Political Power and Economic Ignorance

Political Power and Economic Ignorance

Daily Article by Jeremie T.A. Rostan | Posted on 10/9/2008
George W. Bush

Georges Bush's recent speech in defense of his bailout plan was quite a tour de force. Indeed, it managed to explain the pending recession of the US economy by a previous situation of "easy credit" without mentioning the monstrously inflationist policy of the Federal Reserve — which reached its climax in 2003 and 2004, when it lent dollars at a negative short-term interest rate, and resulted in the creation of more dollars in a seven-year period (2000–2007) than had been created cumulatively in the two centuries since the founding of the United States.

According to the 43rd President, the fault rests entirely on "foreign investors" willing to profit from the competitiveness of the US economy. Logically, the lengthening of the structure of production brought by net investment should have resulted in aggregate profits and economic growth — but not this time. For some reason (which the president deems useless to explain) low interest rates were a curse that somehow led all financial entrepreneurs to dissipate their capital in hopeless ventures and loans.

Because of fractional-reserves policies and the de facto international dollar standard, even the billions of units of the US currency spent abroad are duplicated and sent back to America, where they encourage credit. But George Bush did not mention that.

Finally, he concluded that
1. the Federal Reserve should have its powers extended far beyond their current scope, notably over all financial enterprises, not just banks, and
2. a massive bailout of taxed funds was necessary — as an exceptional intervention and some sort of public investment which would help the economy recover and be paid afterwards.

Not all "experts" agreed. One commentator on CNN even acknowledged that the impending recession was a consequence of Alan Greenspan's "lax money policy."

Nevertheless, if some grasped the connection between these present effects and that past cause, few of them seem to have grasped that resorting to the same policies at present will necessarily have the same consequences in the future: to delay the recession, and worsen it.

Is there anything we can learn from such demonstrations of ignorance?
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