Friday, October 10, 2008

Ali Paulson and his 40 thieves

Before I launch into why the bailout was bad and will fail to do what it is supposed to, I want to remark that there was a solution in place of saying no to the bailout. While often doing nothing does not hurt that much, in this case they would because all sane people should know now, markets head toward ultimate meltdown when they are free. They need to be regulated by positive regulation, and the lack of it had caused this meltdown. Of course, it would not have been instant. There are foreign banks with capital (mostly in China and Abu Dabi) who have a vested interest in slowing American economic collapse. In the long term it is a boon for them but in the short term it will wreck their national economies. What would Abu Dabi be but a mud hole in the desert without greedy Americans buying its oil by the refined bushel? So no, we would not have instantly been reduced to a "post-Katrina" like situation all over the country. It would on the contrary hasten our dependence on foreigners for our daily sustenance, and in the long term we would see the end which the chicken little's in the executive branch are predicting.

Now Free Market economists, seeing the complete defeat of all their theories, proposed an alternative plan which in itself violated them that would present government insurance for the mortgages in question. It was certainly a better plan than Paulson's but tainted by the same flaw, it doesn't understand the problem. Their plan aims at creating the same house of sand which existed before, not alleviate its problem, that there is not enough production within the country to justify the services, and not enough to do with the money which lenders have. Regardless, since it was rejected by the Bush dictatorship and rejected by congress, now they have to distort reality by claiming it is government's fault for forcing lending institutions to give mortgages to "minorities" and low income applicants.

Now it is true that under Clinton and W the government put pressure on banks to abandon prudent behavior and offer sub-prime mortgages low-income borrowers. However, taken by themselves these do not threaten the financial system and every institution within it, just as my lending a bad loan to a neighbor who can't pay will not hurt the institution across town, even if I service many other loans. These would hurt the institution in and of itself. The meltdown of Fannie Mae, Bear Stearns or AIG due to bad sub-prime loans taken by themselves could never in a million years caused a meltdown of the whole system. What caused the meltdown was Free Market principles in and of themselves, because wherever they are tried they inevitably fail, even if they are tried in limited areas.

The meltdown we are witnessing, and the free fall of stocks and banks even after the bailout has been passed, is due to bad securities, short selling, and derivatives. The actual losses from sub-prime loans may in fact be less than 600 billion, which themselves would ruin certain institutions but not the whole system. While I despise the whole lending system and await the day of its demise, not every banker is also a satanist, and there are banks which by themselves would be solvent and sensible both in their lending and what they try and give back to the community. It is the mixing of sub-prime loans, and assorted bad debts into securities packages with solvent ones (even loans made to large and continually paying businesses) and sold. That wasn't enough so bets had to be hedged on the packages which brought more speculation, and tied more prudent investments up with imprudent ones, and like a bunch of lights on a series circuit, if one goes out they all go out. The system of derivatives is completely unregulated, and done so in accordance with free market principles, and it is directly responsible for the meltdown of our economic system. That the meltdown has been so severe is because, much like the Treasury, the banks do not have any money themselves. Bear Stearns was operating at something like a 33 to 1 ratio, for ever $1 they had in their vault they had $33 of debt. Banks themselves do not have to maintain the necessary capital to cover losses on investments. So when default piles upon default, the banks become completely insolvent, whereas had they any money they could cover the bad debt. Hence they need our future.

The reason banks carry not a cent to cover their investments is due to "free market" thinking. Even Communism is not so stupid as to think that debt is a good thing, as is the trend in modern economic liberalism. The current treasury secretary, Ali [sic] Paulson, who was the head of Goldman and Sachs (remember that), met with the Securities and Exchange commission in 1993 and asked for the end to government regulation requiring banks to carry the money to cover their investments. That was the first inroad of many to free banks from government regulation which kept banking from becoming "too big to fail". This was an achievement under a Democratic administration yes, but of Free Market principles in particular, and the baton was passed to W.

What the bailout does in point of fact, is transfer the bad debt from Paulson's 40 thieves, the bad debt of the firm he used to run to public books, and saves his friends and colleagues from bankruptcy. There is no 700 billion dollars because the 700 billion does not exist. The Treasury does not have even $1. All of the budget shortfalls year to year are met by loans from foreigners (China, India, Japan, The Emirates). And as spending increases on worthless education, on two immoral wars, and generally useless and misdirected social services, the interest only goes higher. There is no money to give Paulson and his 40 thieves, unless the Treasury is to embark on Weimar 3.0. Rather, they simply transfer the debt from them to us, and allow the banks to end the year in the black and toast themselves at their time shares in tropical islands, while the rest of the hoi polloi burn. It is a greater theft than any novelist has ever made up, or any wannabe criminals have ever lied about.

Thus both the National Socialist solution passed by congress in defiance of their constituents, and the free market solution proposed by the Emperor's new clothes crowd, both miss the point. There is not sufficient production within our country to base a healthy and stable economy. Production, as John Medaiile of the Distributist Review puts it, must come from farms, fisheries, forests, factories and mines in order to be real wealth, not something produced by services and credit cards. An economy can not be driven only by consumption because by necessity you must have something to consume. We likewise consume production, but it is someone else's consumption in a factory in east Beijing, and so there is no real wealth created within our own country, except for small businesses here and there which manage to subsist, or "Agri-business". More people have to produce, because in times of weakness when we can't afford ships of apples and led filled milk from China, there will be a severe famine due to the lack of American production.

The bailout was not meant for us, and it will not help us. It will help Ali Paulson and his forty thieves at Goldman and Sachs, AIG, Fannie and Freddie, who are already having big spa parties, but it will not help small business nor the individual taxpayer nor the homeowner. For that we must restructure our economy to reflect real wealth, not to be built, as the Pope put it, on sand.

Lastly, Bernanke, Paulson and Bush all told us until two weeks ago that everything was fine, the economy was in great condition and we would bounce back with ease. Not long after that they come out and say the sky is falling. We are expected to believe them that the money that has been voted to them will save the economy? Good grief.

13 comments:

David said...

This sucks really bad.

Kevin said...

I composed a long a complicated objection to your essay, but I decided to throw it away. Instead, I ask the following.

What if...

The stock market keeps dropping for another week and then bottoms out. Productivity drops somewhat, but then slowly begins to recover. Houshold incomes are constricted by inflation a little more, but eventually begin to rise again with productivity growth. Americans tighten their belts a bit, endure the bad times, and make it to the next bull market without too much sacrifice. The stock market rises for a decade or so. Everybody feels like things are good. People get overconfident and stock prices rise too much. There is a bubble for some asset kind or another. It breaks. The market drops. A few people get soaked, just like before. Etc Etc. In the long run, everything is ok.

That is the story that I see when I look at this graph:

Link

Is this pattern the very thing you are objecting to, or do you think stocks will never again hit the highs of 2007? People are always worried and panicked during bear markets. But we've had a lot of bear markets and things always get better.

More to the point.

What does your economic theory forbid from happening in the future? Be specific. What event, considered likely by a free-marketer like myself, would cause you to doubt your beliefs? What is the empirical test of your understanding of economics? How good would the economy have to be doing before you would say, "I was wrong." ??

Athanasius said...

The stock market keeps dropping for another week and then bottoms out. Productivity drops somewhat, but then slowly begins to recover.

Then I would say so what? We are still in the same position where the economy's success and the stock market's recovery is dependent upon people buying useless shit and wasting money, as well as the reign of immoral and satanic advertising to drive the sales of the useless shit. That is more or less all capitalism means to me when I hear it. The recovery of the system is a meaningless thing to me. The crash and the real and tangible suffering it causes people is proof enough for me. Distributism is not and can never be perfect, but people do not lose everything from market crashes, and their markets never crash nor are too big to fail because they are based on local production not production done in another country by the equivalent of slave labor which we create phony service economies on. As the Pope said quite rightly, its all built on sand and distracts man from his ultimate end. Like communism it is a blunt denial of the fall of man.

Houshold incomes are constricted by inflation a little more, but eventually begin to rise again with productivity growth. Americans tighten their belts a bit, endure the bad times, and make it to the next bull market without too much sacrifice.

Americans could use that to get rid of their useless commodities and greed. But again, so what?
The same useless immoral system exists and will crash again. Next time it won't be derivatives and sub-prime loans, it will be the next bubble, or the true weakness of the thing, that WE DON'T PRODUCE ANYTHING will come home as we can't afford to import the production of other countries.

There is a bubble for some asset kind or another. It breaks. The market drops. A few people get soaked, just like before. Etc Etc. In the long run, everything is ok.

That is the point, everything is NOT okay. The whole thing can recover and go back to normal, because the argument was never that it can't work for a short time or make a small segment of society rich. Hell, even Communism worked for a short time and made a small segment of society rich. The point has always been the system is weak morally, and it is weak economically because it is based upon production which can not be controlled locally.

Is this pattern the very thing you are objecting to, or do you think stocks will never again hit the highs of 2007?

It is the very thing of it. I don't care whether stocks are at the rate they were in 2007, 2008 or 1930. I was worried and panicked in 2007 when the stock market was at an all time high. (not literally worried and panicked but when the market appeared to be doing well I said it wasn't).

What is the empirical test of your understanding of economics? How good would the economy have to be doing before you would say, "I was wrong."

We could turn this around on yourself. What empirical test is there for the so-called free market and didn't it just flunk?

Nevertheless, the standard for Distributism's falsifiability is to test whether another system can do what Distributism wishes to do, provide every man for the chance to own his own production, to create strong local and stable economies based on real production. If that can be achieved without the right government intervention, then I'm all for it and will become an economic liberal tomorrow. But it doesn't and never has.

In Distributism there will indeed be hard times. There will also be good times. Goods of real utility will be produced, and by people within your own country. If it can't be produced here, then it will be bought by someone else. Since there are a plethora of goods which different communities need, there will always be opportunities to find markets abroad. The focus rather than on greed, more lending, more junk, more crap, the focus is family, living, production. People who own property also are more likely to participate in democratic institutions (i.e. local government) than not.

That is a hell of a lot more stable than when you have a Derivatives market 5 times the Gross Domestic Product.

Kevin said...

You opened your essay with the words, "...all sane people should know now, markets head toward ultimate meltdown when they are free." You also said that "Free Market economists [are] seeing the complete defeat of all their theories."

I continue to assume the words "ultimate" and "complete" are not misleading hyperbole.

Now, in my previous comment, I described the past history of an ever-growing economy, whose stock market, despite the perrenial bears, always seems to recover and reach new heights. Indeed the historical return on stocks over the long term, including the bear markets, is about 7.5% OVER inflation. That's nothing to sniff at: such a rate of return doubles your investment in less than a decade.

The question is, do you believe this can't continue? I ask again, and I want the implications to be clear. Through the mechanism of dividends, stock ownership is ownership of the future profits of the company. The continued success of stocks as investments implies that the corporations not only continue to draw in profits, but that those profits expand at a rate similar to that of the past. And, lest you accuse me of conflating stocks with the lot of the common man, please note that company profits cannot continue if people cannot afford what they are selling, both the essentials and the many toys and trinkets.

The continued success of stocks would imply that people continue to be able to live at high (and growing) levels of consumption, a possibility that I'm sure your writings have blatantly denied on many occasions, even setting aside your statements I quoted above. I asked whether it was the very pattern of every-growing wealth and consumption that you objected to, or rather if you thought that the pattern could not continue, and you answered, it was "the very thing of it."

Are you opposed to success (without distributist-style ownership)? Are you so fixated on personal ownership and control of capital that you don't care how well off people could be under the free market compared to distributism?

And to come at it from another perspective, if you don't care how well the stock market does or how much Americans are able to consume, and you don't disagree with me that things will continue in that direction, then what on earth were you talking about when you started off about "ultimate meltdown" and the "complete defeat" of free market "theories"??

John Médaille said...

Kevin,

The chart you use is deceptive, because it is not inflation adjusted. The stock market reached its pre-war peak in July of 1929 at $334. It would not reach that level until April, 1954. However, by that time, It would have to be worth $517 to be worth the same as the 333 1929 dollars. You wouldn't have broken even until about July, 1958. That's 29 years of negative real returns, discounting dividends.

In today's dollars, the 1929 stock market was worth $4,230. The market has been as high as 14,000, or about a 350% return in only 80 years. Not really that great. Now it is much less.

The market goes through 15-20 bull/bear cycles, which means you could lose money for 15 to 20 years at a time. See http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/inflation_adj_spx_logarythmic.png

However, that may even overstate the case, since the methods of figuring CPI changed somewhat in the Reagan administration and greatly in the Clinton administration, and all the changes were deliberately aimed at lowering the CPI. Using the older methods, the July, 1929 market was worth $11,219 of today's dollars (see Shadowstats.com).

Also, you are taking the market as a proxy for the economy as a whole. This is not quite correct.

The "real" economy has declined. The financial economy has expanded. But the financial economy is increasingly merely speculative, meaning that it adds no real value to the real economy, the economy where real goods and services are produced and consumed. All of the policy decisions of the last 35 years have been aimed at the financial economy, to the detriment of the real economy. We have made up the difference by consumer lending (usury), but that is a ponzi-scheme that is now coming apart.

Kevin said...

John is nitpicking, but he is right that the DOW has a lot of issues. It shouldn't be used for anything precise. I picked it because it was the nearest-at-hand longterm graph of stock returns. A better one to point to is here:

Link (scroll down)

John does give a good example of the sort of doomsday rhetoric that distributists are so fond of:

"All of the policy decisions of the last 35 years have been aimed at the financial economy, to the detriment of the real economy. We have made up the difference by consumer lending (usury), but that is a ponzi-scheme that is now coming apart."

Again, is this falsifiable? Is there some level of economic prosperity that would prove it wrong? I get the impression that consumption could double in America over the next 30 years and the Distributists would still be saying "It's all fake, because we use to much credit! It will melt down any time now, the fall of capitalism is inevitable!" Yet people would go on consuming at those levels and enjoying a rich lifestyle, and yes, feeling sorry for themselves when the occasional bear market makes them tighten their belts a little.

John Médaille said...

Kevin says John is nitpicking, but he is right that the DOW has a lot of issues. It shouldn't be used for anything precise. I picked it because it was the nearest-at-hand longterm graph of stock returns.

In other words, when you use the index, its valid; when someone else does, its nitpicking. Okay. I just need to understand your peculiar rules.

But your friend's chart is simply incorrect. You don't need to take my word for it. You can verify that for yourself. Simply take any two dates on the DOW and apply the CPI calculation, as I did. Say, 1929 and 1954 (or was that another time when it wasn't valid?)

You seem to be arguing "30 years from now." Let me suggest that the bigger problem will be 30 days from now.

Or maybe that's just "nitpicking."

Kevin said...

I am carefully picking my words here. John and I have debated before, and I did not care for the result. Therefore I'm not going to address him directly. My intention here is to engage Athanasius, who is a very good friend of mine.

That said, for both Athanasius and interested readers, I will point out that the DOW does not include dividends paid, it is not cap-weighted, and its composition changes over time. There are a lot of issues with it, obviously. I never meant to say anything about the DOW particularly, but about stocks generally. Since the DOW is the oldest single index that I know of, I used it to illustrate the long term trend, out of convenience.

The second graph I linked to, here, is a much better illustration, because it goes all the way back to the year 1801, it incorporates the assumption that dividends are re-invested, and it is not problematically price-weighted like the DOW. According to the article, the average after-inflation return that they calculated is a little lower than my figure, 6.8%, but the result that your investment approximately doubles every decade is still true, and it is mentioned in the article.

It should be understood that I'm not portraying stocks as a non-risky investment in the short term. The article above says it well,

"Stock prices are quite variable in the short run. The annual standard deviation of after-inflation returns has averaged about 18 percent, which means that about two-thirds of the time, stock returns will be in a range from −12 percent to +24 percent over a twelve-month period. [EDIT: ...and a third of the time they'll be outside that range!] However, the worst average annual real return for stocks over any twenty-year period has been 1.0 percent, and the worst return over all thirty-year periods is 2.6 percent per year after inflation."

John Médaille said...

Kevin, We have debated before, and always with the same results: you will not acknowledge any information that conflicts with your partisan point of view. You use an index to make your point, and then complain that somebody else uses the same index to refute it. You point us to an article, and when I point out how you can check it out yourself, you decline.

But in this sense, you're right: there is simply not enough information in the article to evaluate it one way or the other. I know of no consistent measure of the stock market since 1801, do you? If you won't use an index, I don't know what you can use, since I doubt that any stock on the 1801 exchange still exists. The author reveals nothing about his methodology, so it is impossible to evaluate his information. Now, for some, that is no problem. If he is using the Dow for a portion of this measurement, then he is demonstrably wrong. You can prove anything with statistics, so long as you hide what the statistics mean and where they come from. Without more information, it is impossible to know just what he is saying.

The FACT of the matter, whether you care to acknowledge it or not, is that stocks go through generational bull/bear cycles. You could lose a lot of money. The financial economy is not the real economy, and does not always reflect the conditions of the underlying economy.

Today, we are talking about the banks, and how to "heal" them. But how can we do that without understanding the underlying causes? The financial economy should reflect the real economy; when it doesn't, fixing the former will do little to heal the later.

Athanasius said...

I continue to assume the words "ultimate" and "complete" are not misleading hyperbole.

No, and it is proved in as much as free market economists continue to obfuscate and deny recent history, and blame the poor or the government, or even Barrack Obama who has only been a senator for 4 years for the problems in the system. The area with the least regulation next to abortion, finance, has completely melted down and required government intervention to save it.

Suppose the markets make a fantastic recovery, they are doing so only because of the psychological effect of the government pumping more non-existent money into them, and they reflect no real production, that is real wealth behind them. And again, the banks do not believe in Free Market Capitalism, for by asking the government for money they are admitting it is false. The government does not believe in free market capitalism. The Treasury does not believe in Free Market Capitalism. I'm sure they believe in the goodness of the devil and saving their own skins, but the point is they don't believe the market can do that. Neither does congress. Neither does Europe. Neither does anyone except for talk radio, some republicans and a handful of intellectuals who are continually proved wrong when their theories go into practice.

So I do mean final and complete. If people want to live a fairy tale then they may do so. The fact is the prosperity you speak of, even if it were so, is won on the backs of slave labor in the third world. I would much rather see less prosperity here and a little bit over there.

The question is, do you believe this can't continue? I ask again, and I want the implications to be clear. Through the mechanism of dividends, stock ownership is ownership of the future profits of the company. The continued success of stocks as investments implies that the corporations not only continue to draw in profits, but that those profits expand at a rate similar to that of the past. And, lest you accuse me of conflating stocks with the lot of the common man, please note that company profits cannot continue if people cannot afford what they are selling, both the essentials and the many toys and trinkets.

The first problem is not all stocks and companies continue. Many fail. Bubbles burst. Which stocks continue to double every ten years? If that is so why do people lose money in the stock market. Even assuming one stock continues to double returns every ten years, why doesn't everyone invest in that stock? I simply don't see what you see, and I don't see how on the basis of a statistic we could draw the conclusion that stocks continually double per decade. Which stocks are doubling right now? You can show me all the stats of the Dow you want, how do I know they are not statistics of different companies on different days? If the same companies do not double investments every ten years (and manifestly they do not) how do I know where to switch my investments? The charts provided just don't give me that kind of information to evaluate your claims, and this why Chesterton was so suspicious of statistics (a science invented by Darwin's brother) because you can say whatever you want. I'm sure if I cited the correct statistics and hid the right information I could say we have been in a perpetual bear market since 1801.

But let us set all of that aside for a moment. Let us grant (even though I don't agree) that you are absolutely right, the market will recover and it will be better and people will live with an unbelievable prosperity, and stocks doubling and tripling every decade. Let us go further, they will do so every 3 years rather than 10. Again I say so what.

I say that because making money is not our vocation, and neither are the things bought with money. It will not grant salvation and it is not conducive to the salvation of the soul. I personally think a massive crash, famine, loss of everything would be a great thing for the salvation of souls.

If we look at what free trade and free markets have made possible, I find that I prefer a police state. If in a free economy entrepreneurs like Reuben Sturman and Hugh Heffner can make fortunes destroying public morality through the proliferation of pornography, which has ruined and destroyed countless souls, on account of which souls are going to hell that might otherwise be saved, I would rather see a police state which would ban these things, put the said men to death and save souls in society. If a free society gives us abortion on demand, and countless unborn infants murdered through chemical abortions for the increase of profit, because the demand for the said services is there, I would rather live in an unfree police state which would ban these things, let alone a Distributist state which understands freedom correctly, as the freedom to do the good. If a free society markets products by corrupting the public morality, through selling sex, through selling immorality, through promoting things like dating which are inherently unCatholic, though I should prefer a distributist society which curbs advertising to prevent immorality or brainwashing, I should however settle for a police state which bans it altogether, even though the thought of a police state is horrendous. At this point anything for relief from being targeted by over 3,000 ads a day!

Why? Look at Soviet Russia. Lenin sought to put into practice Marx's idea that having sex should be no different from drinking a glass of water. 20 years later the hooligans born out of wedlock or through trial marriages or state sponsored prostitution reeked havoc on society, even to the point where Joseph Stalin, probably one of the most evil men who ever lived, instituted pro-family policies that put McCain-Palin to shame. Divorce was illegal, virginity was promoted until marriage, children were promoted, until capitalism brought abortion to Russia after the Soviet fall. The doctrines of promiscuity, abortion, pornography, pre-marital sex and divorce and trial marriages were banned by the Soviet Government as counter-revolutionary, along with feminism. This value of the family and the dignity of marriage was accomplished by one of the most evil government's in history, while free societies and free markets have produced the most evil societies in history.

This is why Pope Leo XIII condemned free market capitalism, why Pope Pius XI and Pius XII condemned it, and why Pope John Paul II and Pope Benedict have condemned it. We could debate long and hard about whether Distributism and all of its ideals are in accord with Catholic social teaching, where they are lacking, or whether the same Popes given that information would say "this is Catholic social teaching", but it is clear that Free Market Capitalism is not, since it has at its core every vice as its aim and success, and enables the worst evils as "expressions of the free market", and is incapable of curbing them. Hence, the free market is a morally weak system.

Look at the shameful attempt by free marketeers to blame the whole crisis on the poor rather than their shameless investing practices, found in the derivatives market and so many other practices which placed the bad debt with more prudent investments. Now it is the fault of the poor for trying to buy homes they could not afford. Why couldn't banks take a little less of a bite out of the leg of the common man and offer a mortgage on more equitable terms? Why did they have to offer to the poor terms that any business would reject in a heart beat? Adjustable rate Mortgages to people who are low on the financial ladder? Doesn't it stand to reason that giving them a chance and a loan on favorable terms might make them good paying customers and better with money? No one said the banks had to offer loans which are virtually guaranteed to default!

But this is again why there is no free market, unless one is going to deny human nature. The stronger controls the terms of the market, and when every conceivable means of making money, even moving production to foreign countries where local economies can be destroyed and the populations employed for a pittance if the government is paid well enough, when all these means have failed, bankers, investors and capitalists turn to speculation.

That is not real economy, because it is based on someone else's production, which is not done here. I'm sure I'll get around to extra research of your charts on one of my days off, but the fundamental truth is very old. One can not run a linear system in a finite world indefinitely. At some point it has to end, either we run out of resources, or the resources run out in a particular area, or the ability to keep the system going breaks down, or we will run out of room to throw away the trash. But it simply will happen. When it does, (as I believe it is happening now) the financial market will be even more of a joke than it is now. Only local production can sustain society, and if Capitalism can't achieve that it can not survive. Its plain and simple.

Kevin said...

Just a quick note on this:

"The first problem is not all stocks and companies continue. Many fail. Bubbles burst."

This is no problem at all. The long-term studies of stocks will essentially give you the result of investing in all companies simultaneously, including the ones that fail. If you only invested in successful companies, your return would be MUCH higher than the figures I've given, but no one knows how to do that. The index I keep my eye on the most is Vanguard's Total Stock Market ETF, ticker symbol VTI. You can buy it like a stock, and have microscopic shares in nearly every publicly traded company that exists. If you want to complement that with international stocks also, they have VEU, the All World Ex-US fund, which does the same for non-American stocks.

Kevin said...

I have many particular objections to your last comment, but again I'm going to set them aside and focus on one particular issue. You end your comment with this:

"One can not run a linear system in a finite world indefinitely. At some point it has to end, either we run out of resources, or the resources run out in a particular area, or the ability to keep the system going breaks down, or we will run out of room to throw away the trash. But it simply will happen. When it does, (as I believe it is happening now) the financial market will be even more of a joke than it is now. Only local production can sustain society, and if Capitalism can't achieve that it can not survive. Its plain and simple."

Earlier on, you had said that even if the economy kept prospering, it would be a bad thing morally. I disagree, but you are changing the subject. The question is, whether you believe its possible for prosperity to continue under the psuedo-free American economy (aspects of socialism have been incorporated over the last century, but we are still basically a free market.) The quote above shows you believe that it is impossible, and this is a common distributist position attested to in your other writings and the writings of others.

So once again, you are saying that the economy must, at some point in the near future, decline without recovering again. But as long as America continues to prosper (as we are even now) you remain to be proven correct. How much time will go by before you admit you are wrong? Three years? 30 years? It doesn't sound like you think we have that much time.

On the other hand, if you think 30 more years of prosperity are possible, why not 60 or 200 years? What is really the difference? And if 200 years of prosperity is possible, why not indefinite prosperity?

John Médaille said...

Kevin, you say that the economy contains an element of socialism, and you are undoubtedly correct, particularly since the war and even more particularly in this recent administration. But that brings up the question of where to place the "success" of the economy: on its "free market" aspects, its socialist aspects, or on the combination? The answer is not apparent. However, we can look at history. In the period from 1853 to 1953, a period certainly more laissez-faire than our own, the economy was in recession an astounding 40% of the time; since then, it has been in recession only 15% of the time. Further, the pre-war recessions were deeper and longer than those since the war. There is a reason we have the kind of economy we have: the pre-war kind hardly worked at all. This matches Belloc's prediction that the actual practice of capitalism would result in an increased socialism. He seems to have nailed it on that point.

As to linear growth, the real issue is exponential growth, which is what the charts show. Exponential curves cannot be maintained in nature; it contradicts the whole nature of finitude.

But of course, it depends on what CPI deflators you use. If you use the pre-Reagan deflators, growth has been modest, at best. If the post-Clinton deflators, it has been exponential. So the real question is, "do we have more or less today than we did, say, 40 years ago?" Possibly. We certainly have toys unimaginable in those days, and houses are bigger, cars are faster, etc. Do we have more housing or transportation? That's a tougher problem. We do not have as much transportation as I had as a child growing up in New York City, for example, where we had no cars and lots of transport.

But a more interesting question is if we have more in relation to hours worked and resources used. Here the question is very ambiguous. Family incomes have risen, mainly because more wives have entered the workforce. Since 1967, family incomes have risen $11,000 in real terms. But, the amount of work given has increased greatly. In other words, we work a lot harder for marginal returns. And when you subtract out how much of the increase is really just an increase in borrowing, the rewards seem slim indeed.

Then there is the question of measuring the increase. I know of no consistent measure of the stock market since 1801, and your author gives no hint of his method, so it cannot be (as you say) falsified. Using the measures we do have since the great depression, the growth is modest or negative, depending on the deflator that you select.