Politicians Shut Down the Economy, Follow With Non Sequiturs and Keynes
It’s March 20th today, at which point it’s worthwhile to travel back in time to February 20th. Was any economist, politician or pundit calling for stimulus checks, payroll tax holidays, “lending facilities,” or corporate bailouts then? The question answers itself.
A month ago the U.S. economy was broadly seen to be on fairly certain, growing footing. Even though unemployment isn’t terribly accurate, it’s in a broad sense a reasonable measure of economic health. The February measure produced by the BLS was 3.5%?
One month later, unemployment is said to be soaring. Worse, the best measure of future economic prospects, the stock market, is well off of all-time highs reached not too many weeks ago.
So what’s changed? What we call the U.S. economy can’t have morphed so quickly on its own into something much worse. Which means the answer to what’s changed is that governance on the local, state and national level from our political minders has changed. The collapse in the stock market (collapses always and everywhere a consequence of surprise) reflects a neck-snapping lurch in the U.S. from economic freedom to command-and-control almost literally overnight. Translated, what was in February the freest, most dynamic economy in the world is now controlled by politicians, and is in the process of being shut down by them.
That’s why all these calls for policy change of the tax, payroll tax, bailout, and rebate-check variety amount to a massive non sequitur. Better yet, it should be said that those calling for “policy” to fix what’s wrong near completely miss the point. The point is that local, state and national politicians have shut down the U.S. economy. Since they have, all the other policies aren’t terribly relevant. Lest readers forget, the U.S. economy was by most accounts in fairly strong shape one month ago with existing policies in place, and no one was clamoring for mass policy change.
Though there all sorts of policy alterations and enhancements that sound minds would call for, it cannot be stressed enough that the economic solutions we need right now have nothing to do with policy, and everything to do with politicians on the local, state and national level taking their booted feet off of the U.S. economy’s proverbial neck. In other words, the American people who comprise what we call an economy require freedom right now, not more policy. They need to be left alone.
Considering the policies presently being proposed by Congress and the Trump White House, it seems there are no Classical or “supply side” thinkers amid crisis. This shouldn’t surprise us. If those in Congress or inside the White House were actually supply siders or Classical thinkers, they wouldn’t be declaring national emergencies or "wartime" powers, clamoring for artificial rates of interest, begging for wealth redistribution in the form of "stimulus" checks that sap investment, nor would they be calling for the isolation of the very humans who, when working together, make abundant, health-enhancing progress possible.
To be clear, this crisis, like all crises, is political. Economies don’t just collapse. Neither do stock markets. Error committed by politicians is always behind these monumental overnight changes in our economic and market health, and that’s the case here. When you morph from economic freedom to government control of the economy, you get crisis. Period.
And it gets worse when politicians load Keynesian mysticism on top of a crisis of their own making. We’ve seen this in their desperate efforts to get $1,000 checks mailed to Americans. The idea here is that the extra money will lead to more consumption and, voila, more economic growth. Such thinking fails on many, many levels.
For one, the growth already occurred. That’s why the checks can be sent. The Trump administration is promoting the fiction that consumption powers economic growth. No, consumption is a consequence of growth. Because there was production, because that production resulted in revenues for the federal government, because that production enables borrowing by the federal government, it can mail checks to the American people. But don’t call it growth. This insults basic intelligence. The growth once again already occurred, thus the ability to send checks.
It's then worth asking, however briefly, why the government as the middleman handing out money? Wouldn’t it always be better if the feds taxed and borrowed less to begin with, such that they would lack the funds to write big checks? Seriously. Where’s the outrage over the sad fact that the federal government has $1 trillion to give out?
Which leads to the worst aspect of the Trump administration’s lurch toward full-throated Keynesianism: it comes with a bear-hug embrace of massive wealth redistribution at the expense of investment. Plain and simple. Let’s not forget that the rich account for the vast majority of tax receipts. Basically the hundreds of billions handed out to Americans are being taken from those most capable of investing and subsequently growing the economy, and instead being handed to those most likely to spend. We’re all Keynesians now, and it’s sad.
Worse, is that the most prominent voices of economic freedom and prosperity aren’t making a case for it at present. While the Wall Street Journal’s editorial page has prominently criticized the “stimulus” checks, it’s promoting its own government solution whereby it frustratingly calls for the Fed to relieve a “liquidity crisis” through the creation of a lending “facility.” The obvious problem with such a solution isn’t just that the Fed’s power to do what the Journal would like it to is vastly overstated. To be clear about this, markets will speak – loudly – no matter what politicians, those close to politicians, and central bankers do. See 2008.
Still, why is the Journal calling for the blunting of the very market signals exposing the monumental ineptitude of the political class? It would ideally be cheering these signals as essentially exposing a needless shutdown of major parts of the U.S. economy; a shutdown that the editorial page has written about disapprovingly. That the Journal is calling for the same political monstrosity that straight-jacketed the economy to play capital allocator is surprising.
To be fair, this is all a surprise. The surprise yet again explains the market correction, along with the overnight morph of the U.S. economy from dynamic to much less than moribund. No one could have predicted this, if they tell you they did they’re lying, but let’s be clear that policy solutions are a non sequitur when politicians are asphyxiating the economy. That a Trump administration with professed supply side leanings has added Keynes to the asphyxiation just adds to this bad dream.
