The View From 1776

Mr. Bubbles

The stock market clamors for yet more quantitative easing by the Federal Reserve, a techie way of describing flooding the financial markets with fiat money created out of thin air.  This does nothing for the overall economy, but it further inflates the stock market speculative bubble.

As the Austrian school of economics points out, there is no such “thing” as macro consumption, a basic myth of Keynesian economics.  Rather the economy is composed of millions of individuals and businesses, each with his own time schedule of wants and savings preferences.  Fundamental employers such as home builders and manufacturers of basic and intermediate goods operate on a much longer time schedule than do manufacturers of non-durable consumer goods.  Expanding output and employment in those basic and intermediate goods sectors will require periods of many months to years of analysis, planning, and investment.  Another way of putting it is Obama’s chagrin at discovering that there are no shovel-ready big construction projects to fund with Federal stimulus spending.

In the real world, outside the Keynesian ivory tower, fiat money creation benefits those who get it first.  Manifestly the largest Keynesian “consumption” experiment in world history has done nothing to revitalize our damaged and limping economy.  Obama’s vaunted, but failed, stimulus programs benefitted almost no one other than banks, stock brokers, and public employees’ labor unions.

Predictably, brokerage firms are now screaming for more phony money from the Fed to pump the stock market back up to bubble levels prevailing in early May.  If Obama pressures the Fed into complying, the overall economy and employment will be benefitted not at all.  But grateful banks and brokerage houses may be induced to contribute more funds for re-election of The One.