chickenlittleThe sky is falling!  The sky is falling!  So said Chicken Little in a fit of uninformed self-preservation.  We are now hearing about the great failures of capitalism from the Occupiers, the regulators, the politicians, the central bankers, and other multitudes of the persistently misinformed masses.  Economies are crumbling around the world.  Banks are failing.  Prices are skyrocketing.  The rich are getting richer while the masses are getting poorer.  Capitalism is failing!  Capitalism is failing! 

Let’s get this clear.  Capitalism is not failing.  The mishmash economy born of macroeconomic policy designed to benefit politically connected businesses, government regulators, central bankers, and politicians auctioning stolen goods is what is failing.

Let’s be more specific.  It is precisely macroeconomic policy that is failing because it cannot work. The nature of most macroeconomic policy efforts is to make interventions to generally influence outcomes – it applies a sledgehammer to drive a staple.  Needless to say there is a lot of ancillary damage as a result of the action. 

An economy is not a unitary thing.  It is an aggregation of billions of individual personal economies.  Each one of those economies will respond to an intervention in its own unique ways.  The outcome of those billions of decisions is simply not predictable because every decision is based on differing motivations, resources, locations, and time preferences. 

The only macroeconomic policy that won’t have negative unexpected consequences is one of non-intervention.  Why is this the case?  The reason is that government macroeconomic policy utilizes coercion to alter the size, number, and type of economic transactions.  By doing so it shifts resources away from their most productive use in the voluntary economy to the use favored by elitist policy makers creating an imbalance that will alter many other transactions. Many economic participants will be harmed by the mandated resource allocation shift to politically favored beneficiaries. 

For example, in the US government mandates that corn be processed into ethanol to be added to gasoline stock to supposedly make us more energy self-sufficient.  As a practical matter it makes gasoline more expensive because it requires more energy to produce than the ethanol created. 

In addition it drives up demand for corn that is normally used to feed people, cows, pigs, chickens, etc.  Consequently we are seeing price rises larger than the government’s official inflation indicator in the food sector.  Producers are actually rushing animals to market now because of the shortage of corn to feed their herds.  Meat prices will be spiking in 2013.  The reason this happens is because it increases profits at politically favored agricultural concerns like Cargill, and ADM while generating financial contributions to politicians.  The damage to the consumer is ignored in favor of the producer.

We are now hearing that milk prices could double if the government doesn’t implement price controls on milk.  What everyone fails to tell us is that those higher prices are mandated by federal agricultural subsidy laws dating back to the 1950s.  Essentially the Feds have to legislate lower prices because they legislated higher prices earlier and are afraid to repeal those market abominations.  Even in basic commodities like milk and corn we don’t have free markets in this country.

By setting interest rates artificially below the voluntary market rate the Fed is destroying capital markets in the US. All of the available capital is being sucked up by the Federal government using the near zero interest rates to subsidize Treasury borrowing.  This capital is being taken from private capital markets where it would be employed to satisfy consumer needs, not political needs.  The long-term application of such tools is destroying private US capital investment which will continue to undermine growth in the economy for years to come.

Far from being free, the financial markets are a maze of crony favoritism and regulation that keeps the giant politically connected firms at the top of the heap and crushed potential competitors with bailouts and humongous expenditures just to be licensed to play ball.  Bailouts, money printing, market volatility, commodity shortages, inflation, and economic contraction will continue as we regulate the free economy out of existence just as the USSR did.

In short, all of the failures of capitalism that everyone points to as justifying government interventions are merely the results of prior government interference in free markets.  Problems in financial markets, banking, food production, energy, transportation, etc.  are all the results of the unintended consequences of government meddling in voluntary exchanges. 

Now we see our economic way of life threatened as seemingly fundamental institutions are near collapse and international trade is threatened.  Governments point to speculators destroying confidence in markets, but that is just to distract from their own malfeasance. Crony political corporatism is now a victim of its own success.

Only free markets and reduced government spending can slow the freight train heading for a crash.  It’s not the economy that’s failing, it’s the political coercion that is collapsing.  Stay away from the dying beast – it can still lash out and hurt people.

The last couple of weeks we have been witness to the exposure of the complete fallacy that we practice unbridled laissez-faire capitalism in the United States of America.  Instead this country embraces insider corporate and government cronyism that enables bailouts, tax breaks, and preferential treatment for the elites that control banking and politics.      More »

This week the Fed lost its appeal to protect it from having to disclose who it gave emergency loans under the pretense of saving the global financial system during the 2008 banking crisis. As he faces the fact that he is consistently wrong about the economy, lying about inflation, printing money at a pace never seen before, bailing out and subsidizing banks and Wall Street, and watching governments borrow and spend their nations into bankruptcy he will have to figure out how to not become a victim of the economic hitmen.  Might be a rough weekend at Bernanke’s.     More »

As Japan is suffering through a nuclear disaster their government is doing what governments always do when their protection racket is exposed for the gigantic fraud that it is.  They are downplaying the size and scope of the disaster, denying any responsibility for design flaws and lack of preparedness, and publicly posturing to hide their complicity and inability to resolve the problem. The Japanese people are stoically dealing with their individual tragedies without complaint, without violence, and without theft – a stark contrast to political institutions that heap more woe on their constituents by trying to tax and spend their way out of calamity, just as we do in the US.     More »

This week we learn that in the month of February the Beltway Burglars ran a deficit of 225 billion dollars.  That is 2.7 trillion dollars – nearly a trillion dollars more than the current official annual budget deficit estimate.  Now DC has been saying for months that the economy is showing signs of growth.  If this is growth the US economy is destined to return to the womb.     More »

As Ben Bernanke continues to hurtle the US economy along at breakneck speed around the most dangerous track he can find, the scene appears to resemble a runaway passenger train loaded up with government, academic, and corporate intellectuals – a veritable who’s who of crash test dummies about to premiere with their greatest hit – or is that their greatest crack-up.     More »

Fourth quarter revised GDP is in from the Bureau of Economic Assassination.  And the verdict is that the economy was growing slower than originally estimated at 2.8 percent, down from the 3.2 percent pimped to the press in January.  What a shocker!  Down the memory hole with that advance announcement.  If you account for the way that Washington understates price inflation in the GDP deflator you find out that the economy is actually contracting as it has been since the housing bubble popped.  All of the actions that have been taken by Fed chairman Ben Bernanke have completely and utterly failed to do anything except generate inflation worldwide in commodities, energy, and food.  Let’s hear if for America’s new Demolition Man.     More »