American Madness

Intelligent Criticism in the Service of a Better Nation

The Santa Claus Economy

Posted by Josh Friedlander | 4 Comments

I could scarcely be more disgusted with the way the Obama administration is dealing with the largest economic crisis since the Great Depression.

Let us look at the facts soberly and simply:

1) A lot of people and organizations bet a lot of money on overvalued or extremely risky assets.
2) We do not make and export very many items anymore and need to rebuild our industrial capacity.

We can solve the problem by accepting our losses, getting back to work and beginning to save money to invest in a productive future for America. The people who lost money need to accept that they have lost it. This includes the banks that refuse to part with troubled assets at reasonable market-based prices. They are like the Coyote who, tricked off the cliff by the Roadrunner, is able to stand on the clouds as long as he does not look down.

The government is trying to help the Coyote by extending the ledge of the cliff using money it does not have. In past posts I have been foolish enough to say that the government is the only entity in the U.S. that remains capable of spending money to stimulate the economy. I recant. First, I don’t know what it means to “stimulate” anything. If it means to incent private enterprise to make things and sell them, then government spending is clearly not the way to accomplish this. If government wanted to incent private companies to spend money, it would give them tax breaks to do so or it would simply give them money and tell them where to spend it. I do not want the government dictating entrepreneurialism, so I dislike either option.

Secondly, the government is not flush. It doesn’t actually have the money to spend. This is the most crucial point. The government has no savings. It is broke. It is far beyond broke and has been getting more indebted every year for a very long time. The government can get money in three ways: take it (taxes), borrow it and print it. At present, Obama is not really raising taxes (net net), and our ability to borrow from the Chinese and others is being severely harmed because we are printing money and there’s every indication that we plan to keep on printing money.

Of course, printing money is much the same as taxes, but more widely applied. When we make more dollars, each dollar is worth less. So if you’ve got any money saved, it’s as if the government went in and took some of it away. The Chinese and others have seen this, recognize this dollar inflation as a way for our government to default on debts and is eager to stop funding this shenanigan. Luckily for us, it will take some time before our lenders figure out a better way to store their excess wealth than by putting it in dollars.

So, that’s it in a nutshell. The solution is to let bad businesses fail and to help promote good businesses. Instead, the government is helping bad businesses and hurting good businesses and destroying the currency. If they persist on this path, Obama’s “best and brightest” are going to do more long-term damage to our country than Bush’s people were able to accomplish in 8 years or trampling rights and bombing nations. Obama could make ours an unsafe currency and the repercussions would be severe.


4 Responses to “The Santa Claus Economy”

  1. Joel Friedlander
    March 27th, 2009 @

    There is a consensus of opinion among the hoodoos who call themselves economic experts that the only way to fight this recession is to throw trillions of dollars at it. They are just as sure about what they want to do as the Laissez-faire capitalists have been for the past 40 years. Moderation is the answer; so where has that gone. Who knows. Right now the market is singing “Happy Days are Here Again.” Good luck to them when the Bear Market Rally ends.

  2. Josh Friedlander
    March 27th, 2009 @

    Well, we never (and can never) have true laissez-faire. The idea is as intriguing as Communism and just as impossible in the real world. There will always be various interests using government to distort the free market in their favor. Since elections are won on the basis of money and influence, the labor unions and money changers have had an especially huge influence on government actions over the past 30 years (with the power of labor arguably declining relative to the power of moneyed interests). So, we haven’t had laissez-faire. We could use something like that now. The answer is to let productive interests thrive and unproductive interests fail. If there are such things as productive interests that should never be allowed to fail, then we should nationalize those interests. If keeping bad banks operational is really as important as keeping the fire departments and police departments and schools and water supplies functioning, then nationalize the banks. Have a big ol’ Federal Bank that just takes deposits. But if you do that, you’ll have the government competing with the banking sector and basically driving it out of business (who would deposit money with any other bank?). Right now, we have the worst of both worlds: government is propping up private enterprises thereby giving them an unfair advantage over other (profitable and well capitalized) banks while not getting much upside and also leaving heavy confusion about whether these banks (e.g., Citigroup) are safe. The cost of purchasing credit default swaps on Citi was, as of last Friday, more than 5%. That’s higher than most any other domestic bank and indicates that there’s little faith in Citigroup’s repayment of its bonds. Is the government behind Citi or not? Make a decision! And then back away. We have the FDIC already, so the deposits are protected. Let these banks die.

  3. Josh Friedlander
    March 27th, 2009 @

    Lots of bad stuff happens when the government gets involved and creates perverse incentives:

  4. Bob
    April 1st, 2009 @


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