The Angry Market Message In Billions

The great 20th century libertarian philosopher Albert Jay Nock long ago observed about market forces that any tampering with them "must have its consequences, and the only recourse for escaping them is such as entails worse consequences." Were he alive today, Nock would be an aggressive opponent of the myriad bailouts foisted on the global economy with "worse consequences" in mind.

But just because he's not alive does not mean his warnings don't hold great relevance. Indeed, his wisdom is being revealed in a blinding way through the numbers 359, 787 and 1 trillion.

Those are the numbers cited over the weekend by business reporter Terry Keenan. As Keenan noted, $359 billion, $787 billion and $1 trillion are the growing amounts of "money needed to plug the holes" of an economic crisis that seemingly has no endpoint. Nock warned us.

Of course the $359 billion was what the TARP adherents needed to "stabilize" the banking system in order to allegedly save the U.S. economy. And then with the economy not saved, the Obama administration foisted on Americans $787 billion in "stimulus" meant to keep unemployment from reaching double digits on the way to unemployment reaching double digits. And then last week it took $1 trillion from the IMF and EU to prop up a country as economically inconsequential as Greece.

To suggest that something's amiss here is to engage in obnoxious understatement. The amounts needed to bolster the global economy show that far from propping up anything, the bailouts have served to turn what shouldn't have been challenging into something that is increasingly expensive, and worse, unworkable.

The reasons why are obvious, and they're rooted in the fact that the bailouts weren't so; rather they weakened the economy. Indeed, the sign back in 2008 that the economy was on the mend were the bank failures themselves.

They signaled that market forces were ridding the economy of the kind of business practices that were forcing limited capital into faulty investments, most notably housing. Arthur Laffer has long pointed out that for governments to bail some of us out, they must bail others in.

In this case, prudent individuals and businesses were fleeced in order to prop up the imprudent. More to the point, we weakened our most productive individuals and businesses so that we could stimulate the failures.

The above on its face was problematic, and worse, it signaled to the profligate, indolent and dim that there would be cushions or rewards for any of the three traditionally poverty-inducing maladies. Thrift and prudence be damned, money from others in the form of $787 billion in stimulus money would be showered on those who chose to ignore the message of the market.

All of which leads us to the $1 trillion bailout of Greece, which is nothing of the sort. Instead, with creditors having learned back in 2008 that false economy (including the lie that is government spending in Greece) would be rewarded to the tune of 100 cents on the dollar or euro or anything else, they've continued to deal with poorly run financial institutions knowing full well that governments don't allow bank failures, government failures, or both. It didn't matter that banks had exposure to the house of cards that was Greece, because with failure too difficult to comprehend for an increasingly soft world, there would be no such thing.

It's an economic truism that if you subsidize anything you get more of it, and for the past couple of years governments have been in the business of subsidizing failure. That the cost of cushioning what we shouldn't have has risen from $359 billion to $1 trillion shouldn't in this sense surprise us. Indeed, we would have been foolish to expect anything less.

In a free market scenario allowing for natural, market-drive adjustment, the banking system would have been strengthened for the prudent swallowing the profligate, the unemployed would have been forced to find new work absent jobless benefits without endpoint, and government workers the world over would have been driven to find work in the private sector where their pay would match their actual output. Instead, governments lacking any resources are paying for the very kind of behavior that ensures more of the same, and the result is a "bailout" price tag that continues to escalate.

If there's a silver lining to all of this it's that what is so blatantly contradictory cannot last forever. Indeed, not only is it true that governments can only give what they've already taken from others, it's also true that governments can only inflate (see the gold price in euros and dollars over the last six months) if they're willing to take from the savers.

To put it very simply, in concert with oxymoronic bailouts, governments continue to devalue their currencies such that savers are effectively shrugging, and shying away from the kind of wise (think investment) behavior that has historically authored upturns. Not that this should surprise us in the least, but the very governments that so many hysterics have charged with "saving" the global economy are wrecking it through theft of the spending and inflating variety that is increasingly making real economic recovery a distant object.

In his 1971 classic, Dividing the Wealth, Howard Kershner sagely observed that "Those from whom property is stolen lose the incentive to produce and, in time, there will be less and less stealable goods available." The bailouts and devaluations meant to fund our recovery are at their core economy-sapping theft dressed up as government compassion engineered to correct markets allegedly gone awry.

In truth, the angry message of the markets is correct, and the more we try to mess with the natural order, the greater the cost will be. The only question now is how soon our leaders will be mugged by reality, and if so, who they'll be able to thieve in order to fix what they broke.