Friday, July 30, 2010

Pessimistic About Optimism

We want to be optimistic, we want to believe things will soon get better for the economy...

According to the latest quarterly AP Economy Survey economists in general have turned gloomier. Weaker growth and higher unemployment seems more likely than a strong recovery. This will probably cause the Federal Reserve will keep interest rates near zero until at least next spring.

Economists, who are second only to weather forecasters in their ability to be wrong most of the time and still keep their jobs, seem not to be bothered by the Fed keeping interest rates so artificially low. Not being an "economist" myself I may be uninformed - or ill informed - but it was these ridiculously low interest rates that got us into this mess wasn't it?

It's a fine line to be sure, low rates help governments fund deficit spending without crippling interest payments and they're a boon to banks allowing the inter-day bank loans to help the balance sheets without introducing risk. On the other hand cheap loans have been a huge factor in the housing and commercial property bubbles which have devastated the economy. Low, low interest is devastating to pensioners and savers who rely on interest income. There is no historic evidence that these kind of prolonged low interest rates will rescue an economy.

In reality interest rates like government deficits are a symptom of a greater depressive force. The real culprit is articulated so well be the estimable Thomas Sowell:

"wonderful-sounding ideas that have been tried as government policies have failed disastrously. Because so few people bother to study history, often the same ideas and policies have been tried again, either in another country or in the same country at a later time-- and with the same disastrous results.

One of the ideas that has proved to be almost impervious to evidence is the idea that wise and far-sighted people need to take control and plan economic and social policies so that there will be a rational and just order, rather than chaos resulting from things being allowed to take their own course. It sounds so logical and plausible that demanding hard evidence would seem almost like nit-picking."

When we pine for someone to take care of us - namely the government - we give up something important and vital, our money and a portion of our freedom. You can go on and say that health care and retirement are just too expensive for any individual to handle alone. This is probably true today. Why is it so expensive? My opinion: government meddling. As Sowell describes these wonderful sounding government remedies usually collapse under the weight of unintended consequences. Subsequent remedies for the remedies create things like Fannie Mae and Freddie Mac or taxing on Social Security payments.

Government almost never backs off, most often the government doubles down. Medicare is a looming disaster. Evidence that the Medicare system is driving the inflation of medical costs across the board is legend. Does the government heed the evidence and truly reform Medicare while leaving the parts of the health care industry that are second to none alone? No, of course not. They double down and create a law that destroys both Medicare and the best parts of the rest of the system.

The people who are (were) most satisfied with Medicare were those who had Medicare supplement insurance. The new ObamaCare law gets rid of that, of course. Ample evidence that central control of health care systems results in poor quality didn't matter to the elites running the government, come hell or high water their 60 year quest to get control of the health care system was going to happen.

Therein lies the major problem - wise and intellectual elites in power who "know" what's best for the lower classes and the rest of the human dregs below them. They honestly or intellectually believe that if the stupid herd would just follow their plans life would be wonderful. Well humans might as well be a herd of cats. The beauty of the decentralized, chaotic real world is that millions and billions of daily interactions and transactions usually result in a workable system. It's when an artificial power - a government, a dictator, a corporation imposes their "vision" that things turn bad and people suffer, people other than the intellectual elites who are insulated in ivory towers, in corporate boardrooms or the halls of government. They continue revel in their own brilliance while the rest suffer the consequences of their vision.

But as Sowell explains: experience trumps brilliance.

"Elites may have more brilliance, but those who make decisions for society as a whole cannot possibly have as much experience as the millions of people whose decisions they pre-empt. The education and intellects of the elites may lead them to have more sweeping presumptions, but that just makes them more dangerous to the freedom, as well as the well-being, of the people as a whole."

I couldn't agree more Mr. Sowell.