Reality Economics

by  John Roland Stahl
March, 2009

      I have written a previous article about what I call “reality economics” (vide: The Fall of the Dollar), but here it is March of 2009, and, like everyone else in the world, I am watching the entire worldwide economic system falling into chaos, and I am baffled by the methods which are proposed to “restart the economy.”  Everyone seems to think that if only everyone would start buying products once again, then everything will be just rosy.  I remember George Bush’s simple recipe for curing an ailing economy: we should all go shopping.  Now I hear on the news that Germany has come up with a brilliant plan to get their economy moving again: they have instituted a program of government incentives for people to buy new cars by paying prospective new car purchasers to junk their older cars.

     Here is an opportunity for me to explain again what I am trying to suggest by “reality economics.”  While the German government wants everyone to buy a new car to stimulate their economy, and they are so convinced that this is the solution that they are providing government money to wreck older cars, I would propose a diametrically opposite strategy.  

     I would propose that, instead of spending trillions of dollars trying to pump up sagging economies, governments should act like every other business or private party in economic trouble: stop spending money!  If banks, mortgage companies, insurance companies, or automobile manufacturing companies are unable to operate profitably, let them declare bankruptcy and liquidate their assets.  If company A wishes to pay out multi-million dollar bonus packages to its executives, they will not be able to compete against company B which asks all workers, from executives on down, to accept a pay cut in the interest of remaining solvent so that they will stay in business and be able to continue paying any salaries at all.  If demand for a company’s goods are way down, close the factories until inventories fall to levels where it will be appropriate to reopen the factories again.  Instead of encouraging everyone to buy a new car, encourage everyone to fix their old one instead.

     If there is widespread unemployment, fine; just invite all the unemployed to live in peace on the Free Farm, planting trees or growing fruits and vegetables.  Sooner or later enterprising individuals or companies will figure out something useful to do which someone, somewhere will pay them for, and gradually a new economy will evolve to replace old industries which are out of date.

     Take the automobile industry, for example.  It is not just General Motors that is in trouble; car makers all over the world have seen their sales drying up and blowing away.  The fact is that there are just too many cars in the world, and not enough oil to run them much longer anyway.  Let these companies go bankrupt one by one, selling off their assets until the few companies that remain are able to survive by supplying cars to what remains of the automobile market.  Let the market determine which companies will survive to make the next generation of cars.  Or, alternatively, let those companies whose executives are paying themselves fat salaries and bonuses just fail in competition with leaner companies which devote their attention to spending their resources more wisely, with a view to providing greater value to their customers – better quality vehicles for less money than their bloated competitors.  I still believe in the free market – if everyone had not panicked but simply let the losers fail and drop out of the race, then the companies which survive would remain a part of the evolving economy, and those which couldn’t keep up would fail, and their stockholders would take the loss.  

     No company is “too big to be allowed to fail,” and this includes the United States of America.  If foolish economic policies push the country into bankruptcy, well, so be it!  If the voters and taxpayers just shrug their shoulders while the treasury is being systematically looted, whom will they blame for the decline and fall of the United States?  

     I remember after George Bush’s second fraudulent election most Americans simply shrugged their shoulders and said, “I guess George Bush won,” when, in fact, he had done nothing of the kind.  In striking contrast, it was only a few weeks after that fraudulent election that there was another fraudulent election, this time in Ukraine.  However, in the case of Ukraine, some hundreds of thousands of Ukraine citizens wouldn’t stand for it; instead of shrugging their shoulders, they took to the streets of Kiev, loudly denounced the fraud, and refused to go home until the government gave in and promised new elections (in which the other party won).

     I also hear on the news that the Federal Reserve has decided to print up another trillion dollars or so; overnight, the dollar loses much of its value on the news.  But, what can you expect?  They have no more money, and no one will buy any more Treasury Bills, so they can’t think of anything else to do except to emulate the Zimbabwe economic miracle.  Perhaps it is time to shop for a wheelbarrow (to carry your money) before the prices go up.

     No one is going to bail out the United States government.  China will only continue to purchase treasury bills as long as they believe that it is in their interest to do so.  When they decline to renew their loans, the world-wide economic upheaval will make the present mess look like a Sunday School picnic.

     When anyone finds themselves in financial trouble, the solution is not to try to spend your way out of your troubles; the solution is to spend less than you are earning, so that you can manage your debt before it reaches levels from which it is mathematically impossible to recover.  I remember the spending of the Reagan years.  The short term consequence was an appearance of prosperity; the long term consequence was a massive impoverishment of the country which was directly responsible for the present financial crisis.  

     So, what is the message here?  Is it simply to stop spending money?  No; it is more complex than that.  If the government spends money bailing out failed companies like banks, mortgage companies, insurance companies, or any other failed or failing business, or if they pass out goodie bags of cash money in the form of tax breaks, then we can look forward to the collapse of the United States government in our lifetimes.  But if the government spends money for good value received, such as schools, health care, railroads, investments in alternative energy, and massive programs of tree planting, providing edible fruits and nuts, or other worthwhile crops, as well as addressing the principle causes of climate change and declining personal health (the declining levels of oxygen in the environment and corresponding increase in levels of carbon dioxide; vide: The Cause and Cure of Disease), then there is some hope that these worthwhile expenditures, embodying the underlying principle of “reality economics” will eventually repay their costs and even lead to an improvement in the country’s financial health.  On the one hand, I am hopeful to see that President Obama is trying to make a lot of very worthwhile expenditures, but, on the other hand, I am worried to see trillions of dollars being thrown away into Black Holes.  The only hope of survival for the economies of any country in the world is to follow the principles of reality economics and make every dollar pay.

     It may be difficult to stand by and watch while companies like General Motors go bankrupt, but every good gambler has to know when to hold ’em and when to fold ’em.

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