Why Government Control Is Overrated

There is much confusion from Republicans and Democrats about what’s torturing the American landscape.  Middle American red state towns have slipped into a self-induced opioid coma.  Wealthy blue state cities along the east and west coasts are rotting from the inside out.

Both parties, nonetheless, are committed to big government, and big deficit spending, to bring about the new paradise.  But do the President and Congress believe that more of the problem – big government – is somehow the solution to the nation’s ails?

As far as we can tell, this is the wrong question to ask.  The real question is a question of control.  That is the government’s desire to attain complete control over people, places, and things.  To have complete control over your life, your property, your wealth, and your future earnings.  That’s what they’re after; much more than MAGA.  Their track record proves it.

At best, control is about eliminating uncertainty.  That, somehow, perfect order can be delivered to the world through some sort of advanced social engineering and planning.  That with perfect order, equal results, regardless of inequal effort or inequal merit, will be heaped upon the populace.

That a world without risk, with perfect certainty, with equal benefits for all, will be a better world.  That roaming about in a world of complete control, where outcomes are predetermined, and lethargy’s rewarded, is a privilege to be bestowed by politicians and agency officials.  Here at the Economic Prism we have some reservations…

An Unthinkable Alternative

Complete control and the elimination of uncertainty is a desirable objective when managing an aquaculture system.  With some experience and diligence, system outputs can be forecasted with greater than 95 percent accuracy.  But when it comes to managing an economy, complete control and the elimination of uncertainty is an utter disaster.

In the 20th century, the Soviet Socialists pursued the complete and total control of the economy through forced planning at a scope and scale that had never been attempted.  Yet Soviet attainment of complete control succeeded at eliminating social and economic progress.  Soviet attainment of complete control also succeeded at erecting an archipelago of gulags spanning across eleven time zones.

Control, by all objective measures, is overrated.  Control requires subservience.  Control requires masters and bondsmen.  Control requires coercion.  Control requires the absence of freedom.  Control requires property confiscation.  Control requires a society full of dependents.  Control requires conflict.  But that’s not all…

Control promotes wars.  Control magnifies depressions.  Control produces stock market bubbles and busts.  Control leads to famines…and supply shortages…and debt blowouts…and currency debasements.  Control delivers complete societal massacres.

Walking calmly through chaos.  Rewarding those who work hard, save their earnings, and pay their own way with the fruits of their labors.  Allowing freedom to flourish.

The alternative to control – small government, balanced budgets, honest money, personal freedom – is largely unthinkable to 116th U.S. Congress.  But it’s an alternative they’ll be forced to reckon with as their policies of control push the nation to the breaking point.

In the interim, these policies of control will continue to disfigure the economy and financial markets, and debase the resolve of the populace, in ways that were once thought impossible…

Why Government Control Is Overrated

Reliable New York Stock Exchange data dates back to 1871.  From then, through 1958, a period of roughly 87 years (and likely predating much earlier), with the exception of three brief reversals, stock yields exceeded bond yields.  During this extended period it was unthinkable for bonds to yield more than stocks.  Gilbert Burke, in an article in Fortune magazine for March 1959, declared:

“It has been practically an article of faith in the U.S. that good stocks must yield more income than good bonds, and that when they do not, their prices will promptly fall.”

About the time of Burke’s writing the long-term relationship reversed.  Then, two decades later, it reversed to the extreme.

In the early 1970s, just after President Nixon unilaterally terminated convertibility of the U.S. dollar to gold, the yield on the 10-Year Treasury Note rose above 5 percent for the first time since the Civil War.  Then, for a period of roughly 30-years, the yield on the 10-Year Treasury Note stayed above 5 percent – and even topped 15 percent in the early 1980s.

And although the yield on the 10-Year Treasury Note slipped below 5 percent in the early 2000s, it has generally remained above the S&P 500 dividend yield – continuing the relationship that has been in place over the last 60 years.  Currently, the 10-Year Treasury Note yields about 2.63 percent and the S&P 500 dividend yield is 1.91 percent.

What else has change, in addition to the dollar becoming pure fiat, that has made a prior relationship, which was thought to be set in stone, reverse for such an extended duration?

By 1958, remember, the U.S. had already instituted a program of countercyclical economic fiscal stimulus, where Washington stimulated a slowing economy by spending borrowed money.  By the late 1980s, thanks to the Greenspan put, the Fed was running a program of countercyclical stock market monetary stimulus, where the Fed puffed up a declining stock market with cheap credit.

At the heart of it, Keynesian fiscal policy and Friedman monetary policy are policies of control.  They attempt to eliminate risk and uncertainty from the economy and financial markets.  Yet the theories behind these policies never anticipated the consequences of their implementation.

That countercyclical fiscal and monetary stimulus would become permanent.  That once the economy and financial markets were run down this path there was no turning back.  That there is no such thing as normalizing these policies.  That the perils of ever expanding debt and financial bubbles would become a permanent facet of modern life.

Keynes, in his own words, was well aware of what he was up to:

“Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.  Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

Indeed, control is overrated.  Be it heavy handed socialist policies of wealth redistribution or fiscal and monetary policies of direct intervention into the economy and credit markets, the results are the same.  A world in conflict.  A world at great odds with itself.  A world where the center cannot hold.

Sincerely,

MN Gordon
for Economic Prism

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