Jamais Vu

All over again, again

Perhaps 50 years is enough that few folks recall the pain and suffering. Perhaps it’s the sad state of education, particularly in economics. Perhaps it’s just pure bone-headed stupidity, or maybe a combination of all three.

Before we dive into the latest absurdities coming out of Warshington, let’s remember that the word “economy” comes from the ancient Greek word, οἰκονομία, which itself is a contraction of the words for “household” and “management”. In other words, economies grow from the foundation up, not from the roof down.

Let us further recall that inflation is primarily caused by an increase in the money supply, without a concommitent expansion of productivity, a.k.a. goods and services available for purchase. When economic units, er…people have more money in their pockets, but the same amount of goods and services to buy, they bid up prices until the market reaches equilibrium again. High prices are the result of government meddling in markets, and more meddling will only exacerbate the problem.

This is why price controls, mandatory minimum wages and government largesse, in the form of welfare and stimmie checks, not only do not work, they are down right dangerous to an economy.

All the additional money flowing to illegal immigrants who are not producing anything, the “stimulus checks” during the Black Death, and the corporate busy-work in the form of mandated production of products no one wants (ventilators, EVs, solar/wind energy, and the like), have created massive instabilities in the economy, through misallocated resources and wasted capacity, that are manifesting as high prices.

Economies are organic systems created by human activity at the individual level, and any top-down interference will always cause instabilities and distortions, commonly referred to as “bubbles”. Think of water flowing down a hill and hitting a dam. The water backs up and fills behind the dam until the dam breaks or the water overtops. It is inevitable and wholly foreseeable. No one with common sense thinks this is unusual or unpredictable.

As a kid in the early 1970s, I distictly remember Hershey bars going from 5 cents, to a dime, to 15 cents, while the chocolate bars got smaller and thinner with fewer almonds, all within the space of a year or so. I remember fellow Houstonians Walter Cronkite and Dan Rather blowviating on inflation, and government policies and controls, and blah, blah, blah. My parents’ knitted brows and serious discussions when they thought us kids were asleep told me more than the media wonks could with those abstract terms and political solutions: economies started at the kitchen table.

For the dear readers who weren’t around then, we had something very similar to the present conditions — wild inflation, hand-wringing politicians, regional wars and crises, and even a bizarre Democrat convention in Chicago and another Robert Kennedy. The current situation, however, seems much more disturbing and unfamiliar — a case of jamais vu, something rationally familiar that seems completely new and unusual.

In August of 1971, inflation was raging, in part because of LBJ’s Great Society welfare programs (free money), rising energy prices due to anemic domestic production and heavy reliance on imported oil, and a war economy that wasted everything it produced, by dropping it all on Vietnam, Laos and Cambodia.

In that month, Richard Nixon introduced his four-phase plan to bring inflation to heel. He froze wages and prices for 90 days, formed a Pay Board and Price Commission to oversee regulatory compliance, and ended the Bretton Woods Agreement that tied international exchange rates to gold prices — though the International Monetary Fund and World Bank, both spawn of Bretton Woods, survived the axe.

Over the next couple of years, the plan gradually relaxed wage and price controls. Keep in mind our dam analogy. When you try to let the water out slowly, you eventually reach a point where the pressure gets out of control and a flood ensues, ripping apart anything in its path.

That’s exactly what happened.

All the pressure built up in the supply chain from artificially controlled prices led to a torrent of price increases that ripped through the economy. Since wages were still controlled (companies didn’t want to turn loose of that bone), we saw prices skyrocket, while incomes remained stagnate, creating what is referred to these days as “stagflation”. We had to invent the word, since the situation was unique in human experience.

The fallout was massive:

• Short-Term Effects: The initial price controls temporarily slowed inflation, and they were initially popular with the public (see today’s Harris Harpies, et al.). However, as controls persisted, they led to shortages, particularly in goods like gasoline and food, since producers found it unprofitable to produce or sell at the controlled prices (supply chain collapse).

• Long-Term Effects: The policy is regarded as a failure. It caused significant market distortions (bubbles), shortages, and black markets. Once the controls were lifted, inflation surged, partly exacerbated by the delayed effects of the oil crisis and pent-up price increases.

• Sources:

  • Smithsonian Magazine

  • Federal Reserve History

  • The Library of Economics and Liberty

At the human level, I had to mow a lot more lawns for my increasingly anemic Hershey bars, which to this day have never regained their size and almond content.

The experience with price controls during the Nixon administration is often cited as a cautionary tale in economic policy, though apparently the Bumbledicks played hooky that day. It demonstrated the unintended consequences of using direct government intervention to control complex economic variables. One thing politicians can be depended upon to do, is badly screw things up. Nixon’s tainted legacy is not so much for the Watergate cover-up, but for the shambles he made of the economy.

The price controls led to the Arabs in 1973 refusing to sell their oil to the US at the mandated prices, which made prices for energy spike, and thus the prices for everything ballooned, because everything starts with energy. I remember gas prices at the pump going from 27 cents per gallon, to over a dollar in a very short time, with lines of cars waiting to fill up based on red and green flags (odd-even license plates). It looked a lot like EV charging stations today, with people pushing their cars to the pumps after hours in queues.

The embargo, and the end of Bretton Woods, led Henry Kissinger to negotiate the Petrodollar Agreement, which just came to an inglorious end a few months ago. In other words, we are STILL unwinding the effects of Nixon’s price controls, even as the Bumbledicks are proposing more of them.

The inflationary/stagflationary spiral continued through the Ford administration, with his completely useless Whip Inflation Now (WIN) propaganda campaign, through the Carter administration of ostrich leadership, and into the first years of the Reagan administration. Reagan’s corporate welfare system and regulatory reductions breathed some life back into the economy, but it was essentially keeping a brain-dead relative on a ventilator and heart pump because you don’t want to make the hard decisions (Trump anyone?).

The current economic situation, domestically and globally, is a consequence of a series of bad decisions, made for political expediency, that essentially began under Woodrow Wilson and Franklin Roosevelt. The Nixon wage and price controls threw gasoline on the fire. The 50 years since then have been little more than misguided efforts to “carefully” unwind all the damage caused by government meddling in “household management,” from the Federal Reserve Bank, to Keynesian work programs, to unbuckling the dollar from gold.

Listening to the Demonrats rallying around price controls, or whatever Orwellian term they are using today, activates my PTSD. The country went from relatively stable prices throughout the 1960s, to being afraid to get out of bed in the morning for fear of new shortages and price hikes.

In free and competitive markets, there is no price gouging. That is only possible in monopolies. When multiple producers compete, the organic outcome is efficiency, producing the highest quality at the lowest prices. Consumers will naturally buy the highest possible quality at the lowest price, and the producer with both qualities wins.

The Demonrat talking point about price controls to tame inflation would be disastrous for the US economy. There would be a short-term “feel good” moment, a honeymoon of sorts, followed by the final and utter destruction of every household in the country (the economy).

Trump is only slightly better on this subject, but he’s still a corporatist, and anything that empowers corporations to exceed their near-god like current status is equally dangerous. It will lead to unchecked mergers and acquisitions, like we saw in the Reagan years, reducing competition and causing actual price gouging.

Both parties are leading to neo-feudalism and the end of the nation-state, regardless of which path we take. We are being sold a super-model mate, but we will be horrified when the make-up comes off in the harsh morning light. The real and existential threat is unchecked corporate power, in the form of unrestrained influence on regulatory policies and campaign funding. Government of, by and for the People has been usurped by mercantilists and board rooms.

The real solutions involve some short-term pain, with long-term gain — the opposite of both parties’ platforms. Cutting deep into government payrolls, disbanding dozens of agencies and departments, eliminating regulations on human beings and small businesses, breaking up gargantuan industry monopolies, and focusing public resources on domestic infrastructure rather than dropping the nation’s productivity on foreign soils will hurt for a moment, but households will emerge stronger and more vital, and that’s the real economy.

It wouldn’t hurt to apply the death penalty to politicians who violate their oaths of office, as well.

Years ago, working at a major hospital, I did a training video for a severe burns unit. It involved a patient with 3rd degree burns over 70% of his body. He could not be anesthetized without risking a coma. He was placed in a tub full of antibiotic and enzymatic debridement solutions, while the damaged skin was scrubbed and cut away. I can still hear the screams 30 years later. When I did a follow-up video of the patient a year later, he was thankful, despite the pain and trauma of the process. He was still alive and recovering nicely, instead of dead from gangrene.

No one in their right mind wants to take the cure, but biting the bullet and brassing it out is the only way to heal a century’s worth of malfeasance and bad choices. We have the excuse of being lied to and blaming previous generations who created the mess, but we cannot pardon our own inaction to avoid harsh cures and short-term pain.

Strange though, how everything seems so familiar, yet so foreign…a case of jamais vu.

Today’s movie du jour is apropos for both the invasive surveillance state, and economic decline under Socialism, and a German film I’ve mentioned before: Das Leben der Anderen (The Lives of Others) (2006). An engaging story set in East Berlin in 1984, the masterful directing and outstanding performances of the two stars will certainly give urgency to making the hard choices.

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