by MN Gordon on Economic Prism:
Today, in the form of a Sunday preacher, we begin with several lines from the Good Book. The King James Version is used for added rhetoric.
“And he spake many things unto them in parables, saying, Behold, a sower went forth to sow; And when he sowed, some seeds fell by the way side, and the fowls came and devoured them up: Some fell upon stony places, where they had not much earth: and forthwith they sprung up, because they had no depth of earth: And when the sun was up, they were scorched; and because they had no root, they withered away. And some fell among thorns; and the thorns sprung up, and choked them: But others fell into good ground, and brought forth fruit, some an hundredfold, some sixtyfold, some thirtyfold. He who has ears to hear, let him hear.” (Matthew 13:3-9)
For our purposes, the meaning derived from the parable is adjusted from what Jesus intended. With honest intentions we acknowledge this upfront. And we proceed with careful thought and humility.
Land, no doubt, offers a powerful metaphor. We intend to use it to better understand the destructive money madness that has occurred over the last 50 years.
Whereas the sower in the parable can be a preacher, the seeds can be the truth, and the harvest can be the varied receptivity to the Kingdom of Heaven. The sower can also be represented by government money printers, the seeds by US dollars, and the harvest by economic growth.
Under the best of conditions a crop of wheat is not produced in a day. It requires preparation, cultivation, and water. It requires work, patience, and ultimately some luck to reap an abundant harvest.
Shortcuts and lethargy are punished. A seed will not flourish when sown into asphalt. Nor will a seed flourish when fields are left untended. When not properly cultivated, seed can be consumed by birds, its early growth choked out by weeds or scorched by the sun.
But under the right conditions, a seed can grow systematically and relentlessly. And deliver abundance to multitudes.
Seeds of Waste
US money printers have recklessly sown dollars in fruitless places over the last 50-years. They’ve squandered opportunities for greater economic growth by sprinkling debt based money into fields with little to no potential for productivity.
The nation’s accumulated wealth, built up over several centuries, has been squandered. With the exception of rampant homelessness, masses of dependents, colossal federal government, bloated military, disgraced institutions, debt levels that are beyond impossible to ever honestly repay, and everything else, the money printers have squat to show for their efforts.
When the coronavirus hysteria compelled government busybodies to lockdown the economy in 2020, the money printers spread seeds of waste with added enthusiasm. Upwards of $5 trillion of Treasury notes and mortgage backed securities were purchased with credit created out of thin air.
First a monster stock and bond market bubble was inflated. Followed by another monster residential real estate bubble. As these asset bubbles deflate, the gross misallocation of capital and waste becomes horribly clear.
The money printers also directed capital, in the form of stimmy checks, to the people. These stimmy checks were peanuts in comparison to the money that was pumped into financial markets. But, nevertheless, they entitle people to claims on goods and services without commensurate production. Today’s official 9.1 percent consumer price inflation rate should be no surprise.
There was also the Paycheck Protection Program (PPP), which provided small businesses loans of up to $10 million that were forgivable if used for payroll and other expenses. Recent estimates have determined that more than $117 billion of the $780 billion in these federal loans went to ineligible businesses. Moreover, of the hundreds of billions of dollars that went to eligible businesses, how much went towards productive endeavors?
By our estimation, nearly all of it was squandered…
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner,” noted Adam Smith in The Wealth of Nations, “but from their regard to their own interest.”
The central planners refuse to accept this. They may consume coffee that’s grown, supplied, roasted, ground, and brewed, by private enterprise at a profit as they make their way to the Capitol Building. Yet once they arrive, they get to work with their programs to intervene in the economy and direct the flow of capital to their preferred programs.
After two years of the most extreme government intervention in US history, the economy is contracting. First quarter 2022 gross domestic product (GDP) showed an annualized growth rate of negative 1.6 percent. Second quarter GDP results will be released next week. They’ll likely be negative too.
In fact, according to the Atlanta Fed’s July 19, 2022, GDPNow forecast, second quarter 2022 GDP contracted at an annual rate of negative 1.6 percent. What gives?
Quite frankly, central planning fails to direct capital where it is appreciated most. In order for an economy to reap the benefits of money spent, the money needs to be spent by someone who takes responsibility for how it is spent.
When people trade with one another, they do so with the prospect that they will be better off than before. Otherwise, they wouldn’t trade in the first place.
Transactions of goods and services, free of government intervention, encourage decisions that are consistent with the prudent use of resources. As these prudent decisions occur over and over again, up and down the economy, guided by an invisible hand, as first elaborated by Adam Smith, abundance is created. And people live better.
How Central Planners Sow Seeds of Economic Ruin
When the visible hand of central planners is forced upon an economy through edicts and diktats, money is no longer directed to where it is most appreciated. Rather, it is squandered on things that have little economic merit. And abundance is subtracted from the economy.
For profits to be produced in a market economy a seller must provide products or services that people want at prices they find favorable. Businesses profit to the extent that they serve the public and fulfill their needs and desires.
Central planners may say they favor growing economies and prosperity. California Governor Gavin Newsom, a big government statistician, supports economic growth. He just thinks big government provides the best means and methods for attaining it.
Perhaps Newsom and his ilk should attempt to better understand the conditions that actually make prosperity possible.
Economies cannot grow when they are choked by the weeds of regulations and confiscatory taxes. They cannot grow within an environment where private property rights are not respected and protected by the rule of law. So, too, they cannot effectively function when printing press money is sown into wasteful activities by the heavy hand of central planners.
The fact is, any prosperity you have enjoyed is not because of government. It’s in spite of it.
The visible hand of government sows the seeds of economic ruin.
The central planners have harvested a controlled economy, with a stagnant, immovable assemblage of obstructions that restrict the potential for development, productivity, and ingenuity. Whatever creativity is attempted is quickly choked out because there is no soil in which it is allowed to grow and blossom.
If the politicians really wanted to do something to improve the economy they would stop being so clever. They would cut off the government directed stimulus and allow capital to flow freely to the most productive undertakings. They would reduce government regulations, cut taxes, and let the most productive citizens flourish and create real jobs.
Alas, no one in Washington has the wisdom, restraint, humility, and political sacrifice, to let this happen. Thus the economic harvest will be meagre this year. And next year too.