Part One - An analogy
On Wednesday 14th June, at 2pm Eastern Standard Time, the latest verdict on Life, the Universe and Everything will be announced by the Gods of Money, AKA The Federal Reserve. The answer will not be 42, but given the Fed has long since forgotten the question, it might as well be. In anticipation of this auspicious occasion, I give you the following irreverent ditty:
An analogical account of asinine academic ascendency...or how a bunch of prats hijacked the economy…and are screwing with your head...
It was 2pm on a pleasant Wednesday afternoon in June, as Joe Public arrived at The Washington Brain Hospital on Constitution Avenue. He was there for the operation that he hoped would take away the 'transitory' headache that he'd been experiencing for the previous 9 years. The Administrator welcomed him politely and led him down a long corridor to the inner sanctum of the hospital - The Eccles Wing:
"Right Mr Public, let me introduce you to the Federal Brains Trust who will be performing your operation today:
This is Dr Yellen, who will be overseeing the procedure; she’s been with us for what seems like forever. Her speciality is putting people into labour, but of course that’s not why she’s here today.
These are her surgical colleagues, Dr Fischer, Dr Evans, Dr Harker, and of course, the exquisitely named Dr Brainard. You’ll be pleased to know that our academic credentials here at Eccles are absolutely pure: none of our doctors have ever performed a brain operation before. However, they have read every book ever written on the subject, including of course, Dr Bernanke's classic text: 'The Courage to Cut'.
These three gentlemen are your anaesthetists: Mr Dudley, Mr Kaplan and Mr Kashkari. They were previously leading figures at the company that supplies all of our narcotics, but they’ve joined the hospital out of a desire to help people less fortunate than themselves. There is nothing that these three men don’t know about using drugs to put people to sleep.
Finally we have our legal counsel Mr Powell, who will make sure that the hospital is covered in the event of you dying on the table – you can’t be too careful these days.
So I’ll say goodbye for now Mr Public, hopefully I'll see you later…and remember to relax, you’re in safe hands now”
The Federal Open Market Committee: 5 academics, 3 Goldman Sachs guys and a lawyer...five people who don't know who you are, three people who don't care who you are, and one guy who doesn't know OR care who you are.
Part Two - Under the scalpel
A common characterisation of the financial crisis of 2007-08, is that in essence it was a failure of free-market capitalism. Encouraged by politicians and central bankers who sought, as they always do, to avoid responsibility, this was and is, misdirection. For the people who have accepted this analysis without questioning the concepts being misused or finding out what actually happened - it is a delusion. Those who have fallen under its spell overlook one important factor - we don't have free market capitalism. We have a centrally controlled and politically manipulated financial & monetary system. I highlight centrally controlled with italics, because in reality...in a dynamic complex system of massive scale...there is no central control. And that miscomprehension is a very large part of the problem.
That said, the system fulfils a number of agendas for the people who 'milk it'
1. It enables governments to spend money that they do not have, by issuing debt that will never be paid back. Old debt is repaid with new debt - a Ponzi scheme. Much of this debt is subsequently used to pursue foreign interventions, to bribe voters with unfunded entitlement programmes, to reward political 'donors' through lucrative 'pork barrel' projects & grants, and for the expansion of government itself
2. To enrich the bankers and other 'insiders' who sell the debt on behalf of the government, and control the flow of funds to the real economy...to people like you and me, many of whom create things other people actually want (the part of the system that still resembles free market capitalism)
This system, which is fundamentally a shameless scam, gets its veneer of credibility from the academics that it recruits, funds and promotes as 'experts'. Through generations of intellectual inbreeding, these economists are adherents of Keynesian fiscal stimulus, but who, for the past thirty years, have increasingly incorporated the monetarist ideas of Milton Friedman whenever Keynesianism has failed to to create the Eden they desire - which it always does. At the apex of this pyramid of 'useful fools', sit two loosely defined groups:
a) The Fiscal Crew: Those that provide academic cover for the political agendas - the guys who justify the process of running up debt, as well as providing misdirection for the agenda of central control and financial repression (e.g. they portray plans to abolish cash as being necessary to protect us from crooks and terrorists). This group contains Professors like Larry Summers, Paul Krugman, and Ken Rogoff
b) The Monetary Clique: Those who provide academic cover for the manipulation of the monetary supply, the affordability of debt for the government, and the bail-out guarantee to the banks. These are the guys who disguise moral hazard as 'economics' - the Central Bankers
On Wednesday, it is the turn of the second group to move centre stage. After the interest rates have been announced, Dr Janet Yellen will step to the podium to give us her 'forward guidance'. This is an academic variety of propaganda - it doesn't tell you what they think - it tells you what they want you to think they think. If you watch it, have a gallon of coffee ready - A Janet Yellen speech is so boring that even paint stops drying to take a nap.
Part Three - Don't take my word for it
a) On the fiscal crew:
“John Maynard Keynes was known for having a fierce intellect but an enormous ego. While a student at Cambridge University, Keynes belonged to an exclusive and secretive group called the Apostles. This membership fed his egotism and his contempt for others. He wrote in a private letter: “Is it monomania – this colossal moral superiority that we feel? I get the feeling that most of the rest [of the world outside the Apostles] never see anything at all – too stupid or too wicked.”
Given his heightened sense of his own ability and his scorn for the general public, it is no wonder that he thought people like himself could plan and run an economy better than the wisdom of businessmen guided by the free market. Subsequent performance of centrally planned economies has cast doubt on Keynes’ view but early on one of the most devastating critiques of his views came from the great economic journalist, Henry Hazlitt. In his 1959 book, The Failure of the “New Economics”, Hazlitt poured scorn on Keynes’ anti-business sentiment and fantasy that government investment was equivalent to that by the private sector:
“So there you have it,” wrote Hazlitt. “The people who have earned money are too shortsighted, hysterical, rapacious and idiotic to be trusted to invest it themselves. The money must be seized from them by politicians, who will invest it with almost perfect foresight and complete disinterestedness (as illustrated, for example, by the economic planners of Soviet Russia). For people who are risking their own money will of course risk it foolishly and recklessly, whereas politicians and bureaucrats who are risking other people’s money will do so only with the greatest care and after long and profound study. Naturally the businessmen who have earned money have shown that they have no foresight; but the politicians who haven’t earned the money will exhibit almost perfect foresight. The businessmen who are seeking to make cheaper and better than their competitors the goods that consumers wish, and whose success depends upon the degree to which they satisfy consumers, will of course have no concern for ‘the general social advantage’; but the politicians who keep themselves in power by conciliating pressure groups will of course have only concern for ‘the general social advantage”
- Ian Lance, RWC Equity Income, ‘Bridges to Nowhere and Roads to Serfdom'
b) On the monetary clique:
"When I joined the Fed, the mystique was mesmerising. No other institution in the world had such power, such prestige.
However, once inside, I confronted an uncomfortable question: Why were so many of its highly educated and well paid economists oblivious as the worst financial crisis since the Great Depression was about to break over their heads?
Why had Greenspan been so resolutely blind to the housing bubble his low interest-rate policies had created?
Why didn't Bernanke sound an alarm instead of repeatedly opining that the housing crisis was 'likely to be contained'?
Why was Janet Yellen, then president of the Federal Reserve Bank of San Francisco, astonishingly clueless as the housing market in her region imploded? And later, why couldn't Yellen - an economist known for her brilliant forecasting skills - foresee the consequences of the Fed's disastrous low-interest-rate-policies after she succeeded Bernanke as Fed Chairman?
Over the next nine years, as I scaled the outer walls of the Federal Reserve pyramid, always an outsider looking in, I grew more and more alarmed.
The Fed leaders we entrusted with our financial fate had in fact precipitated the crisis. After restoring the basic plumbing of the financial system, that same institution then dealt it another series of deadly blows. Instead of fortifying the American economy, they have repeatedly made it more vulnerable.
Grasping the modus operandi of the Federal Reserve requires first anchoring in your mind two words: hubris and myopia"
- Danielle DiMartino Booth, 'Fed Up - An insider's take on why the Federal Reserve is bad for America'