June 10, 2014


Bad Times breed bad ideas (Martin Hutchinson, 6/09/14, The Prudent Bear)

Good times tend to be relatively infertile of new economic ideas. Even radical economists, grinding their teeth at the apparent success of the market, don't want to be accused of killing the golden-egg-laying goose. 

Conversely, bad times--lengthy or especially deep recessions--bring out the madmen from the woodwork. And with them comes the danger that idiocies will be permanently legislated into the economic system, warping it forever. We are in such a period now.

Oddly enough, the first such madman produced by bad economic times was an economist whose work resonates 200 years later: Thomas Malthus. The gradually improving living standards of the eighteenth century had given way to crisis conditions by 1798, as the costs of the French Revolutionary War, the partial French blockade and a series of poor harvests had caused an outbreak of working-class hunger. Malthus' gloomy prediction of population pressures leading to mass starvation may yet prove prescient in the 21st century, after the huge population increase caused by the Industrial Revolution. But in 1798 it was at least 200 years premature and contradicted by the relatively comfortable condition of the British working classes in peacetime.

Fifty years later, during the Hungry Forties and the Irish potato famine, Karl Marx produced "The Communist Manifesto." Being a fanatic, he then went on to write "Das Kapital," published in 1867, during a period of unprecedented peace and prosperity caused by almost pure capitalism (the protectionism and modest social programs of later in the century had yet to kick in). Still, the "Communist Manifesto," which first exhibited his fallacious economic doctrine, was, like Malthus' work, the product of hard times.

Henry George's "Progress and Poverty," published in 1879 at the bottom of the next major economic downswing, was a plea for redistribution via land nationalization and paper money. It was typical of the intellectual products of an economic downturn, whose depredations appear to have rendered questionable the verities of the previous upswing.

The Great Depression was prolific of such follies. The foremost among them was Keynes' 1936 "General Theory" with its "euthanasia of the rentier" and assumption that a caste of intelligent bureaucrats could manage the economy much better than the chaotic free market. However, there were others: the Townsend Plan, offering unfunded pensions of $200 a month to the aged, and Upton Sinclair's "End Poverty in California" movement. You can add to the list Huey Long and Adolf Hitler. Both demagogues, with economic policies both statist and populist, they flourished in an era when conventional politics and economics had seemed discredited.

In the long 1970s malaise, the Club of Rome approached the subject in a new way, using computer projection to predict that the world economy could not possibly survive another 40 years. Its projections were fallacious, but its spirit lives on, not least in the attempt by global warmists to convince us that we must load the global economy with massive extra costs and inefficiencies in order to forestall a global warming a century hence that is at worst modest and manageable.

This time around we have a wannabe Karl Marx in Thomas Piketty's "Capital in the Twenty-First Century."
Posted by at June 10, 2014 3:35 PM
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