The Secret is Out
The last month has seen extraordinary changes in the way that we look at the world—Lenin’s observation that decades happen in weeks would seem profound if it were not quoted so extensively. But just thirty days ago most of us were eating at restaurants, getting on packed planes, shaking hands, and taking vacations pretty much as we pleased—without masks or care. Now that seems as unrecoverable as Atlantis, so quickly have the waters rushed in.
The alteration in the prevailing assumptions about public finance has been equally revolutionary. It was previously possible to believe that the federal government was constrained in its spending by the debt markets—that there was a cabal of “bond vigilantes” who maintained a brake on spending by Washington. Likewise, there was an implicit assumption that the federal government would not transfer money to businesses outside of the procurement process, nor would it guarantee payrolls, corporate debt, leveraged asset managers, hedge funds, etc.
This is not to say that some action by Congress in response to the economic effects of the virus was not necessary, nor to argue with its efficacy—though that remains an open question. Rather, we merely observe that in the future whenever economic storm clouds break, the federal government will be expected to mitigate the damage with cash payouts—and that this cash can be handed round without foreseeable or immediate consequence, and with little practical objection. Even more worrisome, given a crisis (organic or manufactured) political insiders can provide themselves with a great pool of money to distribute to their friends and relatives as long as the general public is thrown a few scraps.
It does not matter whether one professes a belief in the creed of MMT—actions speak louder than words. The secret is out—it is far easier to make one’s fortune in close proximity to the halls of Congress and the back rooms of the White House than in the contest of business or the sweat of one’s brow. The free market, beloved by economic orthodoxy for its narrative that the competent are rewarded in the course of providing for the good of all — and the incompetent or even the unlucky are punished — has been overthrown. Success for a modern CEO or large investor requires neither prudence nor vision, unless those qualities lie in the cultivation of powerful politicians. Failure can result only through the inability to get one’s nose in the trough.
Of course, cronyism has been with us for a long time—there is no prelapsarian garden of laissez-faire to return to. It is rather a question of degree. Formerly, we all grudgingly accepted that there was a small amount (in the context of the total economy) of self-dealing and corruption in government—the expression “honest graft” comes to mind. However, this country is morphing into a financial system in which political power will allow the holders to create and distribute money without regard to budgetary constraints and beyond anything we have ever experienced. Given the venality of the current elites, It is difficult to see how this does not slide into currency debasement and the undermining of savings.
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