Quote of the Day: The Economy and Government Mismanagement

 

“The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy.” – Milton Friedman

We are going to see a repeat of this over the next year or two.  We are headed for recession, and possibly depression (although no one will call it that) even if the Republicans take over control of both houses of Congress next year. Part of that is due to existing inflation. But an even larger part will be due to government mismanagement.

Inflation (and deflation) is caused by two components: money supply and the size of the economy. As long as both components grow (or shrink) in the same proportion, everything is good. The money supply grows to match the demand for additional goods and services and prices remain stable. Usually inflation results when the money supply grows faster than the economy. That is because it is easier to print paper money than to grow an economy. If you have more dollars chasing the same amount of goods, the value of each dollar is less.

Deflation is caused by the opposite problem: more goods than money and the goods become worth less. Which gives an incentive to produce fewer goods until the economy shrinks to match the money supply. (Incidentally, that is what happened in the late 1930s and is why the government running the printing presses to pay for WWII did not crash the economy. The Roosevelt Administration deliberately kept the money supply too low, hoping to keep wages up. Yeah, they were crap economists.)

However, today we are experiencing a different phenomenon causing inflation: a reduction in the economy due to a scarcity of goods. Yes, the government is running the printing presses, increasing the money supply, but the economy is also shrinking. We are producing significantly less energy. Supply chain constriction is further limiting production. If a factory cannot get raw goods, it cannot manufacture finished goods. Plus, increased regulation makes it more difficult to provide goods and services.

Most people think if we get spending under control, inflation will go away. That would be true if inflation were only being caused by increasing the money supply. But what happens if, once you do this, the economy continues to shrink? You still have too many dollars chasing too few goods. The price of everything continues to go up.

Congress is responsible for spending. It can rein-in the budget.  What it cannot do is rein-in executive orders that discourage production. Reagan did not tame inflation because Paul Volcker and the Fed raised interest rates. He also deregulated everything (especially the energy industry), which grew the economy. It was the combination of the two that killed inflation in the 1980s.

While controlling spending and the growth of the money supply is a necessary condition to control inflation, it is not a sufficient condition. The economy has to grow to match the money supply. Do you really see this administration reducing regulation to encourage production — especially on energy production? Yet that, too, is a necessary condition. For the Progressives, their policies are religion. You do not get anywhere arguing religion with a true believer.

I expect things to get worse until 2024 at the earliest. More likely, it will take a year of rational executive governance to fix the problems we now have. Make plans for hard times until 2025.

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  1. Arahant Member
    Arahant
    @Arahant

    It is obviously the fault of the factory owners and retail outlets for raising prices, and they must be punished for doing so. Isn’t that how Democrats always solve this sort of problem?

    • #1
  2. Douglas Pratt Coolidge
    Douglas Pratt
    @DouglasPratt

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    • #2
  3. EODmom Coolidge
    EODmom
    @EODmom

    Not since FDR have we had a government working in adverse position to the State. This really is what Obama had in mind but didn’t get to.

    • #3
  4. Chuck Thatcher
    Chuck
    @Chuckles

    Seawriter: We are going to see a respite of this over the next year or two.

    Assume you meant that the truth of Friedman’s words won’t be irrefutable for another year or so, whereas I thought we were already seeing it. 

    • #4
  5. kedavis Coolidge
    kedavis
    @kedavis

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate.  Because if/when things are still bad in another 2 years, they’ll be blamed.

    • #5
  6. EODmom Coolidge
    EODmom
    @EODmom

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    I believe they are doing what they want and the outcome is what they sought. That is – those Dems with power sought this outcome and hope to control it to their objective – wholesale power over the citizenry. 

    • #6
  7. Seawriter Contributor
    Seawriter
    @Seawriter

    Chuck (View Comment):

    Seawriter: We are going to see a respite of this over the next year or two.

    Assume you meant that the truth of Friedman’s words won’t be irrefutable for another year or so, whereas I thought we were already seeing it.

    We are seeing it. We are not yet really feeling it yet. We will be.

    • #7
  8. EODmom Coolidge
    EODmom
    @EODmom

    kedavis (View Comment):

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate. Because if/when things are still bad in another 2 years, they’ll be blamed.

    If things are still bad in 2 years blame won’t be the biggest problem. The bad will be the problem. 

    • #8
  9. Percival Thatcher
    Percival
    @Percival

    Arahant (View Comment):

    It is obviously the fault of the factory owners and retail outlets for raising prices, and they must be punished for doing so. Isn’t that how Democrats always solve this sort of problem?

    There is a candidate for the House whose commercials consist of him bloviating that his leadership will lead to the pharmaceutical and oil companies ceasing their “gouging.”

    He doesn’t have the first clue how any of this works.

    • #9
  10. Arahant Member
    Arahant
    @Arahant

    Percival (View Comment):
    He doesn’t have the first clue how any of this works.

    Sure he does. He threatens, he becomes a multi-millionaire by some strange coincidence. That’s how it works.

    • #10
  11. DaveSchmidt Coolidge
    DaveSchmidt
    @DaveSchmidt

    kedavis (View Comment):

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate. Because if/when things are still bad in another 2 years, they’ll be blamed.

    The GOP now plays defense so poorly that they have to rely on the Democrats fumbling the ball.  Once the Republicans are on offense I doubt they will even hike the ball without getting called for a penalty.  

    • #11
  12. kedavis Coolidge
    kedavis
    @kedavis

    EODmom (View Comment):

    kedavis (View Comment):

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate. Because if/when things are still bad in another 2 years, they’ll be blamed.

    If things are still bad in 2 years blame won’t be the biggest problem. The bad will be the problem.

    Bad will be the problem for regular people, but if the Dims can successfully cast blame on the GOP who has “been in power” for 2 years, it could flip the House and Senate back to the Dims again, and get Biden re-elected (if he’s still alive) or Harris or someone else.

    That seems worse.

    • #12
  13. Seawriter Contributor
    Seawriter
    @Seawriter

    There is a saying that perfect is the enemy of better. Having the GOP control the House, or better both the House and Senate would mitigate some of the problems. Yet commenters fear that lest it get Biden re-elected. 

    1.  We need to stop the bleeding. If we cannot rein in Biden there may not be an election in 2024. We are close to a situation where we go into civil disorder on a large scale.
    2. To quote Barak O “Don’t underestimate Joe’s ability to eff things up.” Or Kamala’s for that matter. Those are going to be the Democrat’s candidates in 2024, unless things are so eff’ed up neither can run. In which case Trump or DeSantis will win regardless, no matter who the Democrats run.

    To quote Patton, “Let the enemy worry about their flanks.” We need to be on offence and stay on offence from January 4 2023 until November 5 2024. The best way to do that is control the House and Senate. Things won’t get better economically until the US energy industry is unshackled. I don’t think the press can hide that as bad as they try. 

    We can fight or we can quit. I’d rather fight.

    • #13
  14. kedavis Coolidge
    kedavis
    @kedavis

    Seawriter (View Comment):

    There is a saying that perfect is the enemy of better. Having the GOP control the House, or better both the House and Senate would mitigate some of the problems. Yet commenters fear that lest it get Biden re-elected.

    1. We need to stop the bleeding. If we cannot rein in Biden there may not be an election in 2024. We are close to a situation where we go into civil disorder on a large scale.
    2. To quote Barak O “Don’t underestimate Joe’s ability to eff things up.” Or Kamala’s for that matter. Those are going to be the Democrat’s candidates in 2024, unless things are so eff’ed up neither can run. In which case Trump or DeSantis will win regardless, no matter who the Democrats run.

    To quote Patton, “Let the enemy worry about their flanks.” We need to be on offence and stay on offence from January 4 2023 until November 5 2024. The best way to do that is control the House and Senate. Things won’t get better economically until the US energy industry is unshackled. I don’t think the press can hide that as bad as they try.

    We can fight or we can quit. I’d rather fight.

    But that’s part of the point.  It’s not about “quitting.” If Biden continues to block energy production – just for one example – by Executive Order, while CNN/MSNBC/etc tell voters that it’s the GOP’s fault, which might seem credible if the GOP has House and Senate majorities however slim, it could actually turn out worse.

    • #14
  15. DaveSchmidt Coolidge
    DaveSchmidt
    @DaveSchmidt

    Seawriter (View Comment):

    There is a saying that perfect is the enemy of better. Having the GOP control the House, or better both the House and Senate would mitigate some of the problems. Yet commenters fear that lest it get Biden re-elected.

    1. We need to stop the bleeding. If we cannot rein in Biden there may not be an election in 2024. We are close to a situation where we go into civil disorder on a large scale.
    2. To quote Barak O “Don’t underestimate Joe’s ability to eff things up.” Or Kamala’s for that matter. Those are going to be the Democrat’s candidates in 2024, unless things are so eff’ed up neither can run. In which case Trump or DeSantis will win regardless, no matter who the Democrats run.

    To quote Patton, “Let the enemy worry about their flanks.” We need to be on offence and stay on offence from January 4 2023 until November 5 2024. The best way to do that is control the House and Senate. Things won’t get better economically until the US energy industry is unshackled. I don’t think the press can hide that as bad as they try.

    We can fight or we can quit. I’d rather fight.

    I’d rather be on offense.  We need to pay attention to the basics, blocking and tackling.  We need both tactics and strategy.  

    • #15
  16. MarciN Member
    MarciN
    @MarciN

    Seawriter (View Comment):
    We need to stop the bleeding. If we cannot rein in Biden there may not be an election in 2024. We are close to a situation where we go into civil disorder on a large scale.

    Wish I could like this a hundred times.

    I’m guessing the American people will feel this way too.

    Consumer confidence drives discretionary spending, and of course, it’s discretionary spending that takes the biggest and earliest hit in times of uncertainty. What consumers know for sure is that taxes are going up, energy is going up, insurance premiums are going up, and professional services (medical, legal, financial) are going up. And there’s no end in sight to these increases because they know they are being driven mostly by the national debt, which has become a gargantuan fixed cost now.

    Republicans should be saying, starting now: “Are you better off today than you were two years ago? No, you’re not. The only way the Democrats can fix this mess is to raise taxes and reduce services. That is always the European welfare-state solution to these problems. Anyone on Medicare or Medicaid will soon see a huge reduction in what these programs will cover. Everyone else will see their insurance–every kind–go up and benefits go down. For starters, Republicans will reduce the regulatory burden, which will yield immediate cost relief for everyone, and it will create new business opportunities.”

    • #16
  17. kedavis Coolidge
    kedavis
    @kedavis

    MarciN (View Comment):

    Seawriter (View Comment):
    We need to stop the bleeding. If we cannot rein in Biden there may not be an election in 2024. We are close to a situation where we go into civil disorder on a large scale.

    Wish I could like this a hundred times.

    I’m guessing the American people will feel this way too.

    I live in a tourist area. Most years we have a lot of “shoulder season” tourists. But it’s really quiet here on the Cape at the moment. Tourism is usually a six-months-out industry. It’s a “lagging indicator” because of that. I’m thinking people were getting nervous six months ago–last March and April.

    Consumer confidence drives discretionary spending, and of course, it’s discretionary spending that takes the biggest and earliest hit in times of uncertainty. What consumers know for sure is that taxes are going up, energy is going up, insurance premiums are going up, and professional services (medical, legal, financial) are going up. And there’s no end in sight to these increases because they know they are being driven mostly by the national debt, which has become a gargantuan fixed cost now.

    If Republicans do not win all of the executive offices in the country–governors, for example–and the House, I’ll be so surprised that I will think we need to listen to President Trump and fix our election procedures. Vote counting will be the paramount issue if Republicans do not take over the state executive offices and the House. Americans are not stupid.

    Republicans should be saying, starting now: “Are you better off today than you were two years ago? No, you’re not. The only way the Democrats can fix this mess is to raise taxes and reduce services. That is always the European welfare-state solution to these problems. Anyone on Medicare or Medicaid will soon see a huge reduction in what these programs will cover. Everyone else will see their insurance–every kind–go up and benefits go down. For starters, Republicans will reduce the regulatory burden, which will yield immediate cost relief for everyone, and it will create new business opportunities. ”

    As I’ve said before, never underestimate the ability of a lot of people to think – and act – along the lines of “Wow, the Democrats have really messed things up!  We have to elect more Democrats to fix it!”

    • #17
  18. Sisyphus Member
    Sisyphus
    @Sisyphus

    kedavis (View Comment):

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate. Because if/when things are still bad in another 2 years, they’ll be blamed.

    They will always be blamed. Just like there will always be quislings who pretend to be staunch Republicans online but are Democrat activists. If you are looking to counter evil you have to take their power away. Worrying about what the corrupt and their lackeys will say is what they want. 

    He was a murderer from the first, and the truth is not within him.

    • #18
  19. Sisyphus Member
    Sisyphus
    @Sisyphus

    DaveSchmidt (View Comment):

    kedavis (View Comment):

    Douglas Pratt (View Comment):

    Why should the Democrats do anything to improve the economy? If they get shellacked in the upcoming elections, they can blame it on Republicans. They already are, as if no one knows that they’re in charge.

    That’s the one valid reason I could see for NOT wanting the GOP to take the House and Senate. Because if/when things are still bad in another 2 years, they’ll be blamed.

    The GOP now plays defense so poorly that they have to rely on the Democrats fumbling the ball. Once the Republicans are on offense I doubt they will even hike the ball without getting called for a penalty.

    The GOP’s job as they do it is to absorb the protest vote and render it futile. That has been largely the case since FDR took office. I say that with a tip of the hat to Ronald Reagan and Newt Gingrich for their valiant exceptions to the rule. 

    • #19
  20. kedavis Coolidge
    kedavis
    @kedavis

    Sisyphus (View Comment):
    If you are looking to counter evil you have to take their power away.

    Exactly.  But as long as Biden is still POTUS, we haven’t really taken their power away.  And if the GOP has numerical majorities in the House and/or Senate, a lot of people can be convinced that anything bad is THEIR fault.

    Remember, I still hear from certain dim relatives and heard in the past from dim neighbors in Phoenix, that the good job numbers etc during Trump were actually “leftover Obama,” and the problems now are really “leftover Trump.”

    • #20
  21. Sisyphus Member
    Sisyphus
    @Sisyphus

    kedavis (View Comment):

    Sisyphus (View Comment):
    If you are looking to counter evil you have to take their power away.

    Exactly. But as long as Biden is still POTUS, we haven’t really taken their power away. And if the GOP has numerical majorities in the House and/or Senate, a lot of people can be convinced that anything bad is THEIR fault.

    Remember, I still hear from certain dim relatives and heard in the past from dim neighbors in Phoenix, that the good job numbers etc during Trump were actually “leftover Obama,” and the problems now are really “leftover Trump.”

    Any power you deny them is worth taking. There will always be people foolish enough to swallow the propaganda, I have relations also. I refer them to Peter Schweizer and Sharyl Attkisson.

    • #21
  22. RufusRJones Member
    RufusRJones
    @RufusRJones

    Seawriter: Congress is responsible for spending. It can rein-in the budget.

    You can’t control spending under a discretionary central bank regime. The last chance to do anything about this was the mid 90s. It’s too deflationary.

    We and everybody else have overspent for so long, I don’t see any other viable option than inflation. The whole system is regressive partly because it engenders so much debt growth.

    • #22
  23. RufusRJones Member
    RufusRJones
    @RufusRJones

    I know most people don’t like videos, but this is really punchy and educational. Just skip over the parts you don’t want to watch. Great survey of the global economy and The System.

     

     

     

    • #23
  24. RufusRJones Member
    RufusRJones
    @RufusRJones

    Seawriter:

    However, today we are experiencing a different phenomenon causing inflation: a reduction in the economy due to a scarcity of goods. Yes, the government is running the printing presses, increasing the money supply, but the economy is also shrinking. We are producing significantly less energy. Supply chain constriction is further limiting production. If a factory cannot get raw goods, it cannot manufacture finished goods. Plus, increased regulation makes it more difficult to provide goods and services.

     

    The whole planet is seven years behind on capital expenditure for oil production. I think most minerals are about that far behind. 

     

     

    • #24
  25. RufusRJones Member
    RufusRJones
    @RufusRJones

     

    This is the Fed balance sheet. They have no idea what they are doing. They have no idea how to reverse it. They went nuts during the pandemic simply because they could. 

    You could pick different dates, but the 90s was a perfect chance to make some hard decisions and everybody did the wrong thing. We needed a more libertarian economy to deal with the deflation from automation and globalized labor. We needed to get all of the unfunded liabilities under control.

    Now it’s a feedback loop. 

    You can’t expect conservatism and libertarianism to work or sell under these conditions.

    • #25
  26. RufusRJones Member
    RufusRJones
    @RufusRJones

    This is actually existing postmodernism in economics: the construction of a reality in the form of a claim to real goods and services (purchasing power of money) out of nothing, per fiat, in the form of uncovered and thus potentially unlimited money creation. This is a postfactual reality: there are no facts that determine and thus limit this reality. By contrast, as long as a currency is tied to gold, silver or a basket of goods, its purchasing power is determined by the material assets on which it is based. Their availability is limited. They cannot be increased by political decisions.

    The gold peg of the US dollar collapsed in 1971 due to a state that wanted to satisfy ever more welfare demands internally without creating wealth (Johnson’s “Great Society”) and that enforced claims to power externally also by military means (the Vietnam War). Faced with the choice of adapting these claims to reality or creating the illusion of reality in order to promote these claims, the US and subsequently all other states opted for the latter. Finally, Switzerland too abandoned any form of pegging its currency to gold in 1999.

    This is actually existing postmodernism, because it breaks with the constitutional state: the mission of the latter is the protection of defence rights against unsolicited external interference in the freedom to determine oneself how to conduct one’s life. The welfare state, by contrast, is held together by granting entitlement rights to all sorts of benefits; that is, rights to benefits that don’t originate in private law contracts among individuals for the exchange of goods and services.

    Consequently, these entitlement rights are enforced by the state power. Their fulfilment eventually becomes dependent on the unlimited creation of fiat money. However, as long as this is limited to panem et circensis – the welfare state and its orchestration in the media – the interference with the private sphere of people and their ways of conducting their lives is limited. There is no collective, common good conceived here that is imposed on all.

    https://brownstone.org/articles/fiat-money-and-the-covid-regime-actually-existing-postmodernism/?utm_medium=onesignal&utm_source=push

    Inflationism can only work at gunpoint. It requires collectivism done at gunpoint.

    cEntRal pLAnNing MakEs oUr liVEs beTTEr

    • #26
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