republicans did in fact criticize Bush for excessive spending, but since they aren’t in the mainstream media, many people don’t know this. And of course in the last two years of the Bush administration, the Congress was Democrat. (Congress holds the purse strings.) Not surprisingly, spending greatly increased then.

    Mr. Obama is to blame for lengthening and deepening the recession and for slowing or even preventing the recovery. Luckily for him, he has cheerleaders in the media, for whom the slow or nonexistent growth and high unemployment rate are always “unexpected.”

    I also note that the recovery from the recession of 2001 was much faster.

    To Mr. Bush’s credit, he did try to rein in Fanny and Freddy, but the Democrats in Congress prevented him from doing so. The government policies about mortgage lending go back many years, to the seventies, but were made worse and worse as time went on.

  5. Comment by Stephen J.:

    I’ll ask the obligatory Stupid Question, then: If World War II didn’t “fix” the Depression, what did? And can it be done again?

    My own wistful thoughts in the direction of economic resolution has been to create a mechanism by which multiple mutual debt-owers can “collapse a debt loop”. Suppose that Debtor A owes B $100K, while Debtor B owes C $60K and Debtor C owes A $80K; if it were taken as read that all paid what they owed out of what they were owed immediately upon being paid it, you could write all these debts off to the value of the lowest debt involved. Thus, $60K of the above debt is cancelled out for all, leaving B free and clear, A only owing $40K to B and C owing $20K to A.

    I am sure there are reasons this won’t work or is impractical for governments dealing with governments, but a man can dream.

    • Comment by Nate Winchester:

      Well it sort of was WW2. Mostly the fact that all OTHER economies were destroyed and ours was the only one standing.

      To use the glass breaker metaphor, it was more like breaking the glass in another town, then killing all of that town’s glass makers. Of course after that your glass makers will be in better shape.

      It wasn’t the “war economy” that helped us out, it was the war killing all competing economies.

    • Comment by Mary:

      What happened after World War II was another recession. Truman went to put the New Deal into effect.

      People revolted. Republicans got in with a landslide, and Truman was told no way.

      It recovered on its own after that.

    • Comment by rlbell:

      The Depression was “fixed” by WWII, because the federal government was forced to stop meddling and let market forces adjust. If the feds limited bank bailouts to FDIC payments to depositors, the current recession would be over. The bankruptcy of GM would have been better resolved by relaxing CAFE to allow automakers to produce profitable vehicles that people could afford to buy (Is it a coincidence that SUV’s are profitable, popular, AND not covered by CAFE?).

    • Comment by Tim Ohmes:

      I would speculate that WWII did not bring an end to the Great Depression! Goods remained scarce and unavailable for the entire duration of the war. It was only after the end of the war that goods and services again began to become available.

      I think it was the shift of the focus from “poor pitiful me” to “we have to work together to survive” that ended up changing the economy.

      After the war ended, so many people were accustomed to working and working hard, the transition to the boom of the fifties and sixties became possible. It is, as Mr. Wright stated, that money represents work. I do not think our country has ever worked harder longer than during the war and immediately following.

      We pulled out of the depression through dedicated labor. Unfortunately, I do not know if our current culture is in any way capable of the labor necessary to pull out of the next.

      • Comment by rlbell:

        Do not underestimate the effect of war bonds. War bonds solved a difficult problem. War production solved the unemployment problem, but there was still the problem of goods being scarce, and lots of dollars to chase after them. By channeling money into debt instruments, war bonds helped keep down inflation, by contracting the money supply to consumers (few goods + little cash = low inflation). After the war, the maturing bonds gradually added heaps of cash, in time for producers to go from war materiel to consumer goods. There was a potential for inflation but real output ramped up to meet increased demand.

        War bonds would have been a good idea, even if the money collected wasn’t spent, and it could be argued that tightening the money supply was more important than funding war production.

  6. Comment by robertjwizard:

    Only the government has the ability to create malinvestments across all sectors of the economy at once.

    That is the most succinct and true statement I have heard all week. The last 5 years explained in a single, simple sentence. You made my crappy day better.

  7. Comment by Alan Silverman:

    I expect to see a fifty percent unemployment rate in the next three years, and a total collapse of the international monetary system.

    See you in three years!

    Foreign lenders who are currently bankrolling most of our National Debt

    Somewhere along the way, I came under the impression that the majority of the National Debt was to the American people themselves, though I have no particular source. Can you source this claim?

    The popular myth is that the World War solved the Great Depression.

    Echoing another commenter above: what do you think eventually caused the economy to start growing, and why?

    • Comment by Nate Winchester:

      See above reply. Or to use a metaphor:

      It’s not that manufacturing a bunch of guns and weapons helped improve wal-mart’s market share, it was going around, blowing up all the k-marts and targets that did.

    • Comment by John C Wright:

      There is a large component of debt we are lending to ourselves, but this is basically a bookkeeping shenanigan, and not subject to the market forces I am here describing. The Chinese may, for reasons of policy, malice, or panic, call in their debts, or begin to sell them, by the treasury notes bought by the treasury department from the treasury department are not subject to this.

      From an economist’s point of view, it is the same as if a bookkeeper went into his master’s books and simply wrote down arbitrary high numbers in black ink, without actually stocking his master’s warehouse with any goods, nor paying off the debts his master owes other tradesmen. The bookkeeper treats that black ink as if it were a debt instrument, and promises himself to himself that when he gets married and has a child who grows and gets a good job, the child will give him his earnings, and in that year, the bookkeeper will pay off that amount he invented in black ink plus interest. In the meanwhile the books show no red ink. All the bookkeeper is really doing is producing an IOU he does not have funds to cover. The IOU has the value which the trust of creditors impart to it. They can even swap it among themselves for money, for so long as some sucker thinks that one day the IOU might prove faithful and good. The moment the trust evaporates, its only value as as a scrap of paper.

      See you in three years!

      I am not the ghost of Christmas future. I am predicting what would happen if things are not changed. Things will change, but in what direction, I do not care to guess.

    • Comment by rlbell:

      The American people bankroll the debt when they invest savings in debt instruments. Saving by the American people has been grossly outstripped by new federal debt.

      Foreign sovereign wealth funds bankroll the debt when the trade imbalances leave them with dollars, but nothing else to buy. Americans are importing less, so this method of floating the debt is foundering.

      The remaining way to bankroll the debt is to print lots of money, with the promise that at some future point, there will be a large bonfire. This is the fiat currency equivalent of debasing the coinage by reminting gold coins with an increasing fraction of lead.

      • Comment by John C Wright:

        This is the fiat currency equivalent of debasing the coinage by reminting gold coins with an increasing fraction of lead.

        Well said. A numismologist once told me of the riot the Romans had at their mint, when the Emperor wanted to know why his coins were merely brass slugs dipped in gold paint. The mint thugs successfully repelled the imperial guard.

        And people still wonder about the reason for the collapse of the Empire. It was the economics, people.

        • Comment by Sean Michael:

          Dear Mr. Wright:

          Very interesting! I would be interested to know which Emperor was angry about the debasing of his coins and had his attempt to stop this thwarted by the mint thugs. I can see melancholy analogs to the follies of our own times.

          Sincerely, Sean M. Brooks

          • Comment by John C Wright:

            Alas, I do not recall. I heard the story from a numismatist (coin collector) in New York, and he did not provide details. I think it was emperor Aurelius in the Third Century, but don’t quote me.

            • Comment by Sean Michael:

              Dear Mr. Wright:

              Many thanks, even so! I did wonder if this grotesque incident you cited occurred during the era of the so called “barracks Emperors” of 235-284. Most likely, during the period of the near collapse of the Empire in 253-268. I think you had the Emperor Aurelian in mind (ruled 270-275), and he was one of the STRONG Emperors of the later “barracks Emperors” period who pulled the Empire back together. I’ll be looking up Aurelian to see if the mint thugs incident occurred during his reign.

              Sincerely, Sean M. Brooks

              • Comment by Sean Michael:

                Dear Mr. Wright:

                I checked, and it WAS during Aurelian’s reign that the mint thugs incident occurred. Aurelian was taking steps to restore some order and stability of value to the coinage, and Felicissimus, Master of the Mint in Rome, resented this and incited a full scale revolt by the mint workers. The Emperor was forced to fight a pitched battle with the mint workers before order was restored.

                Might things get so bad with us that a future President will be compelled to call out the Army or Marines against the bureau of the Mint/Currency?

                Sincerely, Sean M. Brooks

  8. Comment by joel7:

    Let’s assume the polls are right and we get another 4 years. Perhaps even if we don’t (I don’t expect miracles of debt reduction from a Pres. Romney). What happens when we go Weimar? You mentioned buying food, what can we really do? Just ride it out and hope for the best?

  9. Comment by Joan of Argghh:

    Since 2004, the Republicans tried over a dozen times to reform Fannie and Freddie.

  10. Comment by Owain_Glyndwr:

    I don’t know anything about Keynes and understand little about the economic crisis (though no one else seems to have a clue either) so here’s my contribution to the conversation in the form of a rap anthem debate between Keynes and Hayek-

    • Comment by John C Wright:

      I know a great deal about Keynes and not only have a clue about the mysteries of economics, but I assure you that I have solved the crime. When people are free to work and to swap the products of their work with each other in an environment whose laws, but more than that whose cultural norms, protect the sanctity of private property and the honesty of contracts and covenants with strangers, then nations grow wealthy.

      When the state, either with good intentions, or to deal with some war or emergency, or, much more often, through the temptation to advantage one insider or powerful faction at the expense of some unwary outsider or helpless faction, arranges the laws to breach that sanctity, and meddles with the economy to transfer wealth from the weak to the strong, this produces poverty.

      On whom the poverty falls is something like a game of musical chairs: you know when the music stops someone will be left standing, but who knows who? Since the system consists all of intelligent actors who can assumed to seek their own self interest, but whose specific acts cannot be predicted, where and what sectors of the economy are affected when each new law, regulation, tax and imposition is announced cannot be foretold.

      If you inflate the currency, you know someone is going to go lose the value of their labor that the now-more-worthless money represents, and that someone else is going to get a windfall of value. While usually it is the debtors who gain and the creditors who loose, this is not always the case, and certainly not a universal rule.

      I have shown that video to my kids, by way of introduction to complex economic issues. I note that Hayek wins every round, and Keynes gets the laurels and plaudits.

  11. Comment by Brad R. Torgersen:

    Unfortunately I think the generational rot might have set in permanently. With our World War II veterans passing like votives, we’ll soon be a country run by men and women who haven’t had to touch the handle of a broom or a mop. Nor even put their hands into a till while working behind a counter. For them, money and economics are abstract theory. They don’t understand that when you perpetually run a debt and a deficit, sooner or later there will be default. Which means wrecking lives, and in in our case, it will be 350 million lives. I am glad I live where I live. So long as the LDS church stands in Utah, there will be order and productive civilization in the Mountain West. Regardless of whether or not Washington D.C. is a smoldering crater. I think it will be worst on the coasts. Especially in the cities. When the trucks stop bringing food and iPhones, and the internet is down, and everyone is striking in the streets for bread, life as a city liberal is suddenly going to get dramatically more complicated. And yet, simplified too. No worries. I am sure they will happily blame everything on Bush, Romney, and Republicans.

  12. Comment by DaveSomething:

    So, other than voting for Romney, what’s a fella to do? How does one protect ones self and family from the coming economic crisis?

    • Comment by Alan Silverman:

      I am surprised there is nothing in the vaunted scriptures of the Bible that provide advice for what to do when living in such a situation.

      • Comment by John C Wright:

        Are you being facetious? Or are you merely unfamiliar with the books of the Bible?

        If you are unfamiliar, shame on you. Even when I was an atheist and an enemy of Christianity, I read enough of the Bible to be aware of what it generally contained.

        Between the psalms and proverbs and histories, the books of law and so on, there are many examples of thrift and the avoidance of debt, aiding each other in times of mischance, and of how bear up in times of disaster and privation, including disasters far worse than what I here predict.

        The message in hopeless times is to pray and to rely on God; and those who regard this reliance as folly can commit suicide like stoic pagans.

        If you are not being facetious, shut your mouth, and stop displaying your contempt for those things you hold in willful ignorance.

    • Comment by John C Wright:

      As in all hard times, prayer and reliance on God is the faithful’s help and source of strength. Put no trust in worldly things.
      Of prudent matters, I am not qualified to speak. Whether you should invest in hard assets like gold or not, or arm and train yourself to defend yourself and your family, or avoid cities in the days to come, I cannot say. I can say that riots are more likely a reaction to privation than it was in the days of the Great Depression, because in those days, a generation has not been raised and taught that rioting was a great and good thing.

      Instead of asking me, ask someone of your grandfather’s generation, who lived through the Great Depression.

  13. Comment by Evelyn:

    Thank you for this post and for your blog, which I have just discovered through Dr. Charlton.

    There are two points about the current employment situation that I have never seen raised when discussing what is going on currently. One concerns the sudden entry into the workforce in the 1970s of women. The increase in the supply of workers had a major affect on salary levels then and in subsequent years. Secondly, the large increase in worker productivity in tandem with reliance on imports for manufactured goods means that the number of workers needed to maintain the current economy of the country has dropped. I don’t think it is realistic to expect most of those currently listed as unemployed and those who have given up looking for work to find jobs. When things settle down we might find ourselves back to 1950 levels of employment, with one adult per family working for payment while the other concentrates on family matters (which worked wonderfully, as you may recall).

  14. Comment by Rolf Andreassen:

    And he borrowed your children’s income for their entire lives to do it, and then your grandchildren’s income.

    What numbers do you base this assertion on? The ratio of US debt to GDP is somewhere below 80%; in other words, the claims outstanding against the US government are somewhat less than the US economy produces in a year. Of course it’s impossible to turn the whole productive capacity to debt repayment, but still, if my income were fifty thousand and my mortgage were forty thousand, I would not feel myself ruined beyond repair even if I spent forty-five thousand a year on necessaries.

    No doubt you have some other way of doing the calculation; do you mind sharing?

    I expect to see a fifty percent unemployment rate in the next three years, and a total collapse of the international monetary system.

    Do you, indeed? Elsewhere you seem to hedge this prediction rather considerably:

    I am predicting what would happen if things are not changed.

    I will leave predicting political events to prophets

    I suggest that when you say “X will happen unless things change” without specifying what changes you have in mind, you are not really saying anything meaningful at all; for if X does not happen you can always claim that something changed. A ‘prediction’ that can always be explained away if it does not come off is no honest prediction; it is mere mouthing off.

    Are you willing to stick your neck out a little further than mere pontificating? For example, will you state what minimum changes are necessary to avoid the fifty percent unemployment, and then, if those changes are not made and the unemployment does not come to pass, admit that you were simply wrong?

    Suppose Obama is elected, but there is not fifty percent unemployment in 2015. (Incidentally, it would be good to know what metric you propose to use for this; usually the official government number, currently hovering around 8%, is not considered honest accounting by those who predict imminent disaster. I’m happy to use whatever metric you like, but I want it agreed upon in advance.) If so, will you admit that you were straightforwardly wrong, or will you seek to make excuses and say that this, that, or the next minor economic policy changed things sufficiently?

    A ‘prediction’ amounting to “It will rain unless we get sunshine” is useless.

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