Saturday, May 24, 2014

Enemy of the people: macroeconomists

Bob Wallace noticed this gem and passes it on:
The Constitution forbids paper money ("Bills of Credit") and making anything but gold and silver money. The Founding Fathers knew what they were doing. They had history before them, and they paid attention to its lessons.
When paper is made money, it can be printed up by the billions (these days, a lot of that "money" is just numbers in a computer). The rich get the paper first and use it to buy up everything. It's one of the reasons the Washington DC/New York area has 50% of the wealth in the U.S.

This article is from Of Two Minds and was written by Charles Hugh Smith.
"Almost everyone understands what it means to be a tax slave. It means that people must work several months of the year for the benefit of the taxing authorities. Taxes in the U.S. today are several times higher than they were 100 years ago, and at present-day tax levels, today’s Americans are rightly called tax slaves.

"What it means to be a debt slave is also easy to understand. It means that one must spend a large fraction of one’s time to earn money to pay creditors. Millions of Americans today are mired deeply in debt, but today’s America is also a country where if you personally stay out of debt, the government will go into debt for you.

"Each American taxpayer is on the hook for his or her share of over $17 trillion in debt that government admits to; the real debt total is much higher.

"Government leaders are eagerly plunging us ever deeper into debt each year.

"Most Americans also have personal experience of being a wage slave. It means that a person has no way to make a living except by selling his labor into a glutted market. Thomas Jefferson hoped that most Americans could own their own farms and thereby profit from capital improvements that they made through their own efforts. Such Americans could be their own bosses and escape wage slavery. But today we live in an age of huge factory farms, and it is more difficult than ever to establish or run any small business. Thus wage slavery is the norm for Americans today.

"But few people understand what it means to be a fiat slave. Being a fiat slave means that one lives in a country where the machinery of money printing is used to maximize wealth extraction from its citizens.

The academic discipline devoted to national fiscal and monetary policy is, of course, macroeconomics. Microeconomics is kind of dull and axiomatic, after all: production precedes consumption; capital must come from excess production in the form of savings; markets clear via the supply/demand curve. I mean, come on. Preach, preach, preach.

"Macro" by contrast is bold, visionary, social engineering stuff. Macroeconomists plot huge aggregates of GDP and money flows. Then they build mathematical models to "boost demand" or incentivize debt over equity or vice-versa. They promote these models to State bureaucrats who believe they are indispensable to the universe, and the financial sector which profits immensely from artificially cheap credit. In other words, macroeconomists tell the wealthy and powerful how they can stay wealthy and powerful.

You do not need to know advanced mathematics (I don't) to know macroeconomists are full of shit. All you need to realize is that the market is not an equation; it is a computer constantly being fed new information. That's why there are always random events catching the macroeconomists flatfooted: Russia or Venezuela decide not to make their bond payments; houses don't appreciate forever, sometimes not at all; Argentina decides to revalue their peso.

Macroeconomists are every bit as evil as the Bolsheviks who just seize property outright. Because as the excerpt notes, the macroeconomists, like the Bolsheviks, think they know better than you how to run your own life. If you're prudent and avoid debt, they'll tell the government to go in debt for you. If you have low time-preference and save your money, they'll devalue your savings by inflation and manipulate the interest rate, so that "a penny saved" is no longer "a penny earned." If you're a tradesman with a solid skillset, they'll import labor to devalue it because they need to mitigate inflationary effects. Sucks for you, because now the market value and living standard for which you bargained is being taken away. HTFU, chump. Don't like strip malls and apartment complexes gobbling up your city? Too bad. Aggregate demand needs a shot in the arm and retired city workers need more mules on the tax farm.

Fiat money is a Ponzi scheme; always has been, always will be. The fiat money always returns to its instrinsic value, which is paper, or electronic decimal places. The reason this happens is the false savings distorts the structure of production, so capital flows to things like colleges and McMansions. When it turns out $50,000 college degrees and $300,000 McMansions miles from major economic centers aren't worth nearly that much, the macroeconomists at the Fed will print money and buy up student loans and McMansion mortgages on the secondary market so that it seems like they still are.

The "macroeconomy" is at odds with the real, microeconomy. Eventually the real economy asserts itself. That's what was not allowed to happen in 2008. It's still working so far, because the US is hoovering up capital and labor from all over the world. The global structure of production is being horribly distorted.

It can't go on, because if you could print money and buy your own debt with it, the Sun King, the Ottoman Empire, Weimar Germany would all still be around.

Like Uncle Bob notes, there is no solution other than to let the increasing scale play itself out. We're a mostly free country with a lot of entrepreneurial people, so the macroeconomists haven't been able to wreck things completely yet.


Visibilium said...

Macroeconomics is the enemy only when its analysis differs markedly from microeconomic analysis. Macro is simply bigger. Still, macro analysis isn't the problem. The problem is fitting the analysis to accomplish particular normative ends. Paper money is good because it helps the poor, right?

The Anti-Gnostic said...

The goal of macro is to provide a specious rationale for why nations can do what individuals, households and businesses cannot.

Visibilium said...

I sympathize with your view, but I must disagree. Macroeconomics doesn't offer a specious rationale, but some economists have inserted one. Popularity isn't a criterion of truth.

Bob Wallace said...

Macroeconomics is about deluded economists thinking they are run entire economies with a child's toolkit.

Visibilium said...

Almost. The tools themselves are very powerful, but the economists who employ them are childish in their analyses, goals, and interpretations.

Questor said...

Outstanding post, AG. Thank you.