Rules of the Game II
On Saturday, WSJ ran an editorial "A Capital Strike" examining the latest economic statistics. It confirmed my surmise about velocity and uncertainty (Rules of the Game):
And then there's this about the impact of rules from "How Government Prolonged the Depression" in today's WSJ Opinion section:
The innards of the fourth quarter report are, if anything, uglier than the top-line decline. Business spending on equipment and software fell 27.8%, the worst in a half-century. Spending on durable goods fell 22.4%. The only spending that increased was by government. Monetary velocity -- a measure of how much the money stock trades hands -- fell faster than it ever has since the data began to be compiled in 1959.
These are signs that all but the most basic consumption and investment stopped cold when the financial panic hit warp speed in September and October of last year. This isn't a typical recession driven by high interest rates. This is an extension of the financial panic into the real economy driven by fear and the rapid unloading of debt among consumers and businesses both large and small.
The main lesson we have learned from the New Deal is that wholesale government intervention can -- and does -- deliver the most unintended of consequences. This was true in the 1930s, when artificially high wages and prices kept us depressed for more than a decade, it was true in the 1970s when price controls were used to combat inflation but just produced shortages. It is true today, when poorly designed regulation produced a banking system that took on too much risk.Hugh Hewitt comments:
Now if I was advising the crafty Mitch McConnell or the always thinking Jon Kyl, I'd suggest they request Amity Shlaes to address a luncheon gathering of as many senators as they could find as a way of bringing attention to the core message of The Forgotten Man, her magnificent history of the Great Depression. That core message has to do with the certainty of rules that markets require to function. Time is short so I don't think the Senate GOP can expect their Democratic friends to read Shlaes' riveting book, but if they bought lunch in the spirit of bipartisanship and asked Amity to speak?Amen!