Stop Fixing the Economy

In “An Inquiry into the Nature and Causes of the Wealth of Nations” Scottish
economist Adam Smith wrote about “the invisible hand” that moved markets as the
participants demanded. If someone made too many widgets that hand was on the
clock twenty four hours a day from bell to proverbial bell. Prices dropped if you made
too many and scarcity drove prices up.

The central theme always stood strong; free markets allowed organic elements to
define the boundaries, pricing and expectations, and ethos was built in. Smith spent
over ten years building a deep knowledge and appreciation of free markets and I am
sure that Milton Friedman and John Maynard Keynes, two modern day economists
who have built deserved followings, held beliefs about “free markets” driving
economic results.

In the 80s, when Alan Greenspan, then head of the Federal Reserve Bank under
Ronald Regan, took market rates, which were high, towards the zero where they are
today, we entered an era of managed markets, and we have never looked back. Here
is the simple outline of some of this and how it impacts everyone.

If rates are high, thrifty persons are rewarded with interest and businesses have to be
careful about what they spend as borrowing costs are expensive. It creates a stable
and steady environment to do business, but is not one where expansion is a theme
running through it all. I remember the slow malaise of the alternate day gas rations
and it being a time of uncertainty but it was also just fine.

When Greenspan moved the interest rates down low, every bank account holder had
reason to question why they allowed their funds to rot for so little return and they
moved the money. As is the consequent, moving money from one asset class to
another will influence pricing, so real estate and stocks went up in correlation with
banks looking so dreary and thus created “borrowing power.’

Here is where several problems begin. Borrowing against your home or the equity in
stocks (which are variable valued assets by nature and thus subject to fluctuations)
defeats the purpose of investing long term. Perhaps a fund with a team of
mathematical and market experts are capable of such methods (Lehman Brothers
wasn’t) but old fashioned people are not. We set in motion in those 80s and through
the 90s a propensity towards debt that have resulted in aggregate debt of $120
trillion dollars in all debt classes. This is according to the organization “truth in
accounting,” whose mission is “To educate and empower citizens with
understandable, reliable, and transparent government financial information.”
It has all created “croupier economics” over the past fifty years, which is a system
designed to move money from many to few. The continued increase in the
percentage of all things held by one percent of the population is astounding. It’s a full
court press because if you don’t owe a mortgage, your town or city or water company
does, and inevitably whenever they move rates up, the governments, students,
pensioners and anyone else holding the bag will be left like the city of Paradise
California, a place that used to be on a map.

It is time to begin repaying these loans and changing the way we do business. Let the
free markets be free and correct themselves, corrections are important. Stop
destroying the environment for capitalistic purpose and remember when you’re
paying a factory worker that Karl Marx and Adam Smith agreed without question to
the fact that it is that worker who imparts value to resources, not the factory owner. If
you want “sustainable capitalism” pay people well as they spend it all anyway.

Be mindful, be watchful and good luck!