Post-Pandemic/Economics

Of all the phenomena upended by the still-unfolding pandemic experience, surely economics would have to appear near the top of the list. Economics has indeed been a Member Monday topic before -- three years ago we discussed the role of capitalism in the context of resource constraints, global interdependence, deepening income disparity, regulatory capture, and a distorted monetary system. Covid-19 has now launched us into an altogether new dimension.

It might seem quaint now but the prevailing economic model was once something called neoclassicism, a fancy term taught in Econ-101 that essentially regarded the economy as the aggregate of rational and calculating autonomous individuals each seeking to maximize their respective self-interests. These aggregate actions, according to the model, optimized growth and thereby enhanced society as a whole. Anything that contaminated such freedom, therefor, was inherently bad.

A bare-knuckled version of this form of capitalism was the theme of Ayn Rand's book Atlas Shrugged, which we discussed three years ago (click: Atlas Shrugged). Needless to say, the discussion back then generated a certain amount of "energy" in light of a changing world consciousness. Yet, even for those who outright reject the underlying theory (dogma), the following words may provide some context to our upcoming discussion:  

"You may know society is doomed when you see that, in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal, not in goods, but in favors; when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them from you; (and) when you see corruption being rewarded and honesty becoming a self-sacrifice." (Atlas Shrugged, 1957).

Fast-forward to today as we embark on a new world order. There's a great disturbance in the Force, as if millions of voices suddenly cried out in terror and were suddenly silenced. The silenced voices are those of the one-time rational, calculating autonomous individuals; the disturbance in the Force is the contortion of economics. 

The pandemic merely exposed the fault lines having been developing over the last several decades. We might begin with our of MM 9/23/19 discussion of Yuval Harari's book Sapiens (click: Sapiens ) in which he asserts the maximum number of members in those ancient tribes who naturally bind within the "circle of trust" to be around one hundred and fifty  -- members in these smaller tribes could pretty much rely on each other for their continued existence. Groups larger than that required some sort of imagined reality to hold them together. It is this imagined reality -- be it religion or money -- that binds members, such that what passes for truth is little more than these mutually-accepted stories. Money itself, by this reckoning, is little more than a fictive construct, a concept we previously discussed MM 2/4/19 (click: Full Faith And Credit).

The fundamental question, we must now ask ourselves, is who or what drives the narrative. Some of what's been accepted in the past as economic truth has been revealed to be essentially false e.g. trickle down economics which was sold to the credible public as a way to benefit society at large. Whence did that come? It came from those who had most to gain from that so-called factoid i.e. those at the top.

If nothing else, the current pandemic has exposed certain fault lines in our economic foundation. Recently manifested is the enormous dislocation wrought by that neat trick of  company stock repurchase. What was illegal before 1982 became the go-to vehicle for unjust enrichment in the ensuing decades as it artificially levitated share prices, thereby enriching corporate option-holders without the creation of any real value-add. Then there has been the artificially-induced interest rate suppression that not only killed the responsible individual saver but enabled corporations to recklessly load their balance sheets with cheap debt (to fund the aforementioned share repurchases and for dividend payouts) until they line up at the bail-out trough (cough*Boeing*cough).

Much, much more is to come, courtesy of the confusion of the times (discussion piece: Rethinking Markets). The Fed, now becoming a kind of quasi-hedge fund, will leverage the recent bailout coffer into an estimated $4.5 trillion with little outside visibility on how the money will be spent (as the bill cancels the application of FOIA); the U.S. Treasury will be buying all sorts of securities and loans with the Fed financing the scheme; BlackRock, the gigantic private fund manager, will be buying and managing most of this through the magic of Special Purpose Vehicles -- hmmm, now what should we we buy next, I know how about some of that nice low-ranked debt which otherwise is up for downgrade to junk?; and . . . . pant, pant, pant . . . . am now hyperventilating as it's just so darn confusing and am left wondering whether obfuscation might actually be the object here. Or, in the words of (or attributed to) Henry Ford, "It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning." One weeps at yet another weakening of social cohesion.

Then there is that other cloud on the horizon -- the looming prospect of Modern Monetary Policy (MMT). One might be able to understand how light can be both a wave and a particle but, good grief, how is it that, when it comes to money, it can simply be printed, spent, and thereby created at will? Oh yeah, that's right, it's okay so long as inflation remains in check -- good luck with that. There are no more markets, only interventions.

Who is John Galt?