Of the Federal Reserve and Dreams of Success

 

Photo by Tyler B on Unsplash

It may be easy, but I think unfair, to fault the Governors of the Federal Reserve System.  Their task is more than they can handle, and yet they are required to do it.  More accurately, I should say that their tasks are more than they can handle, and yet they are required to do them.

When the Fed was created, more than a century ago, a big concern was that it would be dominated by the financiers of New York and the politicians of Washington.  Hence, rather than a central bank, it was born as a system of a dozen regional banks, with a limited focus, to offset the liquidity risk inherent in banking.

Over time the Fed has not stayed that way.  Today, the Federal Reserve is effectively the biggest bank in the world.  Financiers in New York have an outsized influence, but the influence of the politicians in Washington may be greater.  Otherwise, how could a federal republic tolerate a handful of people at a single agency having so much sway over the daily lives and future prosperity of the individuals, families, communities, and businesses in the 50 States of the Union?  Accountability to the elected cannot long be withheld.

A great problem has been that the elected do not refrain from giving the Fed more things to do.  Its one first task has lost its focus by becoming three.  By law, the members of the Board, joined by the presidents of the 12 Fed banks, are to conduct themselves “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

What if they cannot succeed?  Then we fault them for failures while still pretending that they can.  We hide the goal posts in fog.  What is “maximum employment”?  Can it be today’s 62% of the adult population when we began the 21^st Century at 67%?  What are “stable prices”?  Does “stable” mean that the price of food tomorrow will be the same price it is today, or is “stable” the Fed’s official goal that things will cost 2% more each year, so that my young son’s retirement will require nearly twice as much as mine does?  Then there is the third, often forgotten requirement, that interest rates be “moderate.”  For 10 years the Fed kept quiet about that legal mandate, keeping interest rates very close to zero, a huge transfer of wealth from savers to borrowers, Uncle Sam being the world’s biggest borrower.  Is it surprising that the federal government’s debt grew during those 10 years to $30 trillion and still swelling?

What is the Fed to do?  We cannot reproach its current team, because they cannot succeed.  No government agency, regardless of excellent economists and the best computers, can manage it all.  If you read the statements, they carefully admit, essentially, “we don’t know how to succeed, but the law says we have to do something, so we will try this and that and see how it goes.”

Meanwhile, it has not been going so well.  To paraphrase liberally from psychiatrist Anthony Daniels, we should not be so beguiled by the dreamy tasks we have placed on the Fed that we cannot bear to lighten the load merely because it is not working.  

Of Careers and Stepping Away

Photo by K. Mitch Hodge on Unsplash

Asked to give up successful careers, they all did.  Decades ago one was a world renowned heart surgeon.  Today he is president of a worldwide church, The Church of Jesus Christ of Latter-day Saints, with some 16 million members.  His name is Russell M. Nelson.  At 96 years he is still vigorous, going about the world doing good.

One of his colleagues had been a Justice on the Utah Supreme Court.  Dallin H. Oaks stepped away from that post and his legal career when asked to assist in leadership of the Church, which he has now done for 36 years.

His colleague, Henry B. Eyring, has a Ph.D. and MBA in business administration from Harvard.  He left the faculty of the Stanford Graduate School of Business to serve for six years as a college president.  Since 1980, he has been involved in spiritual education at all levels of the Church, with the exception of 7 years to help manage the Church's physical operations.

The youngest of these three men is 87.  All three gave up their successful careers to devote their full attention to religious matters, for decades.  None expected to be Church leaders.  They never applied for those responsibilities.  None of them retired from their jobs.  They were asked, and they stepped away in the prime of their professions.  They had faith that the Lord had something even more important for them to do.  They were invited to serve in what they would in an instant tell you was a more pressing calling.

These three are members of what is known as the First Presidency, the highest council of the Church.  They were called to their current positions after first serving as members of the Council of the Twelve Apostles.

Their colleagues on the Council of the Twelve have similar stories.  None planned to be leaders in the Church.  Some had careers in the automotive, real estate, investment, health care, airline, and banking industries.  Others came from occupations in education, on college faculties and as college presidents.  Another was president of a chemical company, another in manufacturing, yet another a heart surgeon specializing in cardiac transplants.  One of these had a career in international relations, in and out of government.  And one was an accountant and auditor—nothing meant by mentioning this profession last.

Departure from a vibrant career is not expected of everyone.  For all but a few, our chances may be no more than doing the marvelous good each day that our jobs may offer, as well as helping our families, neighbors, and communities.  The daily potential is endless, and the joys of job and service taken together can be great.  

Still, there is inspiration in the dedication of those who were asked to give up their careers and did so.  They are giving their all—retaining the preeminence of service to family, which may not be surrendered—to the opportunities to bless others whom the Lord puts before them.  Wonderfully, the Lord also, each day, puts before us opportunities to bless.  Through our work and our service we strengthen our communities, as the Lord would have it.

Of the Spring of Relief and Re-Awakening

Photo by Bogdan Iorga on Unsplash

We began this month with fasting and prayer “that the present pandemic may be controlled, caregivers protected, the economy strengthened, and life normalized.”  I see our prayers in the process of being received and answered, and I feel to rejoice that there is a God who hears and who receives our prayers of faith.  I have long known, from much personal experience, that He does.  I am seeing it yet again, as I believed that I would.  I expect that you, too, are seeing the signs of the Spring of Relief.

With each new set of hard data of what is really happening, the dire predictions from so many, that frightened so many, are revealing themselves to be well beyond the mark.  That is cause for general celebration (I do not understand why some are angered by it).  Sickness rates and mortality rates continue to decline, approaching levels consistent with seasonal experiences.  Those most vulnerable are becoming easier to identify and protect. 

The realized effects of the pattern of the disease offer growing cause for relief and hope for the many, even while we join in sympathy for those most afflicted by this flu strain, just as our hearts sympathize for all who suffer from the numerous ailments and sicknesses that are part of mortality.  No one of us is left unaffected by sickness for ourselves and loved ones.

The reality of the epidemic has wonderfully been falling far short of the dire predictions, for which we are grateful.  On the other hand, the economic experience has been as bad or worse than predicted.  Here the real numbers are also coming in.  I recall one estimate from the first of the month, considered then by some to be high and exaggerated.  The anticipated dark cloud was that by May there would be 27 million Americans unemployed by the Great Cessation and other effects of the state-ordered shutdowns.  By Thursday, April 23, the number of Americans applying for unemployment had reached 26 million, a number that does not include those who remain employed but whose business and income are fractions of normal.  Of those who had work just a few weeks ago, today one in six do not.

No government in known history has ever done this to its own people.  As the Great Cessation was put in place by government action—not by the disease itself—it is an encouraging sign that government leaders are increasingly taking action to restrengthen the economy and to allow the most powerful engines of economic strength, the business operators and employees themselves, to begin the steps to return to the normal processes of enterprise.  This is only just beginning, and it needs to be encouraged. 

Will Rogers is credited with saying, “If stupidity got us in this mess, how come it can't get us out.”  Governments can block economic activity; they are poor at generating economic growth.  They lack expertise and incentives for it.  But they can repair some damage, and they can remove the barriers they erected, to which more government leaders—at local, state, and federal levels—are turning their attention.

These are all trends to celebrate, replacing anger and despair with gladness and hope, a Great Awakening for us in which to be engaged.  Bring it on.

Of the Great Cessation and Accountability

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The first Friday of the month is “Jobs Day” in the United States, when employment numbers for the previous month are released by the Labor Department.  A bit out of date for events moving quickly, the report—really for the first part of March when the data were collected—is that there was a net loss of 701,000 jobs.  More recent information from the Labor Department, gathered in the last two weeks of March, was that 9.9 million people filed unemployment insurance claims.

Those are firm, real, and disturbing numbers.  Perhaps you personally know someone tested positive for the virus or even made sick by it.  I feel more confident that you know someone who has lost his job, or whose business has closed, or one way or another is out of work.

Those people were not put out of work by the virus.  Up to this point the virus has reached but a small portion, some 240 thousand, of the 330 million Americans.  Those 9.9 million job losses were caused by government order and the fear spawned by government pronouncements and predictions of what may yet happen.

This unemployment is actual, not a forecast.  Each person of the 9.9 million has a very real story to tell, and it is not a happy one.  Many are tragic.  There are careers that have been disrupted, some only just started and some now ended.  There are businesses closed that will not reopen.  There are painful ongoing worries for people and families over what to do to cope.  None of us dismisses the sorrows involved with those who die, from whatever the cause.  I fear that the real, here and now unemployment wounds are too flippantly disregarded.

At some point, reasonable questions will need to be answered in a calm and deliberative way.  The actions taken and their consequences must be weighed, aside from professed intentions.  And the policies of policymakers will need to be evaluated in light of what they in practice wrought.  Among such questions might be these:

·         Did the realities of the Great Cessation—the sudden orders to stop activity and association, the practicalities of work lost, earnings gone, closed businesses, disrupted human interaction—caused by government decree, do more harm than good?

·         How many of those lost jobs are coming back?  How many of them are career-ending?  How many businesses are closed not to reopen?

·         Which actions ordered are unrelated to the health emergency but rather take opportunistic advantage of public fear and disruption?

·         What scars will remain on the body of our freedoms?

No doubt you also have important questions, calling for some explaining.

Involved officials might respond that the forecasts should not be unnoticed in the review.  Which forecasts?  Certainly good policymaking would rely upon future expectations.  Was a broad picture evaluated of what might likely occur?  How closely did policies applied align with appropriate and realistic forecasts (taken together)?  Which forecasts turned out nearest to what indeed happened?

Shall we go to the current forecasts?  Oxford Economics visualizes the loss of 27.9 million jobs in the U.S.  The most recent government estimates of U.S. virus deaths are between 100 thousand and 240 thousand.  For the full picture, we should include predictions of the fallout from prolonged social disruption and human isolation.  How much harm and how many deaths might those policies cause?  When we tally up the score to see whether it all is worth it, include all of that in the tally.

A deep recession caused by government order has never happened in our history.  Now it has and is part of our story.  Those who ordered it should, with due deference and full fairness, be called upon to justify it.

Of Social Disruption & the Great Cessation

Photo by Tim Mossholder on Unsplash

This is not an alarmist post. It is anti-alarmist.  It is a request for a better way.

Last evening, at the quiet end to a quiet day, I ran the numbers. These are not my numbers, but numbers from oft-quoted sources:  The Johns Hopkins Center for Systems Science and Engineering, the U.S. Census Bureau, and The Wall Street Journal.

I live in a state with 8,500,000 people, not far from the average of 7,000,000 for all 50 states.  As of last night, in our state, just below 300 people were reported infected with the virus, and 9 had died from it. 

I ran the numbers.  The percentage of people in my state currently hit by the virus is 0.003%, that is three one-thousandths of a percent.  Very large and very small numbers are hard to visualize.  In visual terms, if you had one hundred people to demonstrate the numbers, have one person step forward.  He would represent the 1%.  If that person weighed 100 pounds, 4.8 ounces of that person would represent the three one-thousandths of a percent.  That is my state, so far.  You can multiply that many times before you get to just 1 person out of the 100.

There is genuine hardship for people infected by disease, and as their neighbors we are concerned for them and wish to help.  Are social disruption—which social distancing has become—and the Great Cessation of business the best way to help?  That is a rational and reasonable question.

What about all the rest of the people in the state?  Unfortunately, our governor has chosen to be alarmist.  Invoking worries fed by extreme scenarios of how bad things could get in the future if this or that happens or does not happen, he has declared that all should be affected today, that 100% social disruption should be applied now.  When you run the numbers, that is truly an abundance of caution. 

But it is not an abundance of life. You do not see an abundance in the grocery store, in the churches, in the places of work, on the streets.  You have seen the Great Cessation where you live.  You are recognizing the social consequences of cutting people off from one another, people who are by nature social animals and who need real, genuine social interaction.  You have also seen how our economy rests upon that social interaction, and you are seeing how the Great Cessation is affecting the people—you and me and the millions of people who are that economy.  Ask yourself if this is healthy, personally, and for your neighbors.  It does not feel right, it does not look right, it does not sound right.

We hear that essential businesses and jobs may continue.  Which businesses and jobs are to be labeled “essential” and who decides?  That is another reasonable, rational question.  The answers so far have not been reasonable or rational.  In practice an unflawed answer proves impossible, yet the force of law is being applied anyway.  You have to look away to argue that some jobs are essential and others are non-essential, ignoring the many job roots of each designated “essential” job.  It is a fool’s errand—no matter how well educated or official—to make up such a list.

Tell the man and woman put out of work that their jobs are “non-essential”, and include their children in the discussion.  Tell the small businessman who has been forced to close his doors and receive no revenues to pay his rent, keep his infrastructure, and meet his payroll, that his business is non-essential.  On Monday we went out to eat, the last day that the governor’s edict would allow in-restaurant dining.  I was troubled by the fear that I saw in the eyes of the employees, which their gratitude for our business could not hide.  That is the human perspective, which the officials show little signs of considering in their orders.

As President Trump said this week, in the midst of the national social disruption/Great Cessation experiment, the cure must not be made worse than the problem.  Let cool, rational, and reasonable consideration prevail.  I recommend a Wall Street Journal editorial, “From Shutdown to Coronavirus Phase Two.”  It is a rational and reasonable call for a better way forward.  What we have now is hurting everyone.  There must be a better way.

Of Bears and Working

Photo by Sandy Millar on Unsplash

I can support a cute idea like this.  One of our neighbor dads plans to take his children “on a bear hunt.”  Dad has planned ahead.  He asked neighbors who have them, to put a teddy bear in the window to be spotted by his children as they walk around the block. 

Being empty nesters, our home is more often host to grandchildren; few of many bears remain in our house.  Once we had dozens—of teddy bears.  We now have more than a dozen grandchildren, and I am fine with the trade. 

Speaking of trading, I suppose that we could put in the window a print out of today’s stock market, sliding deeper into bear market territory, responding to yet another attempt by the Federal Reserve to stimulate market confidence.  A more than casual observation might be that these government intervention moves can do more to spook investors than reassure them.  Usually declared while the markets are closed, the moves appear lately to be followed by a sharp market sell-off.  No criticism of their intentions, but when the 5 governors at the Federal Reserve (Fed for short) are pitted against the billions of people who make trillions of economic decisions each day, the Fed is frequently worsted.  No matter how good computers are, the economy is too complex for any of the models upon which any team of experts relies.   

So, no picture of the bear market for the window.  We do not wish to scare the children or their dad.

Fortunately, we did find a teddy bear in the house, left by our youngest (who still has lots of his stuff here).  The bear now sits on our front porch, awaiting discovery.  On his lap he holds a sign, one that our daughter gave us some years ago to announce the pending arrival of her first child.  The sign reads, “Grandkids welcome.  Parents by appointment.” 

No, the sign was not mandated by the CDC or the governor.  Humans need social interaction.  That fact is not apparent in the government orders to isolate people indefinitely.  Dad may not go to work, children may not go to school, so it is great to see fathers and sons and daughters taking pleasant walks.  At some point, someone is going to need to pay bills to buy things produced by somebody somewhere.  I wonder whether the complex models on which the governors rely are a match for the billions of human interactions in which their millions of citizens need to engage in order to live and be happy. 

Of Warming Planets and Cooling Economies

Did you notice when the Obama Administration paused in its ballyhooing about global warming?  President Obama and his officials had been busily hustling the warming of the planet and its attendant disasters—which they insist can only be fixed by increasing government control of our lives, from birthing to breathing.  The President was in Florida, blaming the future hurricane season—which has not yet happened—on global warming.  “The best climate scientists in the world are telling us that extreme weather events like hurricanes are likely to become more powerful.”  What President Obama did not mention—anywhere in his speech at the National Hurricane Center in Miami—was that the scientists predicted a “below-normal” hurricane season for 2015.  Was that mercy because of or in spite of global warming? 

Perhaps we should not blame the President for leaving that little item of information out, since for each of the last several years the cited “best climate scientists” (whoever they are) had predicted extraordinarily active and destructive hurricane seasons.  Since each season turned out to be unusually mild, the official forecasters have now changed their tune, putting themselves solidly in-sync with recent trends.  Do not put yourself at risk with a long investment on it either way. 

As for global warming, however, the President and those who say they agree with him insist that the debate is over (in either science or a free nation can the debate ever really be over?), meaning that it is unacceptable to disagree with them.  If you can’t say something calamitous, then don’t say anything at all.

Then, suddenly and quite unexpectedly, the global warming talk stopped.  There was a mercifully, if brief, moratorium on warming warnings.  Instead of predicted calamity, a real calamity was at hand that required some ‘splaining.  The most recent report on the nation’s economic growth was announced.  Not only had growth slowed, as measured by government number crunchers, the economy had actually declined in the first 3 months of 2015.  That seemed to come as a surprise to no one who is either without a job or working in a job that is something less than the job held before 2009.  But it was unwelcome news to the Administration that has been working on economic revival for going on seven years.

Instead of global warming, the Administration needed cold weather to blame for the decline in economic activity during January, February, and March.  The lead official White House explanative was, “harsh winter weather”.  I did not make this up, and you are not supposed to notice how convenient White House excuses are.  It was better that global warming talk was cooled for a moment lest people recognize the contradictions in the official propaganda and begin to wonder whether White House policies were working.

Winter weather is not a novel excuse for failed government programs.  The old Soviet Union blamed repeated crop failures on harsh winters (in Russia?  Who knew?).  The similarity in excuses used by the Obama White House and the Soviet Politburo is not accidental.  Central planners can survive only if they have at the ready a list of excuses of things beyond their control.  The list could be a long one, since in the end there is not very much about the economy that central planners can control, if control means making things go the way intended.  To quote the character Jayne Cobb, in Serenity, “what you plan and what takes place ain’t ever been exactly similar.”

Of Dysfunction and Governing the Nation

It seems that no more evidence is needed. The establishment press, normally loath to criticize the federal government, has at last become even fond of proclaiming that “Washington is dysfunctional,” although they do so as if announcing something worthy of being “news.” The Senate has not passed a budget in some four years. The House of Representatives regularly passes budgets that the Senate will not even consider. The President—who has no budget-proposing role under the Constitution—proposes budgets that are routinely disregarded while declaring his intent to govern without the Congress. At the same time, people feel more alienated from their government than ever before, in ever increasing numbers considering the nation headed in the wrong direction, regardless of the party in control of national policy.

In the most recent demonstration of the Washington breakdown, the Congress this year failed to pass the annual appropriations bills before the current ones expired. Or, better said, the House passed appropriations bills, the Senate demurred, and the President announced that he would veto any appropriations legislation that offered either more or less than what he wanted.

The establishment press, amplifying executive branch efforts to promote panic and stampede the public, announced that “the government would shut down,” and yet 83% stayed open. Some prominent public operations (that do not require any appropriations to operate) were closed at the President’s bidding, like the Lincoln Memorial and the various veterans and war memorials, but the President seemed to have enough money to travel to various campaign-style rallies to complain about the government shut down. There was national confusion and consternation.

Perhaps what is news is that there is, at last, general agreement, and the President has helped demonstrate, that the federal government has become dysfunctional, by which we may mean, not doing what it needs to do. I also notice that this condition has not been getting any better. In addition to the recent, visible indicators, I would offer some longer-term measures.

Economic growth is depressed and has been declining for decades; employment is also down, with millions leaving the work force. Government welfare rolls have expanded dramatically, suggesting that a very large portion of the population is either not able to take care of itself or has surrendered its responsibility to do so. The federal balance sheet approaches ever closer to insolvency. To avoid being gloomy and doomy, I will not recount dismal education trends, eroding family formation patterns, the precarious condition of national infrastructure, or our worsening international relations (with allies and opponents).

Yet, the federal bureaucracies are far larger, taxes—visible and hidden—are higher, red tape has become ubiquitous, and federal subsidies have fallen behind promises even as they outdistance the ability of the federal government to pay for them. If government is the solution, then why is more government not making things better?

How could this happen? Have we as a nation lost our ability to govern ourselves? Have “partisan politics”—as though something new rather than part of our national intercourse since 1796—frozen the ability to consider, set, and follow national priorities? Have the problems of modernity exceeded the ability of policymakers to resolve them?

A case could probably be made for each and all of the above explanations. I think, however, that they are all symptoms of a more fundamental problem, one recognized long ago, at the founding of the nation.

As early as 1787 the Founders recognized that a central government would not work for the United States. Even with just the original 13 states and 3 million people, the nation was too vast to be governed in detail from one capital. That is why they created a federal system, under which the few, truly national concerns—such as national defense, trade, international relations, national standards of measures and sanctity of contracts, preservation of freedom and the rule of law, together with the means to fund these activities—would be handled by the national government. All else was reserved to the States.

Note that I did not say given to the States. Remember, the States and the people in them created the national government. The States and the people in them gave to the national government its authority and power.

Today, the United States stretches across a continent and reaches to the isles of the sea, with over 300 million inhabitants. It is even more impossible than ever to govern from a single capital, by a centralized government. We all have seen the evidence, in addition to the growing dysfunction of Washington. Everyday, people all over the nation struggle with rules made by the federal bureaucracies, rules that are often nonsensical where people live and work and play, rules governing the volume of water in our toilets, the content of our children's food, the gasoline in our cars, the content of our communications, the form of our financial affairs, and many other elements of daily, personal life. Even worse, they have become too vast and complex to be administered faithfully or complied with loyally.

We could fault the executive branch bureaucrats who make them or the Congressmen and Senators who write the laws, but these people are no smarter or dumber than the rest of us, and just as well meaning. They just have an impossible job. No one can know enough to run so many things from Washington.

Consider the big issues that seem to have Washington all tied up in knots—in turn afflicting all the rest of us. The new national healthcare systems are breaking down even as they get started. National rules for farmers have Congress stuck over who should get subsidies and who should not. National tax plans designed to take from some to give to others divide the people into winners and losers. Environmental regulations impose costs on some in order to subsidize someone else. National education programs follow each other in rapid succession, each with a new and high-sounding name, none of which do much to stem the continued decline in education. And ever present with all of these national rules are unintended consequences that were not and probably could not be foreseen but which crush people’s businesses, destroy jobs, and disrupt lives.

These are all issues that the Founders never intended for the national government, issues that if governments should address at all should be left to State and local governments, where decisions can be made closer to the people who have to live with the results.

We have at hand a better, competent government, or at least its blueprint. It is found in the structure of our Constitution that created a federal system. Our Constitution is the recognition that only through a system that keeps governing as local as possible can a great nation exist in union and harmony.

What we are seeing play out before our very eyes is that our nation not only should not be governed by a central authority, but that it cannot be. The sooner we recognize that and return to the federal plan of the Founders the happier, and the sooner Washington will be able to function as it should for the benefit of all rather than frustration for all. The task is too big otherwise and doomed to failure. It will not be a pleasant failure.

(First published October 27, 2013)

Of Claiming Good and Doing Bad

A very good book was published this month.  Ostensibly, it is about our economy and the recession.  It is actually about much more.  It is the first book about the current American economy written by a philosopher, and it is perhaps the best book I have read yet about all the recent unpleasantness.  Some might say that the economic trouble still continues, more like a long, slow convalescence from a serious illness than a healthy recovery.  For many whose financial condition stagnates, for those who have replaced a full-time job with one or two part-time jobs, for graduates who have a degree in hand but no work in the field for which they have trained, and especially for the millions who remain out of work, talk of an economic turnaround can seem like a mockery.

For those and others, Infiltrated, by Jay W. Richards, can help make some sense of what hit us.  The book does not suggest that there was a massive conspiracy to drive our nation into economic turmoil.  It explains how turmoil came nevertheless as national policymakers followed the prescriptions of people who claimed to be doing good but tried to cheat the laws of economics and markets to impose what they might call “benevolence” on the rest of us. 

It was their idea that in order to help more people own homes lenders should ignore such things as ability to repay a mortgage, strong history of employment and steady income, and having some equity in the value of the house so there would not be an incentive to walk away if prices dropped.  They also agitated for the government to expand its guaranties for mortgages to people with poor credit histories and loans where lenders cut corners.  And they badgered builders to keep building more houses. 

Their plans horribly miscarried, and yet those people have even more control over us and our economy today and are more able and determined to try again.  The recession, rather than educating and deterring them, has made them bolder.

I am reminded of what the late Louis Rukeyser, the very popular host of the PBS program Wall Street Week, wrote in the 1990s:

            Washington has been taken over by an impregnable mob of short-sighted, power-hungry megaclowns.

They try their worst to micromanage every detail of the economy, but succeed only in whipping the markets back and forth, up and down in spastic patterns.  They despise the gentler forces of a free market, which would moderate swings far more predictably.

(Louis Rukeyser, 1993 advertisement for his financial newsletter)

The people to whom I refer and whom Richards exposes in his book do not like the markets.  They trust themselves more and think that you should trust them, too.  They seriously do believe themselves smarter than the markets, and that is the problem.  No one, other than God, is smarter than the markets.  A large part of economic history, the tragic part, is a chronicle of the disasters caused when a small coterie of people are able to enforce their wishes and preferences on the rest of us in contravention of economic reality.  It never works. 

That was the story of the Great Depression, and it was entirely the story of communism, where whole societies were based upon the now well-proven fallacy that any group of people, no matter how smart or well intentioned, can gather sufficient data and know and understand enough to run a national economy.  It is just far too complicated, with billions of economic decisions being made by millions of people all day and all night long.  The markets make it all work, because the markets are the sum combined total of all of those economic actions and decisions interacting with each other.  No human five-year plan for economic control has escaped failure.

What is worse, as well intentioned as such people may start out, all too often, as Richards’ book exposes, their efforts not only fail to do what they set out to do, they fail to stay virtuous and instead  become enlisted in the service of private gain at the expense of the rest of us.  The Soviet system might have worked pretty well for the party owners of the dachas along the Black Sea but only by impoverishing the workers their leaders claimed to be serving.

Do not let yourself be put off that Richards is a philosopher.  His book is remarkably readable, one that you can take with you to the beach and actually enjoy, and feel that you have learned something—a lot—in the reading.  Richards mixes real life narrative with hard facts and good research, unified by sound reasoning to expose a nasty and growing problem in American government today.  The problem is a big part of why government is expanding and becoming more intrusive in all aspects of our lives, including our financial affairs, education, healthcare, energy use, the products we buy, the food we eat, and the entertainment we enjoy, and even the breath we exhale. 

That is to say that the story told by Jay Richards, in Infiltrated, is actually a longer story, a story that began long before the recession, and continues afterward, a story that is bigger than his book.  The recent economic events and their painful aftermath illuminate Richards’ core message, the human wreckage caused when some people are able to harness the coercive force of government to impose their personal notions of “benevolence” on the rest of us. 

Roger Kimball, writing in 2011 in The New Criterion, warned that such efforts are “intoxicating, addictive, expensive, and ultimately ruinous.” (Roger Kimball, “Liberty versus benevolence,” The New Criterion, February 2011, p.6)  Richards offers several well-described examples, well illustrating the truth of Kimball’s observations. 

A valuable lesson for policymakers and for the people they would govern:  the more discretion you give to government, the more you create the opportunity for abuse of that discretion for private gain.  Europe in the 18th century was lousy with the practice.  Our forebears sought to escape it and fought a revolution to get out of its grip.  The men who threw the tea into Boston Harbor were acting in protest of the partnership between the British Crown and the British East India Company. 

Beware the public-private partnerships.  Jay Richards explains how some public-private mortgage partnerships went bad, very bad, for the partners and for all of us caught in the dust and debris of their collapse.  I am reminded of the warning by former Congressman Dick Armey, that when you enter into a partnership with the devil, you are always the junior partner.

I conclude with the words of New York City Democrat Congressman Bourke Cockran, delivered 110 years ago:

That Government only is good, that Government only is great, that Government only is just, which has neither favorites nor victims.

(W. Bourke Cockran, speech given before the National Liberal Club of England, London, July 15, 1903, in W. Bourke Cockran, In the Name of Liberty, p.190)

Our government should be that government.

Of Struggling Economies and Finishing the Job

The Obama Administration is having trouble keeping the economy down.  In spite of all the battering that the economy has taken from Obama policies, it keeps showing signs of life—weak, hesitant, surely not robust, but they are there, like the weak patient who wants to get out of bed and shuffle downstairs to sip some chicken soup.  Instead, the Administration, like some 18^th century doctor, wants to try some more blood letting to get the bad humours out of the system. 

People want to do things.  Businessmen have new ideas that they want to have a go at.  Men and women like to build, grow, and develop their lives.  No one needs to tell them to do it.  You just need to get out of the way.  The most productive, the most energetic, the most inspired, the hardest workers will do it best.  We can still remember when the economy was like that, when the news was full of new products, new ventures, new growth, and new jobs.  That is the light America shines to the world and what despots throughout the world hate about the American experiment.

President Obama came to power with a different vision for America, what he thought was a mandate to spread the wealth around, to take from those who succeeded the most in economic activity and growth and find ways in which he and his administration could give it to those who were less productive—or not even productive at all.  In other words, his plan was to tax success and reward failure.  So far, it has worked as designed, even if he has not yet finished with his efforts.  We are getting less of the success and more of the failure.

The trillion dollar “stimulus” plan was a good example.  President Obama and friends hit the economy with a special trillion dollars of new Washington spending that went to support cronies and fund new projects that soon added to the landscape littered with failed businesses.  The “stimulus” plan added to the deficit and became a seemingly permanent part of federal largesse, but it failed to add to the economy.  In fact, it made legitimate businesses compete for funds and customers against those who enjoyed government subsidies.  Hard to do.

The housing market makes up about a quarter of the economy, when you include people who build houses, furnish houses, maintain houses, and so forth.  That market was in full decline as the housing bubble burst in 2007 and kept deflating.  But eventually all the extra air comes out of economic bubbles (if you do not keep pumping new air into them), the crashing market reaches bottom and starts to recover.  The Obama Administration has made sure that it stayed on the bottom a long time.  Normal economic crashes and recoveries look like a “V” on a graph charting their progress.  The housing market under the Obama Administration looks like an “L”.  Note the tiny turn up at the end of the letter.  That is what the Administration’s friends would try to convince us is the recovery.  And they would like to divert our attention from the several thousand pages of new mortgage regulations that will go into effect in the next several months to whack the housing markets again.

Sure, mortgage rates are incredibly low, but that is not a healthy sign.  Have you tried getting a mortgage lately?  The paperwork, already a mountain, has become overwhelming.  And do you think that those rates would be so low if there were a real recovery in demand for houses and mortgages?  There is more (or less):  many people who qualify for mortgages today will have trouble qualifying in the future under the new rules.  The Obama Administration’s new consumer Bureau has been putting off those rules until after the election, but they are promising to issue them by the end of the month.

The summers of 2009, 2010, 2011, and even 2012 were each supposed to be the “Summer of Recovery” with the “green shoots” of new economic activity showing life each spring.  Yet each year those summers saw instead new economic setbacks as the green shoots wilted.  Sometimes the damage came from threats of new tax policies that would raise rates but give “tax breaks” to people who spent their income in ways approved by the Obama Administration and the tax code.

Businesses were threatened with new carbon taxes and other innovative and contorted ways to penalize any use of carbon dioxide, part of the air that we as humans produce with every breath.  Even a Congress with heavy majorities of legislators from President Obama’s own party choked on that idea.  Not to be deterred, the Obama Administration just imposed restrictions by fiat through the Environmental Protection Agency—all part of the war on carbon, which includes the energy industry as its victims.

The business climate remains in turmoil, as waves of new regulation and Obama campaign promises to bail out new favorites in the economy continue changing the rules and make business planning impossible.  Who would take a risk at trying something new when Obamacare and other employee regulations make it hard to know what the expense will be for new hires?  American businesses are sitting on somewhere between one and two trillion dollars in funds, waiting to know when it would be safe to invest them.  Employers are trying to put some of that cash to work, but they are being very cautious in doing so, not what the words “free enterprise” bring to mind.

The Obama Administration and its apologists call the recent unemployment report “good.”  The unemployment rate went up, above the level when President Obama came to office; 5 million people are long-term unemployed, up by 200,000 from the month before; and the economy has 4.4 million fewer jobs than at the peak of its last growing period before Obama took office.  The excitement apparently comes from the net increase of 171,000 jobs in the past month, above the experts’ predictions of 125,000.  Watchers have learned to lower their expectations for this administration, so that they greet with cheers any signs of life above their reduced standards.  Maybe for President Obama that continued anemic performance is good, but America can do better.  America has done better, much better.  We cannot afford to lower our vision. 

Our future and the future of our children and grandchildren must not be crippled by looking at 2% economic growth as being “good” or even acceptable.  If we want a better future for our children and grandchildren, in fact if people my age want a secure retirement, we need to get back to an America where 4% annual growth or better is the norm.  The social welfare state is expensive, not the least of which being the cost it exacts from the future to pay for the promises of today.

Fortunately, the economy still refuses to die, in spite of all the beating that it has received at the hands of the Obama Administration, but the economy is not well.  Let’s not give the Obama team another four years to try to finish it off.

Of Government and Getting What We Deserve

There is a theory that I believe but I am not sure how to prove (this side of the final judgment) that over time people tend to get the government that they deserve.  This idea comes to mind when I hear complaints in the public media about the Congress.  You have certainly heard them.  They come in various flavors, but they are the same soda:

• Why can the Congress get nothing done?

• Congress is unable to rise above partisan politics.

• The people in Congress seem so out of touch with the rest of America.

• Congress avoids making tough decisions.

You could surely add to this list.  The underlying theme is that the Congress is not doing its job.

These comments are a frustrating alloy of truth and silliness.  There is a lot that is right and wrong with the current Congress.  Who put these men and women on Capitol Hill?  With the exception of a handful of Senators appointed by their governors to fill temporary vacancies, and the few dozen congressmen who by order of the Supreme Court must be elected in districts where there really is no democracy (I refer to those from districts mandated by the courts to provide only minority representation), all of these congressmen and Senators were elected—by the people whom they represent.

I mention that to refer to both sides of the coin.  We, the people, put those people there.  The other side is, we the people can send them home.  That is a weighty responsibility, one that we cannot discharge faithfully by just complaining.  We cannot do our legislators’ jobs for them and be involved in all of the minor details of all that they do, but we can and must hold them accountable for the sum of what they do and for the general tone and direction of their actions.  To be successful we need to have a clear idea of what we want our representatives to do and be well educated about what they are doing—not just what they are saying.

One of the sillier comments I hear is the suggestion that we should “throw them all out.”  Is that true?  Is every single congressman and Senator doing a bad job?  Even a basic review of congressional action should tell us that is not the case.  On nearly all of the most important issues there is in fact quite a divergence of views and actions.  Again, our inescapable job is to figure out what is the right policy and look carefully at how our elected representatives are conducting themselves with regard to it.  We should weed the garden, not plow it under.

There are many policies and many issues from which to choose.  Let me suggest two.  The first would be the Constitution.  What have been the actions of our own particular representatives with regard to supporting and defending the Constitution and the rule of law?  Our current President has been active in undermining the Constitution and disregarding the rule of law, so this is not a theoretical issue.  What have our representatives been doing to combat voter fraud, to make sure that the executive branch does not spend money that has not been appropriated by Congress, or to prevent bureaucrats from telling law abiding people how to spend their money, run their businesses, freely express their opinions, or observe their religion?  There have been many other assaults on the Constitution by people in Washington.  As voters, we should be mighty touchy about any of those efforts and reluctant to vote for people who do not share our sensitivity about the importance of the Constitution and our rights as citizens.

The second issue I would suggest is economic growth.  We will never really get out of this recession (that feels depressingly like the 1930s) unless we place a top priority on getting the economy growing.  We cannot solve our budget deficit and federal debt problems without economic growth.  People forget that the few years that we had a balanced budget in the 1990s did not come by government action.  Congress and President were in fact surprised by the surpluses.  They came about because the economy grew more strongly than expected.  We should support those legislators who act like they understand that economic growth creates jobs and that economic growth is created by private initiative.  We should support those legislators who consistently vote to remove barriers to business creation and innovation and defeat those who do not.  Those barriers include higher taxes and increasing government involvement in business decisions and operations.

All of this will take work on our part.  We cannot expect to have legislators who work for what is right and wise unless we do our work to find and support those who do.  There are many of them in the House of Representatives and in the Senate today.  We need more of them.

I believe that people eventually get the government that they deserve, and I yet believe that we deserve better than we have and that the time has come to get better.

Of the G-20 and Running the World

When you think about it, it is ridiculous.  In fact, it would be pitiful, if they were not so serious and did not have the power to do seriously bad things.  I am referring to the leaders of the Group of 20 (G-20) nations, who recently met in Mexico, thinking that they run the world.

If the question were put to you, “Who runs the world?” there could be several correct answers, but none of them would be this group of people, or any subset of them.  Nevertheless, because they think that they do run the world, and because they act on that belief, they do a lot of things that not only do not work but that make things worse.  Then they gather again and try something else, much of which is designed to clean up the mess caused by their previous foray in hubristic action.

The world is a complex place, with billions of people each doing complex things and interacting with each other in complex ways.  Then the planet itself does a lot of complex things.  Take the weather, for instance.  With computers and a hundred years of scientific study, weather forecasters have succeeded in the ability to predict the weather with a passable degree of accuracy two or three days out.  Beyond that, the accuracy of forecasts declines to about 50-50 (flip a coin) and drops from there.  The ability to change the weather, after a lot of work and investment, remains elusive. 

You have to be very smart, or think that you are, to convince yourself that you can in any significant way control the economy of your own nation, let alone of the world together.  The Russians, who are very smart people, tried it for 70 years with less than success and with the death and misery of tens of millions of their people.  The communist Chinese gave it a go, too.  Lately they have been reluctantly recognizing that there might be a better way—though they act like they are still not so sure.

Consider how many of the most serious problems facing mankind today are caused by people like these G-20 government leaders who fancy that they run things.  A few examples:

• The economic malaise in the United States.  The U.S. economy has just passed through a very deep recession, caused by government programs that encouraged people to buy houses that they could not afford, investors to invest in the mortgages used to buy those houses, banks to take government investments in their capital that they did not need, and people who could afford to pay their mortgages to walk away and leave the keys on the counter.  To solve those problems, the U.S. government spent a trillion dollars it did not have, increased rules and regulations on businesses that could otherwise create new jobs, “created” a quarter of a million new jobs at the cost of eliminating a million jobs in the private sector, and threatened investors and small businessmen with stiff tax increases.  Economic activity remains in the doldrums.

• The second economic recession in Europe.  The European economy went into recession about the same time that the U.S. economy did, for rather similar reasons.  It then weakly recovered, briefly, and then went back into recession when the promises that the governments of southern European countries made over decades to buy votes at last became more expensive than they could borrow money for—let alone pay for.  Now, every couple of weeks Greece, Italy, or Spain goes into economic crisis, the rest of the European leaders make empty promises to solve the problem, followed a couple of weeks later by new crisis and another round of promises.  That has been going on for about a year, while economic activity heads south.

• The availability of energy.  From the gasoline that we put in our cars, the electricity that lights our houses, to the natural gas that warms our offices and homes government rules affect the availability, price, distribution, and supply of energy.  The United States imports enormous amounts of oil from unstable countries that use the money we pay for it to threaten our people at home and abroad.  Meanwhile, we have more than enough supplies of coal, natural gas, and oil located in oil shale and oil sands and off our own shores to meet all of our needs now and for the foreseeable future, but government efforts to run the energy business prevent us from using them.

These are just three groups of examples of many.  Once again I call on the wisdom of William Tecumseh Sherman, the great Union general of the Civil War, who famously refused to run for President of the United States with the assertion that if nominated he would not run, if elected he would not serve.  He gave his friend and colleague, U.S. Grant, who did not make such a refusal, a piece of excellent advice:

My opinion is, the country is doctored to death, and if President and Congress would go to sleep like Rip Van Winkle, the country would go on under natural influences, and recover far faster than under their joint and several treatment.

(William T. Sherman, letter to General Ulysses S. Grant, February 14, 1868, in William Tecumseh Sherman, Memoirs of William T. Sherman, p.922)

If someone should ask you, “Who runs the country?”, the correct answer is, “no one.”  Plenty pretend to, and many others wish to, but none do and none can, and we would all be better off if they would stop trying.  Our nation’s founders would have recoiled in horror at the question, because they intentionally created a nation that no one could run.  Why else have three branches of a federal government, one of which is divided into two separate houses, and state governments take their share of governmental authority?  They had seen Europe and knew of Asia where people for thousands of years had royally messed things up by trying to run their countries.

Instead, the American founders created a system where each person would run his own life.  The leaders in government were to run the government, that for the most part was to stay out of people’s lives and keep foreign governments at bay should they have any thoughts of trying their hand at running the lives of Americans.

That vision of the founders has been fading.  Today, make a list of the things that you can do that do not involve some sort of authority or permission from government.  It will not be a long list, and it has not been getting any longer in recent years.  Then ask yourself if life has been getting any better.  If it has, congratulate yourself on your power to overcome.

Of American Prosperity and Failing Villages

The Internet has been a boon for small businesses.  No longer is the market of the small business limited to the local community.  The Internet—together with an efficient system for making payments— allows customers to find the business and do business from near and far.
 
I am thinking at the moment of the used and rare book trade, although I have frequented other lines of small businesses via the Internet, including finding hard-to-get plumbing parts.  I love to walk into a book store, especially a used book store, and more often than not I leave with a new acquisition or two in hand.  I recall not very long ago buying a set of the debates surrounding the ratification of the Constitution.  As the bookseller rang up my purchase he asked whether I had found what I was looking for.  I told him no, that I had found what I was not looking for.  That is the way it usually is for me and a book store, the surprise and wonder of it, the discovery of things of which I had not before been aware or did not know were available to me.

It is a problem that there are not that many small bookshops around, maybe at most one in a town, two or three in a city.  I understand that it is a tough business.  You have to be willing to let musty old volumes sit around on your shelves for a long time, and those books are costing money while they sit there.

The Internet helps solve that.  You can search for a title or an author and find perhaps several sources of the book, long out of print, in bookshops scattered around the country, in towns and villages where you may have never been and would be unlikely to visit.

I have remarked how much I loved a couple of readers we used in grade school.  I could not even remember the names of the books or their authors, but I cherished them for the enthusiasm that they taught me for economic growth and development in America.  I learned a lot more than reading from those books.  I learned that America was a growing and developing country, always becoming more, richer, grander, harnessing the optimism of its people who came from many places but found in America a place where there was joy in the hard work of the present because you owned the results of what you did and what you did was build a more prosperous future that you passed on to your children and their children, who built on it in their turn.

Through the Internet I discovered that the books were written by Mabel O’Donnell, entitled Singing Wheels and Engine Whistles.  They told of the fictitious town of Hastings Mills built in the early nineteenth century on an Illinois prairie, a town that grew to become the prosperous city of Hastings by the early twentieth century.

The town and characters were a literary fiction, but they captured the real spirit and efforts of what happened all over America at that time.  Elsewhere I have quoted a passage from the first book, Singing Wheels, in which the founder of the town, then numbering but a few dozen cabins occupied by hardworking people with dreams, shared with his son the dream of how the town would grow, transforming the surrounding prairie into prosperous farms and the town into the prosperous center that would serve them all.

In the second book, Engine Whistles, the grandson of that founder is chatting with a train engineer about what made the town into a thriving city of 12,000 inhabitants, and growing.  The engineer proudly tells the boy, Tom, that it was the railroad that put Hastings on the map, and the vision of the men—including his grandfather— who brought the railroad to Hastings.  At first Tom agrees, but on second thought Tom argues that there was more to it than that.

“A railroad doesn’t make a town,” he said with a thoughtful look in his blue eyes.  “The railroad didn’t make Hastings.  My grandfather did.”

“Come, now, lad,” boomed engineer Bill, a note of amused disagreement in his voice.

“Yes, he did, too!” insisted Tom, hurrying on and allowing no time for argument.  “He came west in a covered wagon when there wasn’t even one cabin in the valley of the Big Turtle.  He knew it was a good place for a town, and so he built a lumber mill.  Then he cut down trees and sawed lumber so that other people could build homes, too.  He’s the one who made the town!” (Mabel O’Donnell, Engine Whistles, p.37, 38)

As a child growing up in south Florida, I saw that story playing out around me, as each year new homes, businesses, churches, highways and much else were built.  Economic development was the way of life.  When I was a teenager my family moved to western New York, to a much older village, much like Hastings, built in the early nineteenth century by men of vision, a village that thrived into a bustling business, industrial and even cultural center of some 10,000 people. 

But I arrived in the village’s twilight.  It still numbered 10,000 people and still retained something of its old spirit, with several manufacturing and business establishments and even a college.  By the time I and my schoolmates left—and it seemed that most of us did leave—the college had folded up, as had all but one of the manufacturing firms and many of the businesses.  I understand that the biggest employer now is the local hospital system, a close second being the ugly sum of the various state and local government agencies.  People were very happy to get a new state prison built nearby.  The heavy taxation and regulations emanating from Albany made business too expensive and leached away the village’s future.  Just recently, driven by tax burden, the remaining inhabitants of the village voted to give up their village charter.

A different story, that one, but one that has its echoes in too many places.  I wonder whether that was the America that the Dutch, Germans, Italians, Irish and others who built the village had in mind for their descendants. 

I am very glad that I found Mabel O’Donnell’s books through the Internet and was able to buy them and read them again.  You will have to get your own copies, though, as I am passing mine on down to my grandchildren.