|
My father, who at one time was an education minister in the Kenyan government,
used to tell a story of a long-forgotten
crisis when the leaders
in the educational establishment could only turn
to him and ask: ”minister, what shall we do?” The point
of the story is that these were all highly qualified senior academics, while my father had
left school at 16 with no qualifications at all. It amused him.
We have perhaps
in the last week seen three instances of the same thing: expert committee men exhausted of ideas, despite their towering intellects. I refer to
Ben
Bernanke’s Jackson Hole
statement which said nothing; David Cameron’s statement at Prime Minister’s
Questions, when he was reduced to that old stand-by
“cure” for economic stagnation
(building more houses); and then
on Thursday we had Mario Draghi resorting to buying time by talking borrowing costs for Spain and Italy down on the conditional
promise of some bond buying.
None of them had anything new to offer.
The Federal Open Market
Committee, the senior civil servants in Whitehall,
and the Governing Council of the European Central Bank are all intellectually
at sea. They have deluded themselves with Keynesian fallacies, believing animal spirits must be
revived. “Animal spirits” is code for not understanding
the fundamental purpose
of free markets. Instead,
governments and central banks
blame market irrationality and seek to
manage them to promote economic growth. They then wonder
why it all goes wrong.
Here is the true situation: unrealistic asset valuations, the result of zero interest rates, have strangled progress. Note progress, not growth: this is deliberate. The result is that
markets no longer work effectively, so it is
impossible for the economy to advance.
Governments and central banks
cannot face up to this
reality, because over-valued
assets are collateral for
record levels of debt that have accumulated over the
last 50 years, the result
of government-sanctioned expansion of bank credit.
The authorities misdiagnose
economic problems because they believe in economic statistics that are wholly fallacious. The most important of these is gross domestic
product, and I was heartened to see Toby Baxendale of the Cobden
Centre make this
very point. I go further
in denouncing GDP: it is no more than a money-total that can be
pumped up by government
intervention and bears no relationship
with economic progress. If GDP had been invented earlier, no doubt Rudolf Havenstein –
President of the Reichsbank
in 1920-23 – would
have claimed spectacular economic growth, purely based on money-printing
running ahead of price
inflation. We know how that
ended. This is statistical growth for you, not economic progress. Think about it, because this
is precisely what central bankers do today, and they pass it off as responsible economic policy.
Markets need to clear over-priced stock, assets and unsustainable debt. Getting there by inflating the problem away, which is essentially
what central banks are doing, only destroys the savings necessary for genuine economic progress. It is a confused policy of making us wealthy by destroying wealth. It seems extraordinary that this simple fact has escaped the combined mental capacity of all
those highly qualified committeemen and
civil servants.
Originally published
at Goldmoney here
|
