Wednesday, April 08, 2009
Getting a straight answer from an economist is like nailing jello to a wall. “I'm tired of economists who say, ‘On the one hand ... and then on the other hand.’ Send me a one-armed economist,” said President Harry Truman about his Council of Economic Advisors sixty years ago. It isn’t called “the dismal science” for nothing.
In an old western I saw as a boy, two cowboys who didn’t trust each other negotiated a deal. One gave a coin to the other who looked at it, bit on it, looked at it again, then put it in his pocket, satisfied. It didn’t matter whose picture was on the coin or what was stamped there. He was satisfied that it was made of silver or gold. Ridges are stamped on the edge of dimes and quarters because they used to be made of silver. If there were no ridges, people would suspect someone had been shaved off. The cowboy trusted the metal in his pocket more than he trusted the other cowboy.
The value of gold or silver depends on how much is in circulation. If there were a fixed amount and no more were being mined, the value - or the price if you will - wouldn’t change, right? Like the cowboy in the movie, most of us can understand that much. There’s always a possibility of a big discovery somewhere increasing supply and reducing the value of the coin in his pocket, but such things are relatively rare. The law of supply and demand applies, like it or not. It can no more be repealed than the law of gravity can.
When our government printed paper dollars, we had to trust that it maintained enough gold and silver in Fort Knox to back up dollars it printed, just as we have to trust that someone writes a paper check, he has enough in his account to cover it. Absent trust, paper is no good. In 1971, however, President Nixon announced that the US dollar would not longer be backed by gold. It would float freely. I don’t understand how he had the authority to do that since our Constitution gives Congress power to coin money (or print it) in Article I Section 8, but Nixon did it anyway. The dollar would instead be backed by the full faith and credit of government. Nixon also said he would control wages and prices to keep down inflation, but it didn’t work. Inflation soared - as it will whenever government prints money recklessly.
Though I’m a history teacher, my teaching license says “Social Studies.” I’m charged with teaching current events, geography, civics, and economics as well. That’s daunting at times - especially when I’m having difficulty making sense of what’s going on. Things are happening so fast, it’s hard to keep up. Last November, Americans elected leftists to run the country. I knew it was going to be bad, but I didn’t expect it to be this bad, this soon. I’m not sure voters understood what they would actually do, but we’re all finding out now and we’re getting nervous. I’ve been gritting my teeth wondering what it’s going to be like after four years. The President and his congressional allies are using the banking crisis to take control of our economy in a hurry. The president is taking over banks, firing auto company executives, guaranteeing transmissions, and will soon take over the entire health care industry. A recent Saturday Night Live skit in which the president micro-manages the lawn mower, air conditioner and blue jean industries, isn’t far from reality.
Congress is so rushed, it voted for almost $800 billion - the biggest money bill in history - without even reading it. Yet it insists it’s “rescuing” our economy and legions of two-armed economists applaud with both hands. We’d already been bailing out banks, auto companies, insurance companies, and God knows who else with $700 billion in TARP money, and the treasury won’t tell us who-all is getting it. A Democrat congress and a Republican president hurried TARP through last fall with few people anywhere understanding where the money would come from, how it would be spent, or whether it would do any good. We know it increased our debt to over $10 trillion and China started signaling it wouldn’t lend us any more. China and Russia want to start a new world currency to replace the dollar. The old commies bit the coin and didn’t like what they saw. They’re concerned that we’re moving too far left. Europe too. Who would ever have imagined this a year ago? Not me.
Then, two weeks ago, $1.2 trillion appeared out of nowhere. The Federal Reserve snapped its fingers and there it was. Worried? It’s all backed by the full faith and credit of our federal government. And what’s that worth? Not much in the opinion of an increasing number of American taxpayers who are turning out all over the country on April 15th for a Tax Day Tea Party.