Thursday, February 5, 2009
Weimar Amerika
Economics piece by
Bruce Walker
America today stands on the precipice of a full blown depression. International market forces are making the dollar increasingly weak, and the response of our government is to produce artificial demand by printing vast amounts of currency and credit. Is this America in 1933 under Franklin Roosevelt? No, it is Weimar Germany under Wilhelm Cuno. What Barack Obama is proposing is to take a nation facing enormous debt and economic slowdown and to “cure” these problems by dramatically increasing the money in our economy. This is the economics of Germany before Hitler came to power.
America, during the Depression, did not face inflation. The dollar was very solid. Prices fell. Our nation actually experienced serious deflation. Although the methods of Franklin Roosevelt and his Keynesian advisors was wrong-headed in many ways, at least it was truly Keynesian. The British economist did not advocate governments always running huge deficits and government always “priming the pump.” What Keynes favored instead was in periods of recession in which private demand was weak using government credit and purchasing power to stimulate demand through inflation.
Our problem today is that we have utterly ignored any serious economic model – Keynesian or otherwise – for many decades now. We have not run surpluses to pay off public debt in good times, as Keynes advocated, and inflation, which is an abnormal condition, has become so utterly commonplace in our economy that COLA (cost of living adjustment) has become a standard feature in government entitlement programs, union contracts, pension agreements and the like.
Inflation or deflation ought to be a sign of serious economic illness. When the measurement of monetary value continually rises (or continually drops) then the agreement on value which money represents has been cheated. What President Obama proposes in his $X Trillion stimulus package is nothing less that the policies of Weimar Germany in the early 1920s: government will simply print money to pay off debts and raise the living standards of workers.
The problem, of course, is this sort of Ponzi Scheme never works. Once the value of money becomes uncertain, once the amount of currency and credit in circulation is determined by political pressure and not economic reality, collapses quickly. What if, for example, President Obama persuaded Congress to give each American a “tax rebate” of $5,000 per person? (Given the tunnel vision of the Left today, an ever increasing river of money to Americans would be the only response to worsening economic conditions.)
The value of money to Americans and of dollars to the rest of the world would drop dramatically. Initially it would appear to the average American that things were getting better: debts could be paid off, purchases made, rent and house payments would be timely. But that illusion of affluence would vanish quickly as the price of domestic goods (and the endless torrent of cheap foreign goods) suddenly spiked in price without any change in the real value of the goods.
Moreover, the economic behavior of business in America would change. When the true value of money next year is anybody’s guess, then businesses and people will - - in fact, they must - - get greedy. The risk of any sort of investment (time, money, labor, brains) must be compensated soon and big. Mature planning, the sort of planning that healthy families and serious businesses engage in, yields to economic relations that are less like enterprise and more like con games.
The very fact that Obama and his advisers are wondering “how much” is needed to bring up out of economic distress is evidence of an infection at the heart of government. If $1 Trillion is not enough (about $3,300 per man, woman, and child in America) then what about $1.5 Trillion (the $5,000 per person tax rebate I mentioned)? Why not $10,000 per person (or $3 Trillion)? That would allow the vast majority of Americans in distress to pay off delinquent mortgages and credit card debt and pay for a nice holiday to boot. If $1 Trillion is good, why is $3 Trillion not better?
If the only arrow in our federal quiver is an avalanche of federal “pump priming,” then is there any doubt about what the Obama Administration will propose if (really, just when) the current torrent of bucks fails to bring recovery? Except for Reagan, who understood the simple principles of government taxation and government spending, our nation has used Keynesian “pump priming” year in and year out, even when the pump did not need to be primped. The consequence has been perpetual inflation, a condition virtually unknown during the first century of our nation, when the cost of living stayed static. Our nation now has a national debt which no one really expects ever to be paid (rather like the indemnity payments which Weimar Germany “paid” only by printing money.)
The consequence of true American economic collapse, like Germany suffered, is almost incalculable to us and to the world. Over the last century, even during the Great Depression, our dollar was strong, our inevitable recovery understood, our ingenuity and productivity intuitively grasped by the world. What Weimar Germany suffered, and what we may face in America, is something different and worse than deflation and unemployment, which could be ended by more government spending. Once dollars mean almost nothing, the power of the federal government to cure problems by spending money ends - - something Germans saw eighty-five years ago. Government itself has lost all confidence of the people. When that happens, people lose trust in almost everything. We do not have to guess what sort of horrors can follow. After Weimar came a regime which transcended the power of a democratic government. After Weimar came Hitler.
Bruce Walker
HowardWasRight 
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