It often requires you to step back, pour yourself a double, go ride a motorcycle around, kiss a couple girls and watch some old school westerns and then revisit the problem in order for you to solve it or understand it. And one of the observations I've had as I've been out on long rides in the South Dakota Badlands is that our financial problems are caused by something that has been staring at us right in the face. Skim this little article here and see if you can see what I see.
What you SHOULD see (if you took Dr. Cappy's advice above and drove around after pouring yourself a double and kissing some girls and achieved a South Dakota epiphany) is governmental officials completely unaware they are stepping outside of their bounds. That they are putting themselves where they don't belong. And I'm not talking about forcing us to buy incandescent light bulbs, I'm talking they actually think it is government intervention that can affect stock prices when in reality the only thing that DOES affect stock prices is profits.
What kind of intrigues me is a guy like Bernanke should know this. Any economist, whether they are on the left or the right should at minimum have the intellectual honesty to know that tinkering with monetary policy is not going to have any kind of long term effect on stock prices. If anything it will hurt stock prices. Ergo what the heck is he thinking the central bank needs to take some kind of action? Since when is the fed chartered with the mandate to "increase stock prices?"
Stock prices will be, what they will be. They will be determined by profits of the underlying firms. Not whether the firm "goes green." Not whether they "celebrate diversity." And not whether the government does QE 46 and 1/2.
Regardless, the point is not necessarily this one particular instance of stupidity on the part of the federal reserve chairman. If you look at the entire effort politicians (primarily on the left) have resorted to, to get this economy going again, they are operating from the erroneous premise that somehow government can do something to help get the economy going again. Which is like saying a lamprey can do something to get a fish healthy again. Of course it will fail because the only thing the government can "do" is get out of the way and let the private sector grow again. However, what I'm seeing more and more is an ingrained psychology of government wonks and politicians that is something akin to women in my dance classes when they first start out. They think they can "do" something. Initiate some kind of action. "Help." When in reality "helping" or "doing something" is antithetical to the role women need to play in dancing which is the follower. Once the woman "does something to help" she unknowingly destroys the dance. But when the women realize how they have to follow (and men finally get the gall to lead which is nearly an impossible task sometimes), the dance works beautifully.
However, I highly doubt Obama and his ilk are going to realize they follow the people and not order them around.
On a side note, I think this old post of mine will come in handy given the general collapsing of or stock market and economy today.
In the meantime, you all know what to do today!
Cappy:
ReplyDeleteDo not disagree with a single point you have made. Do want to make an observation about human nature though.
It is the nature of humans as individuals to be very myopic in their decision making. Perhaps it is left over from the caveman days, but the thought of delaying today's gratification for a greater reward tomorrow is alien to most individuals.
When you couple that demand for immediate satisfaction, with a complete and total lack of understanding of how this tool called money actually works, you get exactly what is happening here.
You end up with a population that thinks the President actually has some kind of control over the value of the stock market. You end up with a bunch of people that somehow managed to make 30% on their stocks last year, and when those returns are not realized this year, they want the Government to step in and do something about it.
I could go on and on, but, the problem isn't really that Obama and his cronies are ignoring the people, in fact they are listening to the people, and doing exactly what they people they listen to are demanding. The root cause of the problem is the politicians are listening to the wrong people.
I disagree with only one point specifically:
ReplyDelete"Any economist, whether they are on the left or the right should at minimum have the intellectual honesty to know that tinkering with monetary policy is not going to have any kind of long term effect on stock prices."
Monetary policy affects the price of everything. Do you really think that if the Fed tripled the money supply that stock prices wouldn't skyrocket along with the price of everything else?
Government isn't the only institution that thinks it can change the direction of the Earth's spin. Rich men often think this way too. And small town mayors, non-profit workers who want to change the world.
ReplyDeleteIt comes from pride, an arrogant belief that they are somehow better, more unique, more capable than everybody else. Sometimes it's a little true; you can change some of the events in your immediate reach. But mostly it's not true, mostly the direction life and the polity take is due to countless decisions taken by people we will never meet. Accepting this fact means accepting the fact that it's hard, or maybe even impossible to really change the world in a big way. That humble acceptance is at the core of Austrian School economics. Keynes? He thought we could dig our way out of a financial hole by spending our way out. Debt crises? That's for suckaz!
http://mises.org/daily/5524/Los-Angeles-Americas-Harbinger
ReplyDelete"Economics professor Clifford F. Thies found that left-liberal cities "tend to have higher unemployment, more murders and shrinking populations, and weakly tend to have higher overall crime." These cities and their citizens are only kept alive, and their politicians kept in power, with transfer payments from state and federal governments."
"...should at minimum have the intellectual honesty..."
ReplyDeleteWell there's your problem.
Politicians, in general, don't have intellectual honesty. Hell they don't have any honesty. If they did we would have scrapped the Federal Reserve because a central bank does not help us. It didn't the other times we tried it and it hasn't this time.
As a dancer and armchair economics watcher, I loved this piece.
ReplyDeleteTo be nagging and repetitive:
ReplyDeletewhen the referees start playing, the players start leaving.
I thought you were referring to the comment about energy prices falling at the end of the article. Dr. Jared Diamond was asked, “Why do the lighter skinned races have everything and the darker people have nothing?” He wrote an excellent book, Guns, Germs and Steel, in which he concluded it was the luck of the draw. The Fertile Crescent, with 14 domestic crops and animals was the leader for civilization while Australia with no domestic crops or animals was the other extreme. Of course since the industrial revolution it is no longer about available protein; it is about energy. If we really wanted to get out of this mess we would drill baby drill. If we had used O’bomba’s stimulus to build nuclear power plants instead of buying patronage of the auto unions, teachers, and public sector workers, we could have driven the world price for oil to $38 a barrel. Windmills become viable at $160 a barrel and ethanol at over $200 per barrel. Those with courage, who accept personal responsibility, and have a sense of tolerance and cooperation (along with a handgun carry permit), will always survive if not prosper. Enjoy the decline!!!
ReplyDeleteThe one thing government can do is provide a stable environment for business in which to operate, then don't screw with it.
ReplyDeleteThe Obama administration has been a total failure in this regard. Obamacare, increasing EPA power, adding a whole new regulatory arm for the banking and investment business, the threat of cap and trade, adding no-deductable abortions, birth-control as a requirement for medical insurance, the 3.8% tax on real estate transactions to pay for Obamacare. The threat of removing business tax deductions. Adding a pro-union bias to the NLRB. Shutting down drilling in the gulf. Seems like a new policy every week to punish businesses.
It just seems like everything the Zero administration has done has worked against business and against the economy.
I don't think the Obama Administration is that clueless, I think they're deliberately attempting to crash the economy - very possibly to gain and consolidate power by increasing the numbers dependent upon government. Sort of like FDR did.
I just wonder when Obama will attempt to pack the SCOTUS.
"they actually think it is government intervention that can affect stock prices when in reality the only thing that DOES affect stock prices is profits."
ReplyDeleteActually, the government can affect stock prices. They just can't affect it in the direction they think they can (i.e., they can make prices drop, and they can stiffle any gains). Few of them understand that, as mentioned before, the best thing they can usually do is the least damaging: set up some clear rules and then leave it the hell alone.