A Response to Elizabeth Warren’s Plan to Stave off Economic Disaster
I have to congratulate Senator Warren for having the guts to actually spell out her plans to save the economy from a downturn. Moreover, the work put into her piece is extremely accurate and on-point. (Her original piece: https://medium.com/@teamwarren/the-coming-economic-crash-and-how-to-stop-it-355703da148b )
Most candidates for president don’t go into very much detail about their economic plans, let alone their plans to save us all from an inevitable recession. And when they do, they certainly don’t sound very well-researched or insightful.
Maybe most candidates realize the futility of central planning and how it inevitably leads to larger economic disasters. I doubt it.
In any event, Warren has gifted us 4 somewhat coherent items that she believes will stave off economic disaster. In her preamble, she remarked on some especially notable precursors to downturns. She even mentioned something called “yield inversion” which is not your every-day mass media talking point.
She writes:
The U.S. Treasury yield curve — a barometer for market confidence — normally slopes upwards because investors demand higher yields for bonds with longer maturities. But this March, it inverted for the first time since 2007, signaling that investors are so worried that things are going to get worse that they’d rather lock in lower rates for the future today than risk long-term rates going even lower. The curve has inverted before each and every recession in the past half century — with only one false signal.
I’ve read this same exact kind of analysis from highly sophisticated researchers in expensive publications. For instance, this is the same kind of analysis you might see in Grant’s Interest Rate Observer, a $1,295/year, bi-monthly publication that’s dedicated entirely to interest rate analysis: https://www.grantspub.com/subscribe/
She also mentioned corporate debt and household debt. These points are all big-time economics. Someone did their homework. If I didn’t know any better, I would guess that parts of her piece were written by an Austrian economist or cribbed from Ron Paul’s speech library.
Almost all of the problems she underlines are very real and very serious.
However, almost all of them are direct consequences of centrally controlled monetary policy. High debt levels (both corporate and household) are exactly what you get after decades of easy-money policy. It’s not a symptom of Fed policy… it’s what they came up in their meetings. Yield curve inversion is a clear byproduct of wacko monetary policy. In some places, there are even negative yielding government bonds — and even some NEGATIVE yielding junk bonds.
These kinds of bizarro-world financial instruments don’t exist without central planners pulling the levers and creating perverse, nonsensical incentives.
To the rest of us, as in, those folks who aren’t inside the DC bubble, it’s exasperating to hear another top-down solution to another problem caused by top-down solutions — from the same batch of folks who have been creating problems and solutions to those problems for decades.
Warren’s solutions are the political equivalent of telling voters to stop hitting themselves.
You did this, Elizabeth Warren. You and the rest of congress and the executive branch. If you don’t know that you did this, I’m not surprised. But you should.
Here are Warren’s cures to our doomed economy:
1.Reduce household debt
2. Monitor and reduce leveraged corporate lending
3. Strengthen manufacturing
4. Limit potential shocks to the economy
Her solutions of course, are a mix of more top-down rules, capital injections, de facto forever easy money policy (austerity is not in her vocabulary) and fantasy.
Here are my responses and alternative solutions or explanations.
- You can improve household debt by dissolving the Federal Reserve and instituting ethical money that’s beyond the scope of politics. We know what ethical money looks like. It’s not scrip. It’s not digital units that correspond to no productivity. That’s how you get an increasingly worthless currency that, guess what: FORCES people to borrow money in order to maintain their standard of living. Living in the US is expensive, made more expensive by terrible monetary stewardship, taxes and regulations. AGAIN, YOU DID THIS.
- Same with corporate debt. You incentivized huge corporate debt loads with low interest rate policy. For corporations, that’s a license to print money. They aren’t going to pay a market rate to service their debt. They can sell tons of it and worry about paying it down later with a currency we all know YOU will inflate. They can use that free money to pay their CEOs whatever they want or to perhaps bribe politicians to continue making shit-headed policy that hurts everyone to the benefit of politicians and their cronies in big business.
For instance: YOU, ELIZABETH WARREN. - Strengthen manufacturing? I wonder how Warren thinks manufacturing was weakened in the first place? The low-skill assembly line basically doesn’t even exist anymore. Those jobs that don’t exist aren’t coming back. If they did, they would barely pay minimum wage. American workers have to compete with people in Indonesia, Sri Lanka, and Bangladesh who will do the job for 1/4 the wage cost. American manufacturers have to compete with firms in those countries who don’t have to deal with thousands of byzantine rules and regulations, not to mention some of the highest corporate taxes on the planet.
Whoever wrote this piece knows what comparative advantage means, but I doubt Warren does. Warren’s idea to throw $2 trillion at green tech might be the worst idea for green tech. It will bring out the charlatans and scam artists and do great damage to the idea of green tech. It would create a dozen Fannie and Freddie Macs for green tech, and cause a generation of mal-investment. - This idea is perhaps the most nebulous but also potentially the most damaging. The crux of her “plan” for this point is to eliminate the debt ceiling forever. Not sure how a policy of forever-inflation will brunt the shock to the economy? Me neither. This will only make every economic problem worse.
The only real solution
The state has inserted itself most deeply into the financial sector. People can’t even imagine a world without a centrally controlled currency. Imagine if the state had that kind of penetration into shoes or cars or drinking water. The only product that existed came from the Federal Reserve of shoes. Would they be good shoes? No. But we would have people acting under the pretense that of course we can’t have privately created shoes. What if they’re not good? What if private shoe companies cut corners or gifted shoes to their cronies? What if they exchanged shoes for illicit drugs or weapons? etc.
Money is no different, except that it is much more important than shoes. That’s why the state always asserts itself as the only game in town. Today, our money is so perversely and tightly controlled by the state that there are an innumerable amount of largely invisible bad effects. Debt loads are the most obvious. Inverted yield curves, less-so. But what we don’t see are the possibilities of a variety of competing currencies and how they would prevent or mitigate the problems Warren spells out. If you don’t have a central authority debasing the currency constantly, and playing political games with the price of money (interest rates are a price on money) then people aren’t encouraged to borrow beyond their means. Borrowing money at a real interest rate is expensive. Long term prime annual rates (before the chicanery of the last 20+ years) are closer to 6%.
And why borrow money when you can save it and earn a great return because the money is not being actively devalued?
Corporations aren’t stupid. They wouldn’t be in this much debt if they weren’t forced to get on the debt treadmill by the Fed. But the choice from the Fed was: borrow or die, because your competitors will gladly borrow and fund expansion at the expense of your market share.
Warren would never suggest ending the state’s monopoly on money creation.
The conceit of the central planner is that central planning is always the solution to the problems caused by central planning.
But by ignoring the role of monetary policy, and by urging even greater amounts of bad policy, she is responsible for all of the ills she’s threatening to fix.
