Euro Pacific Capital president Peter Schiff has gained a cult-like following for his economic forecasting and forceful arguments against political intervention in the economy. It’s all for naught, of course, since views like his (and Ron Paul, for whom he advised in the campaign) will always be deemed fringe and nutty.
In the WSJ, he writes about why we end up buying into promises of stimulus:
On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.
It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can’t be repaid. However, this is precisely what we are planning on a national level.
I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.
Elsewhere, Tyler Cowen brings up an important point for stimulus defenders to consider:
Note that under standard theory neither monetary nor fiscal policy will set right the basic problems from negative real shocks and indeed the U.S. economy is undergoing a series of massive sectoral shifts. That includes a move out of construction, a move out of finance, a move out of debt-financed consumption, a move out of luxury goods, the collapse of GM, and a move out of industries which cannot compete with the internet (newspapers, Borders, etc.)
I’ve never seen a stimulus proponent deny this point about real shocks but I don’t see them emphasising it either. It should be the starting point for any analysis of fiscal policy but so far it is being swept under the proverbial rug.
In other words, this isn’t just a “rough patch” or even a “severe rough patch” and the American economy isn’t just some car on the side of the road that needs to be “jumpstarted”. Whole sectors of the economy are experiencing generational shocks, from which they may never recover — not because the economy is weak (that’s just what has exposed the rot), but because, they’re no longer productive places to invest our capital (or spend our dollars). With as many people as we have employed in finance, brick-and-morter retail, the union-model auto industry and homebuilding, et. al. that will produce wrenching pain, but it’s not something easily fixed by a couple years of stimulus.
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