Dear Friends,
It seems to me, the boom bust cycles of all market economies, are like the sleep wake cycle of human beings, and all higher life forms. We must have times of rest, else we become less efficient, and an economy needs a rest period after a time of rapid expansion. Most people would agree that human beings need sleep but those same people are unaware that economies, being complex systems like us, need rest cycles as well. To ignore this fact, insures that our economy will under perform eternally, to our personal economic misfortune.
People can be forced to stay awake for days at a time. There are many ways to do this, drugs, cold water and electric shocks are but a few. As we are kept awake for longer and longer periods of time our performance diminishes. This is a scientifically proven fact. Methamphetamine is very good at keeping people awake, and it even boosts performance for a while, but the lack of a rest period eventually catches up, and we experience a crash. Human physiology is unbending in this… ask any doctor.
Many means have been devised to do away with the boom bust cycle of market economies. The federal Reserve was implemented under Woodrow Wilson to end recessions for all time. It has not only failed… it has failed miserably! The recessions under the federal reserve mechanism have been harsher and longer then they were before the federal reserve system was set up. But, as with all government programs, the more they fail the more permanent they become. Failure ensures longevity for bureaucracy.
Another means to stop recessions was proposed by Karl Marx. He claimed that socialism would end the boom bust cycle of the capitalist mode of production. This has had some success. Socialism has stopped the boom bust cycles in all countries that have fully implemented it. The drawback to this scheme, is that it eliminates the boom… and permanently enshrines the bust. Perpetual bust is not very effective at raising the standard of living of the average man and woman. It is far more effective at lowering the lot of the people and elevating the lot of those in power.
Once a market economy has seen a period of rapid growth, the new means of production, organization and products that come about in a period of expansion, need to be matured. These new ways of doing business drive the old ways into bankruptcy. Recession is a chance for the old ways to be destroyed and the new means entrenched. Schumpeter coined the term, “Creative Destruction” to describe this paradigm. In this concept, new more efficient ways of doing business have to be paid for, and the old ways have to be dismantled, for the next cycle to begin.
If there is not a time of rest for an economy, the old less efficient ways cannot be plowed under, in favor of newer more efficient means. In fact, the implementation of newer more efficient ways are hampered by those very programs, that seek to eliminate recession. It is usually during recession that new ideas are invented. New ideas that generate the next economic expansion.
History shows that whenever government is the most involved in the market outcomes are the most impaired. We can experimentally examine many people to prove that the sleep cycle must not be disturbed. Over time, examining many people, this has been empirically proven. However, there is only one economy in a country, and the fortunes of those people, who live in that country are tied to it, so experiments are less likely to yield clear results. Couple this with the pernicious interference of politics, politicians, bias and egoistic self interest by the elite… and unbiased empirical results are almost impossible to reach.
Our fortunes and the fortunes of our posterity are put at risk by the modern alchemy of eliminating economic cycles. No doctor would argue that the sleep cycle can be overcome, but economists, who are the doctors of economies, argue with a straight face that economies need not rest. The ways that have been tried to eliminate the need for economies to rest, like national banks and socialism, have yielded poor results, and in some cases, have led to human suffering on a scale that boggles the mind. Through creative destruction, economies grow, efficiency expands and the lives of people are improved. All the increases in efficiency, that have resulted from the evolution of economic systems, have resulted in magnificent improvements in the lot of Mankind. Since economies cannot be empirically tested, because of personal bias and political interference, it is nearly impossible to quantify the need for a recession after a period of growth. Understanding this leads us to the conclusion, to stop economic cycles of boom and bust, is as foolish as keeping a worker awake for months with drugs… and expecting his work not to be impaired. Foolishness is foolishness no matter who does it.
Sincerely,
John Pepin
