Ghost of markets past

By David Hines

I've long ago ceased expecting political rhetoric to make sense. There has been much talk of how another government program will "unleash the entrepreneurial spirit." This demonstrates a compartmentalization of thinking that affects not only law but also attitude.

For over a year successful entrepreneurs have been characterized as "greedy." They are the bad guys for wanting to create something to make them rich. Now they are expected to be the saviors of the economy, yet politicians still want to castigate, regulate, and tax them to death. That mortality, I guess, is what they mean by "spirit." The ghosts of long-dead entrepreneurs are expected to save us.

Another nail in the coffin of the entrepreneur is the dearth of capital. Government consumption of savings has spiraled in recent years. It consumes not only American savings but also the savings of foreigner lenders. Government bonds may not pay much, but they are safe — that is, until such time as the government must either inflate away the value of the money or outright repudiate its debt. In uncertain times, with entrepreneurs being blasted as greedy, capital will continue to flow to government rather than to new businesses.

Where shall those entrepreneurs hardy enough to put up with the slurs get their capital? From government, I suppose. The Fed prints it and lends to businesses at interest, so that they can pay taxes, create jobs, and be called greedy. Though the entrepreneurs stand at risk of failure, their lenders don't. The banksters have been bailed out before, and will expect bailouts in the future. The entrepreneur bears most of the risk and few of the rewards.

Which entrepreneurs shall be preferred in this distribution of capital? The politically connected ones, of course. Really creative people don't have the patience for political wrangling. They're too busy creating. The money shall instead go to those "too big to fail" companies whose creativity has been so absent as to fail to meet market demand.

According to politicians, who "invest" other people's money instead of their own, entrepreneurs will be happy to borrow money and commit their time and effort not knowing what new tax burdens, mandates, regulations, monetary manipulations, and disparagements of their greed will fall upon them next week, next month, or next year.

It may seem apparent, but these days it apparently isn't: Capitalism requires capital. Resources are accumulated and used to create more resources. Consumption must be deferred to provide for the future. The Biblical Joseph didn't save Egypt from famine by printing papyrus chits; real grain was put aside. Eating papyrus or paper chits would provide roughage, but not much more by way of nutrition.

Both government and people have decided that this is an outdated concept. Saving has been discouraged. Now we're told that the way out of recession is to go shopping. Capital goods — e.g., factories, refineries, production machinery — laboriously accumulated by previous generations are being consumed, and government regulations make their replacement prohibitively expensive. Politicians expect entrepreneurs with neither resources nor expectation of respect, but instead with only burdens and risk, to overcome this long-accumulated deficit. Everyone else can kick back and continue to consume.

Keynes attributed market downturns to animal spirits. Politicians sold on Keynesianism follow that theme. They expect salvation of the economy to come from an entrepreneurial spirit deprived of physical substance. Some cultures once sacrificed victims in order to send their spirits as messengers to the gods. Our officials think this was a good idea, and intend to revive it.

Animal spirits and sacrificial victims carrying messages of greed to the gods... And some think we live in a civilized age.

© David Hines