As the third age of socialist economics makes its final turn toward the rather lackluster if not disastrous homestretch, the inquiries are starting toward figuring out where it all went wrong. That is as much natural and expected, but what is the most significant is that such efforts are already pared and narrowly constrained. There is a growing realization that central banks failed, failed spectacularly and, worse, have left nothing but a mess for their efforts.
Yet through all that what remains in convention is somehow the process was correct if only the wrong tool. The New York Times published an article reminding of how that is to be the dominant theme for the coming transition away from monetarism and, I maintain, steadfastly back toward fiscal dominance and central planning once more through taxation, fiscal redistribution and treasury debt. The Twitter “headline” for the article was undeniable in that view, Trillions Spent, but Crises Like Greece’s Persist.
The implication is, obviously, that spending and “stimulus” are the answer, “they” just didn’t do the right amount or through the right process. This is essentially what hysteresis thinking has done to all commentary and mainstream economics. For all the fanciness about the word, hysteresis is nothing more than a statistical and regression-heavy framework for what John Maynard Keynes called “pump priming.” But since there is all this math about the modern take on it, the idea is given an unearned level of objectivity to the point of being thought scientific (as I have said before, quantitative easing is just so intentionally misleading).
In short, this is not even really economics as a study of economy so much as technocracy that is embedded in multiple layers of global thinking and society. The actual article was not any better than the headline, seeing so much dissonance in the words put together without appreciation, seemingly, for how the meaning has been so distorted under orthodox assumptions.
That gargantuan sum of money is what central banks around the world have spent in recent years as they have tried to stimulate their economies and fight financial crises. The tidal wave of cheap money has played a huge role in generating growth in many countries, cutting unemployment and preventing panic.
But it has not been able to do away with days like Monday, when fear again coursed through global financial markets. The main causes of the steep declines in stock and bond markets were announcements out of Greece and Puerto Rico.
So growth, as in the secular stagnation view, was “generated” by these trillions but also:
Many countries are now in a position where their governments and companies live in fear of an increase in interest rates. A further rise in the government bond yields of Spain and Italy could cause a contraction in the fiscal policy of those countries, noted Alberto Gallo, head of macro credit research at the Royal Bank of Scotland.
The natural and truly economic response to that second paragraph as derived from the first quoted passage above should be, “so what.” If the economy was truly growing a “contraction in fiscal policy” would be very welcome, as would any actual market limitation on the growth of debt as debt. Instead, the orthodoxy has walked itself, and us, if we let it, into a trap – low rates and thus high amounts of debt are supposed to be necessary for economic growth, but normalization of interest rates will destroy that economic growth meaning that low rates are forever. That is, apparently, the lesson we are to take from Greece.
Technocratic thinking cannot abide these contradictions, thus you get these weird headlines with nonsense articles asserting assaultive narratives against common sense and actual logic.
The return of nervous selling on stock markets raises important questions about the health of the global economy. As central banks like the Federal Reserve and the European Central Bank have printed trillions of dollars and euros, markets in stocks and bonds, as well as other types of assets, have responded optimistically, sometimes reaching highs that were unthinkable seven years ago in the depths of the financial crisis.
What, then, are those “unthinkable highs” actually meaning? If there were serious questions about the health of the global economy, under historical conditions those were not ever related to “unthinkable highs.” So central banks provided “some growth” but not enough, terrific asset prices along with that but that those are now “nervous” and a parallel and related situation where governments and corporations will fall if the general interest rate climate even so much as hints at something not global ZIRP. Described properly, this is an unmitigated mess rather than a coherent agenda and execution.
There is an unspoken apathy throughout the article, as there is a general and non-specific recognition about how this is all somewhat wrong but not really unsettling; as if the author means to say, “what else could we do?” That is precisely the problem, as trillions in “stimulus” is just accepted as that, and when instead a huge and global clutter results it is taken as positive that it didn’t, outwardly at least, get worse along the way. In short, debt doesn’t matter until it matters.
It really comes down to this total misconception, again where the technocracy really isn’t so much a clutch of experts as a temple of religious devotion to incomplete and unaware mathematics:
Stifling debt loads, for instance, continue to weigh on governments around the world. Greece’s government has repeatedly called for relief from some of its debt obligations, and Puerto Rico’s governor said on Sunday that its debt was “not payable.” Both borrowers are extreme cases, but high borrowing, either by corporations or governments, is also bogging down the globally significant economies of Brazil, Turkey, Italy and China. And economists say that central banks and their whirring printing presses can do only so much to alleviate the burden.
The problem is right there in that one, single paragraph; begun with the words “stifling debt loads” and concluded in a flourish of “whirring printing presses.” Such printing presses do not in any way or sense “alleviate the burden”, they create it! This is so obvious that it is painful to write those words; this was unquestioned, simple wisdom for thousands upon thousands of years. The reason gold survived, even conquered, every economic system as its basis was for that very reason – fiat dies upon its own hand of debasement, debt being only the modern incarnation of an ages-old desire to simply conjure financial and economic existence upon political whims.
Perhaps this isn’t all that unexpected, as the most prominent economics writer at the New York Times, Paul Krugman, is so totally in favor of “free money”, as he calls such low and zero rate debt, that nothing else much penetrates as actual understanding. Free money could never be a burden, ever, but that simply shows how much actual inflation, properly defined, has been absorbed unrelentingly for so long. What occurs in the modern, wholesale system has nothing to do with money, at all. The depths of what has been lost about actual money explain so fully why the New York Times cannot comprehend, apparently, why printing presses and burdensome even dangerous debt are one and the same.
Central banks took a debt problem and added another one as if the answer to immense debt imbalance (not just Greece, the US household sector, for example, was the intended end target of the last three QE’s, as is the European household sector for the ECB’s “free money” program) is simply bigger, if cheaper. You cannot accomplish such a massive, historical transformation without the math. Put even nonsense in equation format and it will seem sensical, even inevitable; the more complex the less those that will question, even be able to question. That is inflation. Money means markets whereas modern “money” means choosing only between which political process might do the least existential damage, that will in the end blame “the economy” and the rest of us anyway.
And so when it all falls apart, again, “they” will tell us it was the right idea only the wrong tool. Monetarism will move to the rear and fiscal-ism will be right back where it was in the mid-1900’s. From the perspective of the technocracy, the one great thing about such formulaic inflation is that it is never really wrong; if the wrong results are incurred, even to the point of disaster, that proves only that updated formulas are needed. If trillions in debt didn’t work, it was because it wasn’t the “right” trillions (perhaps even quadrillions?).
There is, apparently, a magic number of debt and credit out there that will unlock all potential and right all these wrongs. The Japanese haven’t found it after searching for a quarter century but somehow we are supposed to just accept that some central banker, or treasury official now, will. Even if monetary theory and existence isn’t permanent, it is just likewise accepted that the technocracy, no matter how actually inept, is. Experts are just experts no matter how little expertise they conclusively demonstrate time and again. Even there, inflation, a redefinition of standards, is evident – it isn’t so much technocracy, just the priestly infusion of enough math, as feudalism and aristocracy. Instead of divine right nobility, such status is conferred, and somehow widely accepted, by equations alone. Deus ex mathematica.