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THE
BIBLICAL ECONOMY
March
2009
President Reagan’s legacy in domestic matters will be measured by his role in
the economy. He reversed the fading momentum of the tired liberalism of
Roosevelt’s pro-active Government that presided over a tidy marketplace for several
decades. Reagan railed against “big Government”. He introduced Supply Side
Economics and promised smaller Government (which grew during his eight years)
because he had come to believe that Government was the problem, not the answer.
He swapped John Maynard Keynes for Milton Friedman; exchanged a system of intrusive
government for a system founded on the firm belief that markets are Self
Correcting and shouldn’t be tampered with. We know that too much government
slows the rate of money flow, may alter the directional flow of money and
“socializes” the economy. Socialism can lead to dictatorship. On the other hand
laissé faire government can lead to chaos, anarchy
and dictatorship. So what's your favorite dictatorship? Pick one! An economy
growing steadily at a reasonable pace leads to contentment.
Reagan and the
Supply-Side academicians believed that given enough money the public would keep
the economy buzzing and enterprise would project delectable baubles into marts
of the future. Government urged us go shopping, a policy the public embraced
due to the low cost of goods imported from developing countries. But there just
wasn’t enough money out there to satisfy our avid buying appetites because
after exhausting savings, salaries, credit card loans and Home Equity
values (formerly known as second
mortgages) Americans had no place to go for money unless they could sell their
grandmothers.
A Self Correcting Market depends on a rational
public that per force would buy moderately, merchants that would lower prices
when necessary, enterprise that would slow production and lower inventories
when advisable. People would save money,
pay off debt then with accumulated funds buy more as long as innovative
industry produced desirable trinkets. But hey, where do you find a rational
public?
A Supply Side Free Market economy
presumes that the Bankers and Brokers who are the conduits for the currency
that fuels a Supply Side economy are honest, trustworthy, sane and not beguiled
by errant schemes. But what Milton Friedman may have left out of his equations
is Greed. Greed is the emotion that spurs acquisition which in turn generates
wealth but not necessarily prosperity. But in an uncontrolled Free Market greed
is catching, a communicative disease that infects everybody including the
Bankers and Brokers of Free Markets with whom we entrust our treasure. They
were the foxes in the chicken coop, quirky Quisling magicians who turned OUR
money into THEIR bonuses and left us with chicken feed.
As the general public was
falling into the Black Hole of Debt the limbs fell from the lending tree.
Bankers and Brokers endeavoring to grow an exhausted money supply made loans,
derivative bets and gambles normally seen only at race tracks and casinos. They
also used up their credit by borrowing money to fund the faulty premise that a
house had infinite value, and by the time they got done with these capers they
had replaced most of the world’s money with Counterfeit. Mortgages.
It’s hard to buy, sell, borrow and lend when the currency has uncertain value.
It was a mess. The Self-Correcting free Market was not correcting itself.
What’s the remedy? Go to the Government for help. So now everything is topsy-turvy. Unfettered
Capitalism has become the problem and the Government (we hope) is the solution.
Supply-Siders failed to put a human face on their
calculations, i.e. while a market is “self correcting” people go without food
or shelter.
The obvious remedy
welcomes government to devise a plan or create a device that will convert
counterfeit mortgages into real money.
As of now (with apologies to President Reagan) Un-tethered Capitalism
has proved to be the problem and Government hopefully will be the solution.
In Biblical times
Joseph son of Jacob, was sold by his brothers to enslavement in Egypt. He was
jailed, but while there interpreted the dreams of the Cup-Bearer to the
Pharaoh. His predictions proved out. The Cup-Bearer was released and when
subsequently the Pharaoh had a dream that his Court conjurers couldn’t decipher
the Cup Bearer recommended Joseph. Released from jail Joseph told Pharaoh that
his dream forecast 7 years of abundance to be followed by 7 years of famine,
and then suggested that during the 7 years of abundance a the government should
store food. The Pharaoh acted on this. When Joseph rose to power and famine struck he
distributed the stored food throughout the land, but in return the people were
forced to turn silver and livestock over to the government. Joseph then
declared a tax on their land and nationalized their farms (except those owned
by the Clergy.
Sound familiar doesn’t
it. Spend money to prevent catastrophe and then tax the people to pay for their
salvation. It’s all in the timing. But when the Free Market failed in Egypt
(due to famine) the government took over. Who else had the power to store the
food and raise taxes?
And were Joseph
here today, would he recommend that the economy once recovered should be
maintained at a steady pace by varying monetary policy accordingly: raising
interest rates to slow down the feast and lowering interest rates when quirky
markets threatened famine. That plan might be attractive to the Congress if it
weren't so simple