Who Will Pay for It All?

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The United States Senate approved another $484 billion spending spree yesterday.

$322 billion of it will restock the “Paycheck Protection Program.” $75 billion will race for the hospitals. $25 billion will increase COVID-19 testing.

$60 billion will mend economic injury by way of the Economic Injury Disaster Loan program.

This latest largesse follows the previous round.

We hope sincerely that it does some measure of good. You may even insist that government is under obligations to open the purse in this time of emergency.

It was, after all, government that seized the economy by the scruff… and clapped it into jail.

So government can jolly well pay to sustain those unemployed millions rotting behind the bars.

But here is the difficulty of course:

Government claims no resources of its own.

The Citizen Pays One Way or the Other

Government must press a pistol against the citizen’s ribs… and ransack his wallet for tax money. Or it can take to the credit markets in search of loaned money.

But even if government borrows, the pistol comes out. The citizen must pay to service that loan through taxes. And how — again — does government take in taxes?

Either way… the citizen pays.

Herr Friedrich Nietzsche certainly hooked onto a truth when he wrote:

“Whatever [the state] has, it has stolen. Everything about it is false; it bites with stolen teeth.”

Those teeth, those stolen teeth, are presently biting hard.

We might further mention the silent thief of inflation. This is the clandestine tax that government bites out of citizen hides.

A Timeless Economics Lesson

In days as these, we might recall the timeless principles of economics. Here is Henry Hazlitt from his masterly primer on economics Economics in One Lesson:

Everywhere government spending is presented as a panacea for all our economic ills. Is private industry partially stagnant? We can fix it all by government spending. Is there unemployment? That is obviously due to “insufficient private purchasing power.” The remedy is just as obvious. All that is necessary is for the government to spend enough to make up the “deficiency”…

Here we shall have to say simply that all government expenditures must eventually be paid out of die proceeds of taxation; that to put off the evil day merely increases the problem, and that inflation itself is merely a form, and a particularly vicious form, of taxation… ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter in this way, the supposed miracles of government spending will appear in another light.

That light will be visible when the present smoke clears out…

$30 Trillion National Debt Within Five Years

The crisis is dynamiting mighty holes in the nation’s finances. And this taxpayer of ours will be drafted to patch them.

The United States budget deficit will likely approach $4 trillion this year.

The national debt was already going to $30 trillion by decade’s end. But it could well attain $30 trillion — or some other enormity — within a mere five years.

We make no moral judgment today of the spending’s necessity. Millions are languishing, forlorn and desperate.

We merely remind you the bill will come your way soon or late.

As we have stated before, we hope this economic shutdown is worth the hell it has raised.

Else it is the most disastrous blunder in a very long history.

What can approach it? The economy has never been placed in suspended animation.

And some evidence indicates the freeze may be unnecessary…

“COVID-19 Infections Most Likely Run Between 50 and 85 Times Higher than Official Figures”

The epidemiological men have hunted up thousands of people in the state of California. One batch resides in Los Angeles County. The other, in Santa Clara County. That is near San Francisco.

These Californians were tested for antibodies to the coronavirus. These tests suggest the virus has invaded far more residents than official numbers indicate.

Los Angeles County stables 10 million souls. 4.1% of the tested manifested coronavirus antibodies.

Assume a general distribution of the virus within the county… and the study concluded that 221,000–442,000 adults have already been infected.

Meantime, Santa Clara County testing earlier this month indicated infections between 48,000 and 81,000. The official figure at the time ranged near 1,000.

Here is the central conclusion of the studies:

COVID-19 infections most likely run 50 to 85 times higher than official figures.

“But wait,” you object. “If these findings are correct, it means the virus is far more widespread than we imagined. That’s awful news.”

Ah, but it is in fact lovely news.

It would indicate a drastically reduced mortality rate. Many of the infected were never aware of the invasion… or merely exhibited cold symptoms.

The COVID-19 Death Rate May Be 0.1%

This finding, says Stanford University epidemiologist Dr. John Ioannidis:

“Is very consistent with the fact that the virus is very common but not killing at the rate we thought.”

Unofficial coronavirus spokesman Dr. Anthony Fauci — writing in The New England Journal of Medicine — chewed into a medical study from Wuhan, China.

He concluded:

If one assumes that the number of asymptomatic or minimally symptomatic cases is several times as high as the number of reported cases, the case fatality rate may be considerably less than 1%. This suggests that the overall clinical consequences of COVID-19 may ultimately be more akin to those of a severe seasonal influenza (which has a case fatality rate of approximately 0.1%)…

The nation withers under home arrest to keep down a disease with a case fatality rate of 0.1?%

Yet this is the same Dr. Anthony Fauci who would extend the imprisonment for months and months.

The Unseen Victims of the Virus

Meantime, the unemployment claims pile up. And as we recently reported…

Each 1% increase in the unemployment rate may equate to 30,000 ended human lives from suicide, substance abuse and related deaths of despair.

And the unfolding unemployment surge vastly exceeds 1%.

Are these lives less valuable than the viral victims?

We do not look away from human suffering the virus has wrought. A member of our extended family — aged 50 years — succumbed to this invisible murderer.

He was afflicted with diabetes.

Meantime, a slight acquaintance of ours, aged 51 years, likewise succumbed. The virus had him from the outset.

This fellow was afflicted with both diabetes and asthma. And his blood pressure exceeded all safe limits. These are three severe “underlying conditions.”

But is it not better to isolate unfortunates with these conditions — and the elderly — while the young and sturdy return to commerce?

We hazard it is.

It is the route that Sweden has followed. And it appears to be rubbing along rather well.

U.S. GDP May Plunge 14% in 2020

The virus may nick Swedish GDP 1–4% this year, by some estimates.

Meantime, Allianz chief economist Mohamed El-Erian projects United States GDP may shrivel up to 14%.

He may be mistaken of course. But we suspect he is nearer to the bull’s-eye than those economists forecasting a V-shaped surge.

That position has little excuse in the facts… at least as we see them through the bars of our prison cell.

The damage extends too wide and runs too deep.

And recall, the ultimate bills have yet to come due…


Brian Maher
Managing editor, The Daily Reckoning

The post Who Will Pay for It All? appeared first on Daily Reckoning.

A Warning From the Great Depression

This post A Warning From the Great Depression appeared first on Daily Reckoning.

3.28 million.

That is the total number of unemployment claims Americans filed last week — nearly five times the prior record of 695,000, from October 1982.

“We’ve known this number was coming for a week and a half,” laments Tom Gimbel, who captains a Chicago employment agency, adding:

It doesn’t surprise me at all. When you see a city like Las Vegas get shut down, I don’t know what other options there were than seeing a number like this.

A fellow must take his comforts where he can find them these days. And precious few are on offer.

But if it is consolation you seek, here you have it: Some economists had forecast as many as 7 million claims.

Here is additional cheer, however transient: The stock market had itself another day at the races today.

Stimulus, at Last!

The Dow Jones recaptured another 1,351 points. The S&P gained 154, the Nasdaq 413.

Today’s stock market surge follows last evening’s Senate passage of a $2 trillion relief package. It is the largest ever in United States history. The vote was unanimous.

The bill includes, per CNBC:

One-time direct payments to individuals, stronger unemployment insurance, loans and grants to businesses and more health care resources for hospitals, states and municipalities. It includes requirements that insurance providers cover preventive services for COVID-19.

Qualified individuals will receive cash payments of $1,200. Couples will receive $2,400… with an additional $500 for each child.

A Lobbyist’s Dream

883 pages in length, we can only imagine the skullduggery and chicanery within, the sweet venoms the lobbyists put in.

But who has time to read all 883 pages while American life dangles by a strand? And who can say no?

The legislation next goes to the House of Representatives for the rubber stamp — which it will assuredly receive tomorrow morning when the vote is scheduled.

Then it jumps to the White House for the presidential signature. Mr. Trump has pledged to sign it “immediately.”

Treasury Secretary Mnuchin said today the checks will mail within three weeks.

But as we have questioned previously… what will they accomplish?

Say’s Law

The issue at hand is not one of demand. It is one of supply. And a shuttered-in economy produces little.

Filling an idle man’s pocket with fabricated money does not increase supply. It merely increases the bid for existing supplies.

Let us not forget Say’s law — that supply creates its own demand. “Products are paid for with products,” argued Jean-Batiste Say over two centuries ago.

One man produces bread. Another produces shoes.

The cobbler who requires bread for his dinner appears before the baker. And the baker who must clad his feet appears before the baker.

They may transact in money… but money merely throws an illusory veil across their transactions.

Ultimately the baker purchases his shoes with the bread he has baked. And the cobbler purchases his bread with the shoes he has cobbled.

Concludes Monsieur Say:

Money performs but a momentary function in this double exchange; and when the transaction is finally closed, it will always be found that one kind of commodity has been exchanged for another.

The Government Attempts to Outlaw Say’s Law

Assume now a free economy in which supply and demand are allowed their unfettered reign. Assume an economy — that is — that does not presently exist.

You can expect supply and demand to come to terms, to come into rough equilibrium.

If there is less demand, prices will fall to meet it.

But when the government prints money with no production to match it… it attempts to outlaw Say’s law.

Consider the thought experiment of another 18th-century thinker David Hume…

Imagine a benevolent fairy slips money into all the nation’s pockets overnight. And so the money supply doubles at a stroke.

Is this nation doubly rich?

Alas, it is not. The money supply has been doubled, yes. But no additional goods have entered existence.

The new money will simply chase existing goods. We can therefore expect prices to approximately double.

The Real Source of Wealth

Explains the late economist Murray Rothbard:

What makes us rich is an abundance of goods, and what limits that abundance is a scarcity of resources: namely land, labor and capital. Multiplying coin will not whisk these resources into being. We may feel twice as rich for the moment, but clearly all we are doing is diluting the money supply. As the public rushes out to spend its newfound wealth, prices will, very roughly, double — or at least rise until the demand is satisfied, and money no longer bids against itself for the existing goods.

There you have the wisdom of classical economics. But then came the Great Depression, and out it went…

Out from under every rock slithered the cranks, chiselers, dreamers, something-for-nothing and wine-from-water men…

All promising salvation, all offering their quack medicines.

And they all found their way to Washington…

Destroying Food While People Starved

The farmers were in a bad way, they argued. These sad sacks could not fetch enough money for their produce or their livestock. And so they needed a hand up.

A program was therefore required to raise prices. The brain trust then in operation hatched a beautiful scheme. What was it?

To set fire to the crops and murder the livestock.

To be clear, they did not butcher the animals to bring to market — but precisely the opposite — to keep them off the market.

Ponder for one moment the reality of it:

While millions starved, entire crops were set ablaze. And millions of animals went into the ground… rather than growling bellies… all to raise the price of farm products.

What of the impoverished nonfarmers required to pay more for their basic sustenance? How would higher food prices benefit them? Or the overall economy? Might the money people saved on food allow them additional purchases from other industries?

The men with the grand pensees did not say… or did not care for the answers.

The same lunacy was brought to bear on other industries…

A Reign of Terror

Production above mandated levels was not permitted. Nor were prices permitted to fall beneath predetermined levels.

If a man flouted the rules… woe to him.

One man, a New Jersey tailor, was convicted and clapped into prison. What was this hellcat’s “crime”?

He pressed a suit for 35 cents. Law required the job be done for 40 cents.

Meantime, New York’s garment industry endured a mighty terror, explains 1930s journalist John Flynn:

The code-enforcement police roamed through the garment district like storm-troopers. They could enter a man’s factory, send him out, line up his employees, subject them to minute interrogation, take over his books on the instant. Night work was forbidden. Flying squadrons of these private coat-and-suit police went through the district at night, battering down doors with axes looking for men who were committing the crime of sewing a pair of pants at night.

(We acknowledge economist Thomas DiLorenzo for the source material.)

Examples abound. Here is the central lesson:

At a time when lower prices and greater production were most needed… lower prices and greater production were violently suppressed.

This was the economic wisdom of the day. And now in this, our own time of economic crisis…

A fresh roster of cranks, chiselers, dreamers, something-for-nothing and wine-from-water men will afflict us anew.

1930s Redux

They would treat us to another New Deal — green in color — to haul us up.

Modern Monetary Theory is our salvation, they will croon.

Medicare for All will be the promised cure for the next pandemic.

All war with the ancient and iron laws of economics that time has proven valid.

Yet as in the 1930s… a fearful and desperate America may yet embrace them.


Brian Maher
Managing editor, The Daily Reckoning

The post A Warning From the Great Depression appeared first on Daily Reckoning.