There was an article today that was linked on LewRockwell.com. It was on a site called Gold Switzerland. The title of the article is “The real state of the world economy is dire“. I have several critiques of the article, but I want to focus on one thing in particular.
As a side note, this is not a criticism of LewRockwell.com or Lew Rockwell. I absolutely love the site. There are many interesting and informative articles where many libertarians would still find disagreements.
In this article on the sorry state of the world economy, the author points to some of the major problems that have built up in today’s world economy. I agree with much of what is said. Although I am pessimistic in the short run, I am probably far less pessimistic than what the article portrays, especially if you look at the longer term picture.
But my one point of major contention comes when the author states the following:
“We have had a century of false prosperity based on printed money and credit. In the last 100 years we have seen the creation of the Fed in the US (a central bank owned, created and controlled by private bankers” combined with fractional reserve banking (allowing banks to leverage 10 to 50 times), exploding government debt and a derivatives market of $1.4+ quadrillion. These are the principal reasons why the world economy has expanded in the last century and particularly in the last 40 years.”
I cannot begin to tell you just how wrong the author is here. While I certainly agree there has been some false prosperity and I agree that the Fed and the growth of government have been disastrous in a lot of ways, it is absolutely ridiculous for the author to claim that the whole last century has been one of false prosperity.
It is not false prosperity when I turn on my flat panel television and pick from hundreds of different channels. It is not false prosperity when I sleep in the comfort of my air-conditioned home every night. It is not false prosperity when I go to the grocery store and am able to pick out almost any food that I desire. It is not false prosperity when I use my cell phone to call someone or to look up the latest news on the internet. It is not false prosperity when I put my clothes in the washing machine, turn it on, and walk away to do something else.
You get the point. Our lives are so much different than our great grandparents of 100 years ago that it is almost ridiculous to even try to compare.
I will concede that some things are more expensive than they were 40 years ago. These are not electronic things. It is areas that are highly controlled by government, such as education and medicine. But it is not as if the author of this article specified such things.
I understand the Austrian Business Cycle Theory. There are artificial booms, caused in particular by central bank monetary policy. This leads to busts. I don’t think it is possible to be in an artificial boom for 100 years, or even 40 years. There are certainly resources being misallocated continually because of government and central bank policy. But we also see shakeout periods where some of this malinvestment is corrected according to market demands. We saw this in the early 1980’s when the Fed tightened monetary policy and allowed interest rates to rise.
In a free market economy, we would see almost continual improvements across the board, with only mild setbacks here and there. In a more mixed economy like we have now, it is a bit more of a roller coaster ride, particularly with a central bank that wields a lot of power. It tends to be two steps forward and one step back. But as long as there are some elements of freedom, we generally see progress moving forward in most areas. There are exceptions and there are times where we may even move backwards, but the general trend is still forward.
In conclusion, I am not happy with the current state of the economy. The Fed has quadrupled the monetary base over the last 5 years and the federal government continues to accumulate debt at a staggering pace. I really do think we are in for some hard times ahead. But to say that the last 100 years has been false prosperity is a ridiculous claim. Our lives are completely different than those living one hundred years ago, even amongst the rich at that time.