THE OBAMA POLICY
Howard S. Katz
March 2, 2009
It is your misfortune to live in an evil age, an evil age and a stupid age. As a result, the entire economic discussion today is a concoction of deliberate lies and muddled confusion. The longer an economist's title the stupider he is.
The greatest economist of the 20th century was Ludwig von Mises. Von Mises was the leader of the Austrian school of economics and predicted (what is conventionally called) The Great Depression.
Von Mises taught that there are two (not one) aspects to the production of wealth:
- The actual wealth must be produced.
- The resources of the community must be directed toward producing those particular goods which are most desired by the consuming public.
Most of the country's economists understand point 1. But they do not have a clue about point 2. To illustrate, let me take an example when this point was ignored in economic history.
In the late 1920s, Joseph Stalin decided on the industrialization of the Soviet Union. He took farmers off the farms and put them into factories. He wanted to make the U.S.S.R. into an industrial country like the United States. The result was that by the early 1930s the Soviet Union had an increased amount of industrial goods. BUT THEY DID NOT HAVE ENOUGH FOOD. Today the Encyclopedia Britannica estimates that between 6 and 8 million people died of starvation from 1932-1934. The system had produced more goods, but it had not produced the goods that people really needed. So the increased production did not do them any good.
This is the reason that Gross Domestic Product does not accurately measure the wealth of a society and cannot be spoken of as the economy. It measures the quantity of goods, but it takes no cognizance of the importance of particular goods for the people of the society. Because he did not understand this, Alan Greenspan did, in a subtle and roundabout way, in the recent past what Stalin had done in the 1930s. He devoted the resources of his society to the production of goods which the consuming public did not want (or did not want as much as other goods which did not get produced).
You have been told that our society is now in a housing crisis. This much is true. But the crisis described in academia and in the media is the decline in housing prices. This is only a crisis if you are a housing speculator. If you are a young couple trying to buy your first house, then the decline in housing prices is a good thing. Besides, if one American is selling an economic good to another, then whether the price is higher or low cannot affect the total wealth of the country. One American gains, and another American loses. Net there is no change.
But anyone who has studied the housing bubble of the early 21st century knows that something very unusual was going on. In most real estate bull markets going back to WWII, housing starts would get up to a maximum of 2 million or so per year. And, sure enough, starts hit the 2 million/year mark in 2005. BUT - and here is the kicker - housing only hit the 2 million mark because the banks went out of their way to attract a large number of housing speculators. I am here defining a housing speculator as someone who owned a house in which he did not live. He was playing for a rise in price and then intended to sell. He did not live in the house.
That is, the real estate market only reached its traditional peak of 2 million/year by attracting people who did not intend to live in the houses they were buying. And this is the first clue to the giant mistake being made, first by Greenspan and now by almost everyone who analyses the American economy.
You see, to build a housing development requires land. A developer buys land from a farmer. There are more houses, and (as was the case in Stalin's U.S.S.R.) there is less food. Now America is a much richer society than the old Soviet Union. We have experienced food surpluses for most of the 20th century. We are not at all worried about having enough food. But last March an incident occurred which should give any thinking person pause for concern. There were food shortages in many countries. Many countries experienced food riots. And the government of Haiti fell because of a food riot.
And that, dear reader is the threat of the future. America no longer has a free economy to balance the consumer's demand for houses and food. Both are important economic goods. But, as von Mises pointed out, each must be produced in proportion to the public need for it. This the free market does splendidly. But our current politicians, like Stalin, only know the blunderbuss. Barney Frank, for example, considers himself an advocate of housing. "MORE HOUSING, MORE HOUSING." The whole political system is pro-housing and cares not a whit for food. May I give you some facts?
The seed developers performed "miracles" over the course of the 20th century. They developed seeds which produced FIVES TIMES AS MUCH FOOD per acre of land. Worldwide, over the course of the 20th century, food production multiplied by a factor of 5, and the population (in response to the larger food supply) multiplied by a factor of 4. It was the fact that the population lagged a little which prevented mass starvation. AND ALL THIS WAS DONE WITHOUT INCREASING THE WORLD'S ARABLE (GROWABLE) LAND.
Arable land in the U.S. held stead for most of the 20th century but started shrinking after 1980 (Reaganomics). The promotion of housing via the easy credit policies of the Federal Reserve is the cause. Most housing developments remove farm land from agricultural use.
We are now in the second upswing in the commodity pendulum (the first having occurred in the 1970s). We are in the middle of a giant rise in commodities, and from the vantage point of the year 2020 the small dip in prices in late 2008 will appear as a joke. (There was a similar dip in the mid-'70s. In 1975-76, gold fell to $108. By 1980, it was $875.)
But if the modest rise in commodity prices from 2001-2008 caused food riots around the world, then what is going to happen when the commodity rise really gets under way? THERE IS GOING TO BE MASSIVE WORLD-WIDE STARVATION.
So you see, 99.99% of all economists have completely missed the diagnosis of the problem. They are fighting a "deflation." They are idiots. What is happening is that we are building too many houses and not growing enough food. The land we need for food production is today sitting under huge housing developments, which are being used as speculative toys by a small minority of the population.
And what are all our authority figures trying to do? They are trying to rescue the housing market (to save the speculators). This is the policy of Ben Bernanke. This is the policy of Barrack Obama. And this is the policy of Barney Frank. It is sort of like the New Deal, which tried to make the country wealthier by killing pigs and plowing under crops. If these people ever got up to stupid, it would be a major advance.
And do you want to really understand the Obama economic policy? Nobody has a clue. I have pointed out in previous articles how the establishment is talking "deflation" while they are acting "inflation." My economic analysis can be summed up in a little poem:
For what he say, and this is true,
Is far removed from what he do.
99.9% of what John Maynard Keynes said was a pack of lies, but he did understand one thing. When prices rise, wages tend to lag behind and not rise as rapidly. (When prices fall, the opposite is true. Wages do not fall as rapidly.) Thus a rise in prices causes a fall in real wages. We have seen that in spades since 1971. Prices rose. Wages lagged behind. And real wages in America are now lower than they were in 1972. THAT HAS NEVER HAPPENED TO ANY PREVIOUS GENERATION IN AMERICAN HISTORY.
What Barrack Obama wants to do is to steal from the American working man and give to the banks and the big corporations. That is why he is printing money. (Not that George Bush was any better.) So I can tell you that all this garbage you are hearing about a collapsing stock market is garbage. This market is feeling for a bottom, and then it will explode to the upside. People in the years 2012-13 who look back on 2008-09 will be astounded that everyone was so bearish.
And this has happened over and over and over. The year I entered college John Kenneth Galbraith went to Washington and told a congressional committee that the stock market was on the verge of another 1929. He scared the market so badly that in one week it fell from 420 to 400 DJI. Then the market turned and over the next 11 years rose from 400 to 1000. There was no 1929. Then it happened again in 1982 (Henry Kaufman) and in 1990 (Ravi Batra). And it is happening right in front of your eyes. The bearish predictions are cover for the Fed so that it can (without criticism) print money.
As above, the printing of money will cause a massive increase in prices, and the rise in (nominal) wages will lag behind the rise in prices. So the working man will suffer a fall in real wages. Now of course, Barrack Obama needs the votes of working class America (those same people he condemned as being excessively concerned with guns and religion). This is the reason for the tax-the-rich policy. Obama has to convince the normal blue collar Democratic voter that he is robbing from the rich to give to the poor.
But nobody ever robs from the rich to give to the poor. The rich make campaign donations to left-wing politicians (who use them to run campaign ads trumpeting their sympathy for the poor). In return, these politicians rob from the poor (by printing money and reducing real wages) and give to the rich (by making stocks go up).
And then the stupid conservatives help the left wing politicians by going on obsessively about how the Democrats are robbing from the rich. Yet, amazingly, the rich don't seem to mind. They are "limousine liberals." They keep donating their money to the Democrats who are "robbing" them (via taxes). The reason is that these Democrats are making them rich via the stock market. So the conservatives, although they are morally in the right, don't get votes. They don't get the votes of the poor, and they don't get the votes of the rich. And no matter how many times they lose they never learn.
So you see that one cannot distinguish between the hard nosed, "practical" approach and the idealistic approach. There is only political economy. And if you don't understand the political side, then you won't understand the economic side.
I am concerned with both sides. You can visit my blog at www.thegoldbug.net for no charge. For the past two weeks and continuing to the current week, I have been talking about the most important issue of our generation, an issue which is getting next to no publicity. Hidden in the Obama "stimulus" bill are provisions to create a government bureau whose job it is to control health care spending by murdering those expensive to treat. (If your newspaper has not told you this, then it is trash and not worth the read.)
For the hard, bottom line economic predictions which can make you money, you can subscribe to my newsletter, the One-handed Economist. ($300/year). We have been on a roll at OHE with higher profits for 8 straight (fortnightly) issues. At the beginning of the century, I started a Model Conservative Portfolio. A subscriber who has been with us from this point and followed all of the recommendations would have 20 times as much in profits as he paid in subscription fees. This compares with the average U.S. mutual fund, which has sustained a 30% loss over the same period.
Almost no one understands how the system works. The New York Times decides on an issue and starts hammering away on its front page. Most every other newspaper in the country then picks up the issue. Then the network news and the news weeklies join in. Pretty soon, all organs of opinion are saying the same thing. The few dissenters are treated as though they do not exist.
99% of all the people hear the same opinion from 5 different sources and do not realize that all of these trace back to the Times. So they believe. "Everybody thinks that we are on the verge of a depression. How can you disagree with that?" There is a ring through each of their noses. Attached to the ring is a chain. And the chain extends forward into a cloud so that they cannot see who is pulling them. But they follow along, because they are sheep. And every so often they are sheared. But because they are sheep they soon forget the last time they were sheared, and they are ready to follow the same media in the same direction. And so it goes.
But the One-handed Economist (OHE) is looking for a few good men, men who are not sheep and will think for themselves, men who will ask themselves, "Is it rational to follow the same economic advisors who have led me to disaster over and over and over?"(I mentioned this last week, but it bears repeating. The Times spent $2.7 trillion buying its own stock around the turn of the century at prices near $40/share. The stock closed Friday at $4.12/share, leaving them with a loss of about 90%. Now they are borrowing money from Carlos Slim at 14% interest. Have people like this earned the respect of the nation in regard to their economic wisdom? Are these the people you wish to follow?)
No, OHE's mission is to redistribute wealth from the irrational people to the rational people. I hope you will check us out.
Email this Article to a Friend 
Printer Friendly Version