We live under a system that is extremely flawed. A large part of it is due to the people we listen to. Nowhere is this more evident than with the economy.
You would think the list in the title is rather diverse. The reality is they are all the same. These people have a track record that extends well into the past.
There are a couple consistencies:
The second causes the first.
Our system is run by people who truly believe they have the power to change the business cycle. While they might take different approaches or bring alternative ideas to the table, the end result is the same.
Therefore, we have to group them all together because their core belief is simply fallacy.
The business cycle has been around for at least a thousand years. This is something that has occurred in every economy, regardless of the circumstances. It happened under every type of government, many different forms of money, and economies of various sizes.
Yet the end is always the same: the business cycle cannot be stopped.
For those who are unware of this concept, it is based upon human psychology. This is why it has stood the test of time. Humans, for all our advancement, do not really change. We are subject to the same mental constraints, mostly driven by fear and greed. It is not only the primary driver of markets) but, also, economies.
The ideas is one of peaks and troughs. Exiting a trough, we have an acent towards the peak. During this period, economic productivity expands, employment increases, and optimism takes hold.
Here is where human psychology takes place. As things expand, we tend to forget. Businesses keep hiring, overlooking the finer points of the income statements. Markets take off and people are convinced it will never end.
There is another fact: during the ascent, prices go up. This includes assets and most other facets of the economy.
During the Gold Rush in the U.S., the labor rate in the east was $1-$2 a day. Yet, out west, there are hotel rooms going for thousands of dollars per night. Booms are synonymous with this.
Of course, there is the flip side.
As the peak starts to end, somebody starts looking at the financial statements. Suddenly people question the size of the labor force and why so many are in a department or division. Earnings tighten causing people being pushed out the door.
This is where the employment situation starts to worse, causing households to redu their spending. Of course, this spread throughout the economy, sending prices plucemmeting. Money becomes tight as investment and lending dries up. In short, people get very conservative with their approach.
It is the widespread psychology that impacts the economy. This is evident first in markets, which tend to move quicker than the economy. Nevertheless, it will eventually branch out.
Karl Marx believed he could change the business cycle. So did John Maynard Keynes. We can add Lawrence Summers and his negatgive interest rates. And Paul Krugman, the Godfather of Quantitative Easing nonsense.
All these economists believed they could eliminate the business cycle.
The same is true for gold bugs who ignore history and overlook the fact that swings were just as wild under fixed money regimes too. This long predates the Federal Reserve System and central banks.
Of course, they are easy target since they operate under the same misguidance. They falsely buy into their own power of monetary policy somehow falling victim to the idea they can prevent economic devastation. Sadly, their actions tend to either make the present situation worse and/or set the stage for the next crisis.
In effect, all these people are claiming they can change human nature and how people behave. The boom-bust cycle is psychologically driven. It matters none whether it is tulips, gold booms, easy money, long-term interest rate manipulation, or redistribution policies.
All always fail in the face of the business cycle.
There is, however, another constant in all this: mismanagement. The manipulators of the economy end up blaming others for the damage they cause. This is what usually sinks empires, destroying them in ways foreign invaders could never achieve.
It is why history keeps repeating itself. Humans, for all the changes we make, tend to keep doing the same thing over and over.
Even today, there are those among us who think they can control the economy and alter the business cycle.
The track record is pretty clear.
If you found this article informative, please give an upvote and rehive.
gif by 
logo by 
