THE BIBLICAL ECONOMY
President Reagan’s legacy in domestic matters will be measured by his role in the economy. He reversed the fading momentum of the tired liberalism of Roosevelt’s pro-active Government that presided over a tidy marketplace for several decades. Reagan railed against “big Government”. He introduced Supply Side Economics and promised smaller Government (which grew during his eight years) because he had come to believe that Government was the problem, not the answer. He swapped John Maynard Keynes for Milton Friedman; exchanged a system of intrusive government for a system founded on the firm belief that markets are Self Correcting and shouldn’t be tampered with. We know that too much government slows the rate of money flow, may alter the directional flow of money and “socializes” the economy. Socialism can lead to dictatorship. On the other hand laissé faire government can lead to chaos, anarchy and dictatorship. So what's your favorite dictatorship? Pick one! An economy growing steadily at a reasonable pace leads to contentment.
Reagan and the Supply-Side academicians believed that given enough money the public would keep the economy buzzing and enterprise would project delectable baubles into marts of the future. Government urged us go shopping, a policy the public embraced due to the low cost of goods imported from developing countries. But there just wasn’t enough money out there to satisfy our avid buying appetites because after exhausting savings, salaries, credit card loans and Home Equity values (formerly known as second mortgages) Americans had no place to go for money unless they could sell their grandmothers.
A Self Correcting Market depends on a rational public that per force would buy moderately, merchants that would lower prices when necessary, enterprise that would slow production and lower inventories when advisable. People would save money, pay off debt then with accumulated funds buy more as long as innovative industry produced desirable trinkets. But hey, where do you find a rational public?
A Supply Side Free Market economy presumes that the Bankers and Brokers who are the conduits for the currency that fuels a Supply Side economy are honest, trustworthy, sane and not beguiled by errant schemes. But what Milton Friedman may have left out of his equations is Greed. Greed is the emotion that spurs acquisition which in turn generates wealth but not necessarily prosperity. But in an uncontrolled Free Market greed is catching, a communicative disease that infects everybody including the Bankers and Brokers of Free Markets with whom we entrust our treasure. They were the foxes in the chicken coop, quirky Quisling magicians who turned OUR money into THEIR bonuses and left us with chicken feed.
As the general public was falling into the Black Hole of Debt the limbs fell from the lending tree. Bankers and Brokers endeavoring to grow an exhausted money supply made loans, derivative bets and gambles normally seen only at race tracks and casinos. They also used up their credit by borrowing money to fund the faulty premise that a house had infinite value, and by the time they got done with these capers they had replaced most of the world’s money with Counterfeit. Mortgages. It’s hard to buy, sell, borrow and lend when the currency has uncertain value. It was a mess. The Self-Correcting free Market was not correcting itself. What’s the remedy? Go to the Government for help. So now everything is topsy-turvy. Unfettered Capitalism has become the problem and the Government (we hope) is the solution. Supply-Siders failed to put a human face on their calculations, i.e. while a market is “self correcting” people go without food or shelter.
The obvious remedy welcomes government to devise a plan or create a device that will convert counterfeit mortgages into real money. As of now (with apologies to President Reagan) Un-tethered Capitalism has proved to be the problem and Government hopefully will be the solution.
In Biblical times Joseph son of Jacob, was sold by his brothers to enslavement in Egypt. He was jailed, but while there interpreted the dreams of the Cup-Bearer to the Pharaoh. His predictions proved out. The Cup-Bearer was released and when subsequently the Pharaoh had a dream that his Court conjurers couldn’t decipher the Cup Bearer recommended Joseph. Released from jail Joseph told Pharaoh that his dream forecast 7 years of abundance to be followed by 7 years of famine, and then suggested that during the 7 years of abundance a the government should store food. The Pharaoh acted on this. When Joseph rose to power and famine struck he distributed the stored food throughout the land, but in return the people were forced to turn silver and livestock over to the government. Joseph then declared a tax on their land and nationalized their farms (except those owned by the Clergy.
Sound familiar doesn’t it. Spend money to prevent catastrophe and then tax the people to pay for their salvation. It’s all in the timing. But when the Free Market failed in Egypt (due to famine) the government took over. Who else had the power to store the food and raise taxes?
And were Joseph here today, would he recommend that the economy once recovered should be maintained at a steady pace by varying monetary policy accordingly: raising interest rates to slow down the feast and lowering interest rates when quirky markets threatened famine. That plan might be attractive to the Congress if it weren't so simple