Common Sense EconMarch 6th, 2009

I hear from every quarter the proud proclamation that the world continues to have faith in the credit of the USA, current events notwithstanding. Compared with all the other currencies of the world, the dollar’s still the one everybody wants to own, and the US Treasury is still the safest place on earth to stash money. It may not be as secure as we’d like it to be, but it’s still safer than any other depository. This is what economists mean when they say the fundamentals of the economy are sound. Stuck in two long, costly wars, broke from crippling tax cuts, workers in hock up to their ears, the government, banking on the popularity of the dollar, is determined to get us all more credit. They print the dollars, and they assure us that the world still wants them.

I remember when the same thing was being said about real estate, shares of GM, and collateralized debt obligations. Values were on the rise across the board, and the condition of unlimited growth was predicted to continue indefinitely. Never mind that unregulated growth tends to be explosive and even cancerous. Never mind that most of the economic activity was fueled by debt. Never mind that financial high rollers were reliving the 1920’s, even to the point of changing the laws to accommodate novel forms of speculation. Never mind the gnawing you felt at your innards telling you it was a bubble and had to bust. Like the courtiers of Oz, opinion leaders in government and the media told you to quit your bellyaching and pay no attention to your misgivings. It wasn’t until the bubble exploded that the disinformers began to come down from their long, expensive binge.

Don’t be surprised if you start getting that gnawing feeling again, especially when you hear an “expert” on economics boast about the strength of the U.S. Treasury and the invincibility of the dollar. The expert will usually turn out to be from the same crowd that bit on the last big scam. That gnawing you feel is common sense. Economics, an altogether theoretical explanation of how property gets allocated, should yield to common sense. But the economic experts–mouthpieces for the beneficiaries of the current system–will never let that happen. Look at the contradictions.

Economics tells us that some enterprises are too big to fail. Common sense tells us that things fail all the time. Huge numbers of workers were displaced when the asbestos industry shut down. A hundred and some years ago, people in my city wondered how they would be able to go on without a vital buggy-whip industry, not to mention the horseshoe nail factory, which sits empty to this day. Old organisms die to leave room for their offspring. It’s a law of nature, and it’s common-sense economics. Asbestos mining, slavery, typewriter manufacturing, ivory, all gone. All replaced with updated, better-adapted institutions.

Economics says the economy suffered big losses when the stock market went down. Common sense tells us that the losses simply erased big gains. That’s the way gambling works, and common sense tells us that investors are gamblers. Economics says risk is good and we have to subsidize it. Common sense says it isn’t risk if government underwrites the losses.

Economics says we all make the decisions that decide our fate. Common sense says the tiny minority that controls most of the wealth makes the key decisions and those folks always make the choices that will increase their wealth. Economics says that money is lost when values decline. Common sense tells us that the value is out there, in the form of mansions, limos, gold mines, land, oil wells, and about 90% of everything else, now possessed by a tiny, corrupt minority of the world’s people. Common sense also tells us that we can seize it if we choose. Economics says if we seize property from its corrupt owners, the house of cards will collapse and we’ll all starve. Common sense says we have no choice. Along with the world’s material wealth, these folks hold our markers, and we can’t pay them.

Economics claims to be science. Common sense says that if it’s science, it should have predicted what’s happened to the world. Maybe it’s not science at all, but religion. A set of beliefs that must be taken on faith and that are designed to maintain the current balance of power and disposition of resources. Common sense and scientific sensibility tell us that a corrupt system like this one will be subject to chronic malfunctions. We ought to replace it with something that works, sooner rather than later, before the world, in defiance of the experts, starts dumping dollars and the creditors come pounding on your door and mine.