Relevant Debate

As a hard rule I avoid making relatively short term predictions about anything because that is a dicey undertaking at best, and I have never been much good at it.  However, late last year a friend asked me what I thought about the outlook for this year, hoping to glean information that could help him in the business he owns.  Like a soft hearted fool I gave in and wrote up my outlook for 2010.  Lucky for me I can declare victory and go home.  As expected the economy muddled through in the first half at a sadly sub-par rate of growth relative to all post great depression recoveries.

One reason short term economic prognosticating is so treacherous an undertaking is that too much depends on correct political predictions.  Even miscalculating the timing of the unraveling of the Eurozone has a relatively minor effect compared to my chronic propensity to underestimate the incompetence of politicians, even when the calculations are made from their point of view.  In this case it is the utter failure of the Democratic party to pass significant new “jobs” bills, or even effectively deploy the funds already allocated to arouse the economy.

This confirms that I have been incorrect in the assessment that only the righties were lowlife hypocrites and that the lefties really stood behind their rhetoric.   At the first sign of pressure from the tea baggers, the lefties folded like a poker player under the gun with an unsuited seven – deuce.

Of course the righties on the political spectrum are no less moronic in their discussion and debate.  For example, witness the witless argument over whether the stimulus worked.  Of course it worked.  When an athlete injures a knee and gets juiced with pain killers, cortisone, steroids and so on, he can finish the game.  The drugs obviously “worked”.  The same must be said about the federal stimulus package.

On top of all of the above, God saw fit to bring Murphy into play with the mother and father of all environmental disasters second only to Chernobyl.  The  impact of the destruction of the commercial fishing industry and the collapse of the region’s tourism are just the beginning.  The collapse of St. Joe stock is hard evidence of the extreme pressure on real estate values throughout the region, already convalescing in the ICU.

Worse, the continuing, arguably deliberate and grotesque incompetence of the cleanup and pollution prevention efforts by the feds is having a terribly grim effect on the psyche of our nation, the economic impact of which will be significant in the near and intermediate future.  What makes me so befuddled is that the political fallout of Katrina had to be front and center in any discussion of policy options.  Right now W. looks like superman compared to what is going on now.

By contrast, consider the psychological and economic effect of an almost immediate massive deployment of many hundreds of skimmers and separaters supplemented by tens of thousands of people on land and at sea to keep the oil from reaching dry land and wetland.  This should have been spearheaded by the military, easily the best in the world at dealing with the logistics of this type of task.  I leave it to you to speculate on why responses obvious even to simpletons have not been taken, even now – witness the Whale skimmer that is still not skimming, after sitting for two months in Virginia.

Parenthetically, keep in mind that this whole disaster, in all its manifestations, is hard evidence of the futility of anti-capitalist policy.  The water, the land under the water, and the beaches are all owned by the government.  The government makes all the rules and must approve even the smallest details.  Even private property interests with usual legal rights of way like the commercial fishing and tourism industries have zero to say about any of it, and no standing in court until they experience a devastating loss.  None of this would be true where all the property and property interests were privately owned.

We must immediately terminate all drilling and mining on all government owned land.  This will require compensation to those with contractual rights.  Drilling and mining must not be resumed until all the property in question is returned to private ownership.

There is no way I will make the same mistake again and offer a prediction on the economy for the remainder of 2010.  Will the democrats finally wake up and successfully administer another cortisone – steroid cocktail?  Will the mounting and reliable evidence of a negative third quarter GDP pan out?  I have no idea, nor do I care to waste my time trying to answer these questions.

Another silly speculation revolves around what I call “Recession Alphabet Soup”.  Is it a V, a U, an L or a W.  It looks like the V crowd is toast and the U boys are about busted.  L and W are still in play.  For my part the debate is for entertainment purposes only because they all assume that we have seen the bottom of the cycle.  My pick is that we are in the early stages of tracing a lower case stunted script z.  Write one to see what I mean.  In a few years this period will be referred to as the good old days.

A more relevant debate is whether we are in for serious inflation or deflation.  This too is actually a political, not an economic discussion.  Right now the overhang of debt is so massive that we are clearly in a consumer and commodity deflationary environment notwithstanding the unprecedented inflation of the monetary base by the Federal Reserve.

On my economist’s other hand, it is a mathematical certainty that the fed and the US Treasury can print up enough money at any time to force prices higher.  The fed did this to the tune of well over a $trillion in 2009.  Surely they can to two, five or ten $trillion whenever they want.  What do you think would happen to consumer and commodity prices if the fed purchased all outstanding treasury securities?

Therefore, whether we will face sharply rising consumer and commodity prices is not an argument about economics, but about what the anointed elites will ultimately do with our money.  This is pure politics.  Historical precedent comes down squarely on the side of massive money making madness.  Drug addicts rarely stop before getting strung out.  We are not addicted to oil, we are addicted to easy money.