30 January 2009

Do No Harm

Lately, it seems that everyone is asking me for my thoughts on what I think the government should do to “fix” the economy. How can we prevent a deeper economic contraction, or (heaven forbid) a depression? The underlying assumption in all these questions is the belief that something can be done.

My standard response to such queries never goes down well. Few people are thrilled to hear my theories on how economic cycles are driven by generational patterns, and that there really isn’t anything that can be done to either ameliorate this current economic contraction, or prevent such things from happening again in the future. I can understand this attitude of defiance. Human beings are resilient creatures at heart, and we have never been willing to accept “no” as an answer. No matter how bad circumstances get, with wars, famine, or disease, we persevere, making the best of things.

Further, it’s in our nature to re-make nature to suit our needs. Why accept the ravages of floods or drought if we can discover how to engineer dams to regulate water flows? Why accept living in the cold when we can build fires, and make warm clothes? If we can create cures for terrible diseases, and put a man on the moon, why can’t we structure the economic system in a way that will ensure no catastrophes will happen ever again? In our modern era, with technology being so endemic in everything from smart phones to home pregnancy tests, why should we put up with chaotic economic cycles?

There are things that man cannot do – things that are best left alone. Yes, we can cure many ailments, but there are still numerous diseases that defy the modern medicine. In fact, there are times where the intervention of man has been found to actually make things worse. Attempts to snuff out every smoldering ember we find in the wilderness can wind up leaving the entire forest more susceptible to catastrophic fires that would otherwise be limited in scope if small fires were allowed to burn on a regular basis. Building levees around rivers, and dredging, to prevent floods can actually prevent the natural replenishment of fertile soils and result in coastal erosion. Dams can kill off fish.

No every attempt of controlling the environment succeed, and some can actually make things worse.

So it is with economies. The attempts to control and manage economies only results in creating bigger messes. It’s quite possible that all the sophisticated economic stewardship by central bankers and finance ministers over the last 50 years has only served to prevent small brush files at the expense of setting the conditions for a cataclysm. Why then should we now be so eager to create new ways to ensure that the economy should never again see a road-bump?

Nevertheless, the rallying cry for economic intervention is deafening. It would be wrong for policy makers to just stand by and allow suffering to run unabated, the masses shout. You must do something! And “something” is exactly what the policy makers are doing. The US government alone has already spent, or pledged to spend, over $14 trillion in all manner of stimulus and bail-outs.

Sadly, even the technocrats, and economists, crafting all this government largesse openly admit they don’t really know what actions (if any) will actually help the economy.

What utter insanity! If they don’t know that the various spending, or stimulus, programs will help, then why do them? Doctors don’t give medicine unless they know it will help (that’s the theory at any rate), so why should governments and central banks behave differently?

No, there is nothing the governments can do to “fix” the economy, nor is there anything that can be done to ensure that depressions never again walk the Earth. Worse, the very attempts to prevent them will merely cause far more grief and hardship.

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