I Already Googled It

Responding to this:

Rick Goldman’s piece in the December 7^th issue is awash with utter confusion about terminology and economics:

He blames the “neo-conservative” movement for the“economic-inequality gap”, and yet doesn’t seem to understand what a “neo-conservative” is: Neo-cons support an interventionist foreign policy.

Second, he decries free trade agreements, when evidence points to free trade agreements being good for economic growth (see: Hong Kong).  You can’t produce anything when you don’t have a market for it.  Free trade opens up foreign markets to the sale of first world, high tech goods, just as they open domestic markets up to the sale of cheaply produced third world goods.  This – as all market relationships – is symbiotic: The third world is enriched by the influx of first world technology and the products of skilled labour, whereas the first world’s standard of living is raised by access to cheaply manufactured goods.  The third world is thereby given a shot at sustaining itself and building its own economy – lifting people out of poverty – while the first world is given an expanded market for its established economy, increasing its wealth and decreasing unemployment.

Autarky and protectionism are economic madness.

Third, he blames the economic downturn on jobs going abroad and deregulation, when the real reason for the economic downturn was credit expansion and the toxic assets it built.  Central banks artificially depressing interest rates, thereby encouraging people to gamble with artificially cheap money and to buy things they couldn’t – objectively – afford at interest rates that the market couldn’t sustain is what fuelled the downturn.  The monetary policy encouraged excessive borrowing and the low interest rates encouraged excessive risk taking.  This led to bubbles as people threw their cheap money at sectors that had yields inflated artificially by other people doing exactly the same thing.  Bubbles, however, are not water, they’re a film of water filled with air, and when they pop the air departs in a rush and the real value – the water – remains constant.  This led to a “contraction” which was actually a “correction”.  But the whole financial system was wound up in relying on the value of houses always increasing, an increase only made possible by cheap money from central banks.

Fourth, he claims that the solution is more spending.  The United States spent a trillion dollars on economic stimulus.  Should we, with the best economy in the world save perhaps China, and the best banking system in the world, really be following the economic lead of our ruined southern neighbours?  Besides, where is that money going to come from?  The printing press, further devaluing the precious few assets held by the middle class?  The taxpayers, further draining the middle class to feed “the 1%”?  The rich, taking assets out of banks – where they’re loaned to people who need them – or portfolios – where they’re actively invested with people who need them?

Hayek said it best: “The curious task of economics is to demonstrate to men how little they know about what they imagine they can design.”