Tackling Economic Clouds

Yes, dear reader, your editor is snowed in. Not for the first time this winter.

And we're not the only ones. The US government is shut down too. No matter. They weren't doing anything but making things worse.

But wait...what's this?

The Washington Post: "Blizzard or not, top Treasury staff is snowed in - with work."

Uh oh. The folks who run the economy for us are still on the job.

"Geithner, aides skip day off to tackle economic clouds."

We have to confess; we've never seen a US Treasury official tackle a cloud. We can't quite imagine it. But it's in the paper, so it must be true.

Of course, there are plenty of economic clouds around. Heck there are plenty of real clouds, too, dumping snow on the Washington area. Politicians and bureaucrats can't really do anything about either type of cloud. But it must be a comfort to the woodenheads to think they are on the job. We'd rather they took the day off - and tomorrow too. And the next day!

What a godsend this snow is! Think of all the people it puts to work. Kids shovel out driveways and earn a little spending money. Snow-blower sales must be going through the roof. Four-wheel-drive vehicles are sliding out of lots and showrooms...work crews keep busy night and day - with huge overtime earnings, no doubt.

And think of all the missed work...and school...that will have to be made up.

You're probably thinking...now, wait a minute. There's something wrong with this picture. How could something as destructive and expensive as a blizzard be good for the economy?

Well, you're just not thinking like an economist. You have to learn to stand on your head. Then, things are turned upside down.

Of course, a storm is not really good at all. But simpleton economists believe that anything that puts people to work is a good thing for the economy - even a world war.

What really happens in a storm...a blizzard...a flood...or a war is that real wealth is lost. Things break down or are destroyed or used up. And then a lot of resources must be put to work to make repairs. Putting these resources to work in a concerted way makes it look like progress...but you're really only getting back to where you were in the first place.

Besides, the resources must be taken away from other things. The demand for snow-blowers displaces the demand for motorcycles or jet-skis. Workers who move snow might otherwise be making pizzas or delivering newspapers. And the fuel that goes into the salt trucks and loaders...that too, would have been used for something else - something people wanted to do, not something they had to do.

The early French economist, Frederic Bastiat, figured this out a long time ago. He called it the 'broken window fallacy.' Even then, some lazy economists thought that breaking a window actually boosted economic activity. Of course, it was nonsense...

If you could really improve an economy by breaking windows...or having a tornado pass through down...why not just blow up a whole city?

And this...a message from our Dear Reader in the South Pacific:

"Ok, you posed an interesting question... Why would someone - me, for instance - living on a private island in the middle of the South Pacific concern myself with the insane world of macroeconomics? Good question. I think I have a good answer.

"First, islands are very expensive. Somewhat like a boat, buying them is just the beginning. Second, if you are a highly motivated individual brought up in the Western world, money is like meat to a tiger. It's what you like, it's what you are used to, it's what you understand. I don't want my rooms to be rat-infested, insect-ridden places like they would be without money. I want something fantastic; the island is fantastic. I want the rooms to match.

"As you know, one of the ways I've made money is by buying gold from the people that pan it out of rivers. The gold business is why I started reading the DR in the first place. I was reading lots and lots of interesting information about money and gold, and then I read The Daily Reckoning. That changed me. It did two things for me. One, it made me laugh; two it made me the smartest person in the room. Yeah, it's true, I was hanging out in some places where that wasn't all that difficult, still, even the local bankers still talk about me calling the financial crisis before it happened. Bill, you of course tipped me off, but being human, I took full credit.

"Now I'm bone tired as I write this. I did something today that Indiana Jones would have been impressed by. I just took my corpulent, over indulged, out of shape, one glass of wine too many, sorry ass up a mountain to visit a group of men, women and children living in the most difficult circumstances that you could possibly imagine. These people were...absolutely real! You would have loved the eyes of the women with their corn cob pipes. I would rather spend ten minutes with any one of them than have an opulent lunch with Ben Bernanke. I guess Ben and Tim and Henry or any one of those fat cats on Wall Street would faint at the very idea of living the way I just saw these people living. They hike up this trail that would kill a camel and they live with almost nothing. When they want to come to town they start at 2 in the morning and walk for 8 hours on a nearly impossible path knee deep in mud. They work hard getting the little flecks of gold out of the river. They have only kitchen pans, and an old spring from a truck is their only tool for moving the big rocks. They may deserve it but nobody gives them a bonus.

"I took a local doctor with me, along with my great crew, and we all struggled to make it up the mountain to their village, this after the worst 2-hour drive on the planet; it could not be classified as a road, more like a muddy river we attempted to drive up.

"I am not a do-gooder. I don't like do-gooders and probably never will, but I have to admit that today it felt good to alleviate a little human suffering. We treated the fungal infections that are just rife in the village. People whose skin is covered with a itchy scale akin to ring worm that just makes their lives miserable. You could not look at little children whose entire bodies were a mass of sores and not feel for them! For the equivalent of 20 US dollars each, we could dramatically improve their lives.

"So in a long-winded way, I'm trying to say that money matters, that macroeconomics matter, no matter where you are on this planet. We are all connected in one way or another and when one group thinks that it's got a special place in the world, a place where they don't even want to know how most people on the planet live, well, I'm not so sure that makes it special or just blind. I think these blind people have weaseled their way into positions of power, where they make decisions that affect a lot of people. People who don't know anything about and apparently don't want to know.

"In one of your pieces you wrote something I have never forgotten. You said you were not really an economist, but more of a philosopher who uses economy as a platform. I loved that idea, Bill. Any of us that are fortunate enough to have time not spent struggling to stay alive, have an obligation to think about the whole, not just our own little world where we think nothing of pushing buttons to get what we want.

"If you stand back and look at the macro of life, (sweat dripping of your chin clears things up!) we are all part of the whole, and when we lose that perspective, we lose more than money. Somehow I think that is really what this financial crisis is about. Loss of perspective. Just look at who they've put in charge of important things!

"I will sign off with a saying I heard as a child... This is for good old Ben: 'Those that can, do. Those that can't, teach.'"

-Pamela

Regards,

Bill Bonner
for The Daily Reckoning Australia

Tackling Economic Clouds, 10.0 out of 10 based on 9 ratings

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