Dear Friends,
It seems to me, just because someone eats nothing but doughnuts, drinks only soda and chain smokes cigarettes, doesn’t mean they are going to have a heart attack tomorrow, but it is an indication they will have problems in the future, economies work the same way. When an economy depends on nothing but printed money, government deficit spending and crony capitalism, it doesn’t mean that economy is going to collapse tomorrow, but it does mean there will be some big problems in the future. It should be obvious to anyone that doing these things will negatively effect an economy over the long term, and anyone who disavows that they will, is either in denial or conning us. Since our lives are so profoundly effected by the economic situation we find ourselves in, it is of the utmost importance we understand the consequences when our leaders do these things with our economy, just as it is when we smoke, eat fatty foods and drink sugary soda.
The guy who eats nothing but doughnuts and believes he is different and can eat trash without effect is just like the lawmaker who claims deficit spending is a good thing. Deficit spending is like empty calories, it seems good when we see the GDP “growth” that comes of it, but that “growth” is nothing more than fat. What makes it worse is that the fat that comes from deficit spending requires more deficit spending, else it wastes away and we see negative GDP growth… and no one wants that. What we don’t see, is that fat doesn’t do actual work, it just sits there sopping up more and more capital from productive economic uses.
Soda tastes so good, it is hard to believe that it has any bad effects on our health, exactly like monetizing the debt is so delicious that it cannot possibly effect the currency. The fact that it seems to be benign in the short term buttresses this false notion. The effects on our currency from continued money printing, especially printing that far exceeds our GDP growth, builds up tension in the currency. The US is not alone in the money printing business however, and perhaps this is another reason the short term results appear to be harmless… so far. Nothing could be further from the truth, there is not one example in human history where monetizing debt has not eventually resulted in runaway inflation, the fact that the whole world has gone down that rabbit hole might delay the consequences for a while, but the eventual results will not be ignored.
Just as the smoker is in denial his or her smoking will effect their health… the government pretends that crony capitalism will have any side effects on an economy. Crony capitalism seems like a win win to both the crooked politician and the corrupt businessman. The President, lawmaker or bureaucrat who gives beneficial regulations, tax breaks and other hand outs to his political backers, only sees the benefit to them but not the negative effect on the market. Crony capitalism pollutes and rots out the core of an economy. The lawmaker might get reelected, because of the vast amounts of campaign money crony capitalism brings into the electoral system, but the incentives in an economy change when crony capitalism is used. Where crony capitalism is rampant, instead of providing better products, service and value for consumers, businesses seek political favor. This is because under such circumstances it is more profitable for a firm to garner political favor than to meet customer’s needs. This pollutes the market with political favor and rots it with declining productivity.
It is not just the US that is eating fast food and chain smoking countries the world over are doing the very same thing. That we all have poorly performing economies is only one symptom, like shortness of breath, but these policies have a much more pernicious long term burden. If a person lives this way he or she eventually experiences cardiac arrest, and when a nation lives this way, they must experience catastrophic economic collapse. It is funny that we can see this clearly in people but are blind to it in our government policies and national economies. Heart attacks can be survived, if the proper procedures are used, catastrophic economic failures can be survived as well, but there must be people available who have the power, knowledge and guts to implement the right fixes. More smoking, drinking soda and eating doughnuts is never the proper prescription… no matter how good they taste.
Sincerely,
John Pepin
