I was watching a video presentation last night by a very pessimistic investment advisory service to which I subscribe.
They don’t exactly say to buy Gold, Guns, Toilet Paper, Tinned Food, and Banjos (well, they are pretty keen on Gold at least), but they did point out a few numbers which are a little more accurate than what I have been mentioning:
- Between the Federal and State Governments of Australia, $330 Billion has been committed to addressing either the economic or medical aspects of the Coronavirus Pandemic
- The US Government and Federal Reserve are going to be spending (or printing) $7 Trillion to address this same problem.
That’s so far.
A very old friend of mine this morning texted me the link to some other video on You Tube which has some chap decoding Federal Reserve Chair Ben Bernanke’s monetary policies in terms of Keynesianism (with an Austrian critique), and talking about the wisdom of buying – you guessed it – Gold.
Richard Nixon, who put the Gold Standard ultimately to rest about 50 years ago, is famous for saying (aside from ‘I am not a crook’) ‘We are all Keynesians now’.
That is the sticking point, as Lady Macbeth might say. It is always a little bewildering, given that I am a believer in free market economics (albeit one whose only economic education is the self education that comes from reading Ludwig Von Mises, John Kenneth Galbraith, Milton Friedman, Von Hayek, two or three random introductory economics texts, and the Freakonomics books), when I see governments which are led by political parties who espouse free market economics most of the time, then turning to Keynesianism.
J.M. Keynes was a complex thinker and individual. It would be an injustice to that very clever man to simplify his ideas, but that is what politicians of all colours do. Their interpretation of his ideas is that the way to solve any problem is for government to SPEND SPEND SPEND. If that does not worth, then SPEND SPEND SPEND MORE.
To do this, governments borrow, or they raise taxes, or both. Borrowing is a form of money printing. It will cause inflation. This is not always obvious to the average mug punter in the street.
In the past twenty years, consumer staples, which are what inflation is measured against, has been extremely low. You can get a loaf of bread for under $3, or a litre of milk for under $2. Compare that to 1976, when a litre of milk cost 40 cents. However, where the inflation has been manifest is in house prices and in the share market – that is, assets rather than consumables are where the inflation occurs. My family home growing up, which cost my parents just under $30,000 in 1976, now is probably worth $900,000, thirty times what it cost 44 years ago. Imagine if milk now cost $12 per litre. You would notice that.
However, when you go to buy a house, as whilst not a consumable, a roof over your head is one of those intrinsic things that you probably need, given that it is either 6000 years since we left the Garden of Eden (if you are a creationist) or about 5000 years since most of our ancestors ceased to be nomadic hunter-gatherers, you will notice that hidden inflation.
Explaining these stark realities to people is hard, and complicated. Politicians of all colours, and most of the media, see this as too hard. Spending, which shows immediate action and immediate gratification (which our minds are hard wired towards favouring over long term rewards), is far easier to do and to announce. This is why Keynesianism always trumps (sic) Austrian economics in terms of fiscal and monetary policy.
Those videos I was watching today and yesterday suggest that the Elites are going to benefit from this, as if this is a conspiracy to inflate assets with governmental largesse for their benefit. I do not believe that this is a conspiracy of the Elites. I think it is simply human behaviour. Our politicians are human, and whilst most of them are probably smarter and better educated and informed than the average person in the street, they are not philosopher-kings. They are there to give the people what they think the people want, in order to keep the people voting for them.
It was thus in Ancient Greece and in the Roman Republic, and it is thus now. The hoi-poloi will be kept happy for today with bread and circuses (as Juvenal put it), and will worry less about tomorrow, when taxes rise and real assets (like homes) become increasingly hard to attain.