Nature Teaches Us How Economies Work
BY DAVID S. LEWIS
In the classic 1970s movie Being There (based on the novel by Jerzy Kosinski), the lead character Chauncy Gardner, played by Peter Sellers, is a half wit groundskeeper/butler who finds himself homeless, but then inadvertently befriends the most influential and richest man in the country (Melvyn Douglas) through his kind hearted wife (Shirley MacLaine). This wealthy man also happens to be a close friend and confidant of the President of the United States (played by Jack Warden). Chauncy is mannerly, soft spoken, and well dressed in his butler’s outfit and derby. He speaks in soft hypnotic tones, owing to his mental defici-encies, and is mistaken for an aristocratic gentleman, even a sage, in that he speaks with simplicity and insight by merely stating the obvious and with disarming honesty. He is the perfect fool of ancient lore, one so lacking in pretentiousness that he is supremely wise.
While dining with the president and his wealthy friend, the subject of the economy arises. The president turns to Chauncy and invites him to share his opinion. A groundskeeper by trade, Chauncy thinks for a moment, then responds in a near brain-dead monotone, saying, In winter, it is cold outside, the plants do not grow. But in spring, there will be growth. The utter simplicity of his observation hangs in the air like an impending storm, then settles in the mind with a sense of revelation on the part of the president and his wealthy confidant, and this scene launches the rest of the plot.
Long story short, Chauncy Gardner is rocketed into an advisory capacity at the White House as a man of great intellect, insight and wisdom, while in reality he has the mind of a 4 year old, as later confirmed by a physician.
The corollary though between the economy and natural world is exact. Both function in the same way, and this is real world economics, not contrived theory. Ecosys-tems and economies share identical dynamics—things equal to the same thing are equal to themselves, and so economies are ecosystems. In other words, economics is nature, and nature is economics. From this simple understanding, the macroeconomic theoreticians surrounding the current president, and many other presidents, have much to learn, and as much to unlearn, while their sophistry fails the country and inflicts harm.
Consider it this way. We now understand that fire is a great natural force in our primordial forests. This reality was driven home in the wake of the Yellowstone fires of 1988, the result of which has been a healthier ecosystem. Caused by lightening, fire runs through expanses of dry woodland and underbrush periodically, benefitting the over all health of the wilderness by clearing the way for vibrant new growth, causing pine cones to hatch, allowing sunlight to penetrate the arboreal canopy, and nourishing the soil.
Intervention, though, subverts this natural process. After unfath-omable ages of natural adaptations in our forests, the Department of the Interior intervened, suppressing natural fires in the American West, actions that fostered the unnatural accumulation of fuel, tinder, as it were, and so greater and greater fires became the norm because the natural process did not burn off the dead fall and thicket as required for a healthy system.
In an economy, as with an eco-system, people do what they do; they act naturally. Like trees in a forest, each person and business entity strives for economic health and growth. Some succeed, some fail. As with life, and an economy is just another living system, there are no guarantees, and over all as each person makes his way in a free society, and as each business does the same, an economy ebbs and flows like the tides, in cycles of nature. Left to its own devices, slower growth, even negative growth, leads to a more healthy environment, in the same way that fire clears out debris and provides for new shoots in the fertile soils left behind.
Enter John Maynard Keynes, a theoretician, one we might easily liken to the Department of Interior in its fighting of forest fires.
Keynesian economics “manages” an economy. It intervenes in various ways, imposing artificial and arbi-trary corrective measures designed to smooth out the ups and downs in the ebb and flow of the natural economic seasons, otherwise known as the business cycle (growth and recession), the aim being full employment. The Keynesian system now in place intervenes into the natural process by expanding or contracting the money supply through interest rates at the Federal Reserve, literally creating money as credit in order to foster growth, and then in part destroying it in attempts to ward off inflation.
Presently, the Federal Reserve has been doing even far more than that. Owing to the phenomenal powers granted to it by Congress, in late 2008 the Fed began injecting over $1 trillion into our economy—mostly through the purchase of bad mortgage debt, much of it issued or guaranteed by Fannie Mae and Freddie Mac, our Federal Government’s subsidized and taxpayer guaranteed mortgage lenders—a measure that lasted until March 31, 2010. By then, the Fed had purchased $1.2 trillion of mortgage-backed securities from banks and $200 billion of direct obligation debt of Fannie Mae and Freddie Mac, for total purchases of $1.4 trillion. As a result of these actions, the Federal Reserve, incredibly, now owns 25 percent of the stock of all mortgage-backed bonds in the United States.
The cataclysm in mortgage back securities, the sub prime mortgage crisis, resulted from social engin-eering policies dating back to the Clinton administration, and the Community Reinvestment Act, that mandated bad loans to lower income earners (supposedly to help minorities, but that in reality pushed mortgages into the hands of many who could not afford them). In the Clinton years, likewise the Depart-ment of Justice began suing banks, accusing them of discrimination for not having opened branches in minority neighborhoods—regardless of whether such branches were finan-cially sustainable or the borrowers credit worthy.
Fannie Mae and Freddie Mac buy mortgages from banks and other lending institutions, bundle them together, and sell them as mortgage-backed securities, and they guaran-tee the interest payments and principal on the mortgages to the security purchasers. Sponsored by the federal government, these entities, and the FHA, by foisting homes upon people who could not afford them (intervening), created the sub prime mortgage crisis and triggered the financial crisis.
fannie Mae and Freddie Mac’s bundled mortgages, what’s more, were pawned off to others who in turn developed arcane derivatives and credit default swaps to insure against the bad loans—all with the approval of the federal government, and so the feds not only promoted but incentivized the grotesque and then greed driven ex-pansion of the unsound process it had set in motion. All this, of course, led to the collapse of enormous financial institutions, the “need” for bank and automobile manufacturer bailouts, and President Obama’s so called $800 billion stimulus in order to remedy the natural consequences of the systemic intervention that caused the problems in the first place (though 73 percent of the business world says the stimulus has not increased employment).
Remember the Fires of Yellowstone, that economics is simple and natural—an understanding even a half wit can grasp, and that all of the social engineering and interven-tionist actions above that you just read about are harmful, unnatural, contrived, and spawned by the federal government in its unending ability to screw up whatever it lays its hands on.