Too Smart to Think

These days everything must be smart.  There are smart cities, smart grids, smart policies, smart TVs, smart cars, smart phones, smart watches, smart shoes, and smart glasses.  There’s even something called smart underwear.

 

Modern-day wedgie-proof thinking drawers. How was life even possible before them? An area of the body not usually known for its thinking prowess is suddenly smarting up!

 

Before long everything around us will be so smart we’ll no longer have to do one critically important thing.  We’ll no longer have to think; smart algorithms will think for us.  What’s more, the possibilities for not thinking are seemingly limitless.

Just this week, for instance, in an effort to sound smart, Chicago Fed President Charles Evans indirectly advised President elect Donald Trump that fiscal policy must be “smart.”  Presumably, what Evans means by this is that fiscal policy must not be “stoopid.”

Fortunately, New York Fed President William Dudley clarified how smart fiscal policy would work.  According to Dudley, smart fiscal policy would include spending programs that are automatically triggered by a recession.  Specifically, Dudley said

 

“Extensions of unemployment compensation and cuts in payroll taxes could be triggered by a downturn.”

 

The beauty in all this, you see, is that smart fiscal policy would be automatic.  Congress wouldn’t have to think.  They’d be mere automatons.

 

New York central banker William Dudley. Look at him, he looks smart! And now he’s coming up with plans on how to best spend other people’s money.

Photo credit: Maxppp / Zuma Press

 

What Could Possibly Go Wrong?

Of course, Dudley’s smart fiscal policy proposal is the sort of thing that sounds really smart in the forgiving world of a Fed policy influencer.  It’s as easy as pie, don’t you see?

During an economic downturn unemployment checks would be automatically mailed out for a longer duration.  Similarly, less earned income would be automatically confiscated from people’s paychecks.

This automatic fiscal stimulus would give the economy the juice it needs to return to growth.  Then, when the economy recovers, the loose fiscal policy would be automatically tapered back.  What could possibly go wrong?

Naturally, it all seems so clever and symmetric.  With some simple parameters, the programming could be outsourced to India and the automatic triggers could be coded into the federal budget for under $5 bucks.  Could policy be simpler?  Still, we have some further questions.

How does Dudley know in advance of a recession what fiscal stimulus would be most effective?  Can he peer into the future and tell us what tomorrow will bring?  Does he know where the transfer payment moneys will go, aside from cheap malt liquor?

What about smart infrastructure or defense spending?  Don’t spending programs that funnel the money to infrastructure and defense offer more bang for your buck?

 

It is not widely known, but Dudley has a secret identity. He is also known as Zoltar, an adept wielder of the crystal ball. For us mere mortals the future may be shrouded in a nigh impenetrable fog,  but he can see right through it. On a more serious note: the superficially attractive Keynesian idea that the government should boost or reduce its spending “anti-cyclically” makes no sense whatsoever – even if it is “done right” (as is well known, modern governments spend, and then spend even more… economic cycles only impact the revenue side of the equation).  This is actually even less widely known than Dudley’s secret identity. Even many otherwise sensible people believe in anti-cyclical fiscal policy, but it does not stand up to rational scrutiny.

 

Smart Programs of Capital Destruction

Maybe so.  As opposed to direct transfer payments, at least infrastructure and defense spending produce something.  Unfortunately, in many instances, the something this fiscal spending produces is unwarranted.

The late economist and author Murry N. Rothbard explains:

 

Deprived of a free price system and profit and-loss criteria, the government can only blunder along, blindly “investing” without being able to invest properly in the right fields, the right products, or the right places.  A beautiful subway will be built, but no wheels will be available for the trains; a giant dam, but no copper for transmission lines, etc.  These sudden surpluses and shortages, so characteristic of government planning, are the result of massive malinvestment by the government.”

 

Murray N. Rothbard, here seen at a chalkboard in the process of apprising students of one of the greath economic trail-blazers of the past. Contary to most post-war economists, he consistently advised against government intervention of any kind. “Infrastructure spending” is widely regarded as a panacea, something that can only be good. Who can be against more or better infrastructure? It is one of the great myths of our time. In reality, a variant of the socialist calculation problem ensures that such spending will invariably waste scarce resources when the government bureaucracy directs it. While the bureaucrats in a nominally capitalist economy are at least not completely unaware of prices, the lack of a profit motive is still an insurmountable obstacle. Not only will capital allocation be misdirected because they cannot possibly judge the associated opportunity costs, but genuine wealth creators will be deprived of the opportunity to make use of the capital the government appropriates for its schemes. In short, it is double whammy.

Photo via mises.org

 

Fiscal stimulus via infrastructure and defense spending are what the forthcoming administration says they are after.  We’ve heard there are plans to spend $1 trillion on infrastructure over the next decade.  The goal of the spending is to accelerate economic growth.

Perhaps it will accelerate activity.  It will crank up the economic treadmill.  But will it get us to a place we want to be.

One can only wish.  For the acceleration of malinvestment through deficit based fiscal spending is ultimately a program of capital destruction.  We wish it weren’t so.  We wish fiscal stimulus was the economic panacea.

But unless market forces are allowed to freely direct where capital investments are made, any economic growth will quickly flame out like a cardboard matchstick.  Moreover, what growth the deficit spending provokes, the corresponding inflation will cancel out.

The debt, on the other hand, will be here to stay.  Unless, of course, it’s inflated away too… along with the accumulated savings, hopes, beliefs and dreams of three generations.

 

Image captions by PT

 

MN Gordon is President and Founder of Direct Expressions LLC, an independent publishing company. He is the Editorial Director and Publisher of the Economic Prism – an E-Newsletter that tries to bring clarity to the muddy waters of economic policy and discusses interesting investment opportunities.

 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Smart Programs of Capital Destruction”

  • mantrid:

    soon, smart money will spend itself before you receive it
    and smart taxes will pay itself before you earn it
    smart statistics will adjust themselves to required policies
    and smart news broadcast themselves before becoming facts

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 21st Century Shoe-Shine Boys
      Anecdotal Flags are Waved   "If a shoeshine boy can predict where this market is going to go, then it's no place for a man with a lot of money to lose." - Joseph Kennedy   It is actually a true story as far as we know – Joseph Kennedy, by all accounts an extremely shrewd businessman and investor (despite the fact that he had graduated in economics*), really did get his shoes shined on Wall Street one fine morning, and the shoe-shine boy, one Pat Bologna, asked him if...
  • India: The Genie of Lawlessness is out of the Bottle
      Recapitulation (Part XVI, the Last) Since the announcement of demonetization of Indian currency on 8th November 2016, I have written a large number of articles. The issue is not so much that the Indian Prime Minister, Narendra Modi, is a tyrant and extremely simplistic in his thinking (which he is), or that demonetization and the new sales tax system were horribly ill-conceived (which they were). Time erases all tyrants from the map, and eventually from people’s...
  • Christopher Columbus and the Falsification of History
      Crazed Decision The Los Angeles City Council’s recent, crazed decision* to replace Christopher Columbus Day with one celebrating “indigenous peoples” can be traced to the falsification of history and denigration of European man which began in earnest in the 1960s throughout the educational establishment (from grade school through the universities), book publishing, and the print and electronic media.   Christopher Columbus at the Court of the Catholic Monarchs (a...
  • The Government Debt Paradox: Pick Your Poison
      Lasting Debt “Rule one: Never allow a crisis to go to waste,” said President Obama’s Chief of Staff Rahm Emanuel in November of 2008.  “They are opportunities to do big things.”   Rahm Emanuel looks happy. He should be – he is the mayor of Chicago, which is best described as crisis incarnate. Or maybe the proper term is perma-crisis? Anyway, it undoubtedly looks like a giant opportunity from his perspective, a gift that keeps on giving, so to speak. [PT] Photo...
  • The Forking Paradise - Precious Metals Supply and Demand Report
      Forking Incentives A month ago, we wrote about the bitcoin fork. We described the fork:   Picture a bank, the old-fashioned kind. Call it Acme (sorry, we watched too much Coyote and Road Runner growing up). A group of disgruntled employees leave. They take a copy of the book of accounts. They set up a new bank across the street, Wile E Bank. To win customers, they say if you had an account at Acme Bank, you now have an account at Wile, with the same balance!   BCH, son...
  • The United States of Hubris
      Improving the World, One Death at a Time If anyone should have any questions about whether the United States of America is not the most aggressive, warlike, and terrorist nation on the face of the earth, its latest proposed action against the supposed rogue state of North Korea should allay any such doubts.   Throughout history, the problem with empires has always been the same: no matter how stable and invincible they appeared, eventually they ran into “imperial...
  • Long Term Statistics on AAPL
      Introductory Remarks by PT Below we present a recent article by the Mole discussing a number of technical statistics on the behavior of AAPL over time. Since the company has the largest market cap in the US stock market (~ USD 850 billion – a valuation that exceeds that of entire industries), it is the biggest component of capitalization-weighted big cap indexes and the ETFs based on them. It is also a component of the price-weighted DJIA. It is fair to say that the performance of...
  • Tragedy of the Speculations
      The Instability Problem Bitcoin is often promoted as the antidote to the madness of fiat irredeemable currencies. It is also promoted as their replacement. Bitcoin is promoted not only as money, but the future money, and our monetary future. In fact, it is not.   A tragedy... get the hankies out! :) [PT]   Why not? To answer, let us start with a look at the incentives offered by bitcoin. We saw a comment this week, which is apropos:   "Crypto is so...
  • To Hell In A Bucket
      No-one Cares... “No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.” We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.   The federal debtberg, which no-one cares about (yet). We have added the most recent bar manually, as the charts published by the Fed will only be updated at the end of the...
  • Despite 24/7 Trading: Bitcoin Investors are Taking off for the Weekend on Friday Already
      Crypto-Statistics In the last issue of Seasonal Insights I have discussed how the S&P 500 Index performs on individual days of the week. In this issue I will show an analysis of the average cumulative annual returns of bitcoin on individual days of the week.   Bitcoin, daily. While this is beside the point, we note the crypto-currency (and other “alt coins” as well) has minor performance issues lately. The white line indicates important lateral support, but this looks to...
  • Precious Metals Supply and Demand
      Fundamental Developments There were big moves in the metals markets this week. The price of gold was up an additional $21 and that of silver $0.30. Will the dollar fall further?As always, we are interested in the fundamentals of supply and demand as measured by the basis. But first, here are the charts of the prices of gold and silver, and the gold-silver ratio.   Gold and silver prices in USD terms (as of last week Friday) - click to enlarge.   Next, this is a...
  • Janet Yellen's 78-Month Plan for the National Monetary Policy of the United States
      Past the Point of No Return Adventures in depravity are nearly always confronted with the unpleasant reality that stopping the degeneracy is much more difficult than starting it.  This realization, and the unsettling feeling that comes with it, usually surfaces just after passing the point of no return.  That's when the cucumber has pickled over and the prospect of turning back is no longer an option.   Depravity and bedlam through the ages. The blue barge of perdition in the...

Support Acting Man

j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com