We got a look at how the world really works last week. Bloomberg ratted out Sophia Constantinidou:
“The 52-year-old gets 400 euros ($496) a month from the Greek government, part of her late mother’s state pension. Under the current system, Constantinidou qualifies to receive the payment for life as the only surviving child of a deceased civil servant, provided she doesn’t tie the knot.”
Ms. Constantinidou is on lifestyle support, thanks to the generosity of the Greek government, which is on lifestyle support itself, thanks to the generosity of the European government, which is only able to pay its own bills thanks to creditors who may or may not know what they are doing. The big debate among economists is when to pull the plug.
‘Austerity!’ insist the Germans and Canadians. ‘Growth!’ promise the English and Americans.
Several things have become obvious: first, a ‘recovery’ is not going to happen; second, after 60 years of credit expansion, the world has entered a long period of financial adjustment and debt destruction; third, most economists should be put to work picking up trash along national highways. Not that they would do a very good job of it, but at least they would be kept out of mischief.
Imagine poor Pharaoh… 7 lean years and only the advice of a slave to help him through. And think of how the Dark Ages might have been brightened up if Charlemagne had had an economist at his right arm. But now we have thousands of economists. And they offer us a stark choice: Austerity or growth?
Advocates of austerity say they have no choice. They have to cut public deficits. Besides, deficit cuts will lead to more private spending and investing.
Canadian Prime Minister Stephen Harper, in a letter to his G-20 counterparts, said world leaders should agree to reduce their deficits by half by 2013. “Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” added German Finance Minister Wolfgang Schaeuble. “That’s why they have to be reduced.”
Not so says Martin Wolf howling at The Financial Times.
“What we are seeing is an epidemic of private sector frugality,” cries Wolf, warning that “cutting public spending will not automatically raise private spending.”
Both positions are claptrap.
Through no fault of her own, Ms. Constantinidou has become a leech. Resources are being diverted from savers, investors, and householders so that she can get something for nothing. Economists on the one side pretend that giving her the money increases ‘demand’ and helps the economy grow. On the other, they pretend that taking away her unearned income would impose a hardship on the whole economy.
As to the first proposition, if you could really make people better off by robbing Peter to pay Paul, Peter would already be penniless. There is no shortage of people willing to take away his money. As to the second, too bad for the leech. Paul will have to give up something he had no right to in the first place. But where is the austerity? Resources don’t disappear. Ms. Constantinidou may have to say goodbye to her unearned transfer payments. Someone else will say ‘welcome home’ to their long-lost money.
But in last Wednesday’s Financial Times, Mr. Wolf slipped another ace up his sleeve. Instead of larceny or usury, he suggests trickery: why rob Peter or borrow from him, in other words, when you can scam him with phony money? “Why it is right for central banks to keep printing,” is his headline.
Cut off from reality by their own conceits and fantasies, it is as if economists were describing the perfect woman: how pretty she is…how perfect her little nose turns up and how she never needs make-up…how she always does what she is told and never talks back. Then, you turn and you see the woman herself. She is no lady; she’s an inflatable doll! Like a simpleton’s economy, she resembles the real thing – except in the ways that really count.
A mannequin can be programmed to say what you want her to say. Raise government spending enough and you may be able to get her to say the GDP growth is positive. Pay enough people to do enough make-work jobs and she will tell you the employment rate has gone up. Get the software right and she will spend when you want her to spend, and save when you want her to save…and pretend that you are the smartest economist who ever lived.
But a real woman has her own ideas. Sometimes she is lighthearted and spendthrift. Other times she is anxious…such as when she sees too much debt or too much money-printing. There are times when she will look lovingly upon her husband and do as she is bid…and times when she sighs, realizing the economist she married is a hopeless jackass.