Monday, December 14, 2009

Liquidate the Farmers

When times get tough, people always look towards their roots for answers.

They look to the Bible or the advice of their childhood teachers or their parents, one of those "birds-and-the-bees" speeches that took place over a kitchen table where some tidbit of truth long ago heard but now almost forgotten needs to be summoned up.

When economic times get tough, economists always look towards their roots for answers too.

WWKD. (What Would Keynes Do?)

Or Adam Smith or Milton Friedman or fill-in-the-blank. Orthodoxy and its preconceived ideas and neatly crafted solutions based on social ideologies never before seen is convenient in times of crisis. As a modern day Kipling might have written, if you can keep your head when all around you are losing theirs you can become a highly paid consultant or a corporate philosophy guru or even a central banker.

People want answers, solutions NOW, when times are tough. So they flock, often like lemmings, to those who THINK they have the answers.

Of course, these leaders are often wrong, blind, and corrupt---and all three at the same time. Often their flocks are not for leading, but shearing.

When the last big bubble burst in 1929, everyone scrambled for economic answers too, just like today. Congress, the President and his men, and the angry and suffering public all searched for answers.

How can we fix the broken economy, the high unemployment rate, all the foreclosures and bankruptcies? How can we end the suffering, and do it quickly, and cheaply, and as conveniently as possible? (Sound familiar?)

Labor unions and the left looked towards the then beaming Soviet Union. Larger and more intrusive government was the answer along with its partner, collective bargaining agreements. Government jobs, large industrial projects owned and operated by the government, Federal and state mandates on business, higher taxes, more de facto ownership of the private sector.

Capitalism was a crippled cow that needed to be milked to feed the masses that had made it fat.

Big business and the right, on the other hand, looked to their market roots for answers when the stock market imploded. Secretary of the Treasury Andrew Mellon's famous advice to President Herbert Hoover just about explained his position and that of the business class:

"Liquidate labor, liquidate stocks, liquidate the farmers, liquidate the real estate, until the rottenness has been purged from the system."

Thomas Malthas would have been proud.

Capitalism was a healthy cow that had just stumbled and now the masses should be quiet and stop complaining and just help get it back on its feet.

Right now, times are tough and people are desperate for answers and they are seeking roots, even if they aren't their own.

They turn to God, to CNN, to Jim Cramer, and the megachurch pastors on late night TV. Insomniacs scour the Internet seeking a cure from all the stress, the pressure, the loneliness, the fear of being one paycheck away from homelessness or a month away from foreclosure or seeing packs of homeless men and women sleeping in doorways and eating garbage in alleys when we were taught we lived in the Greatest Nation in the World that could solve any problem, tackle any crisis, and outwit any enemy.

This isn't the American Dream our parents lived.

It's not the promise of each generation living better than the last that we all saw before our eyes as children. Our grandparents lived in poverty, our parents solidly in the middle class, and us, now, the next dynasty to take that blind step forward into the vapor with nothing but faith as a parachute....

Economists too, right now this very minute, are scrambling back to their roots. Unfortunately most right now, especially those with flocks in Washington and Congress, are looking towards Europe and its quirky brand of socialism for answers. Value added taxes, higher fees on just about everything that moves or breathes, and more regulation via Orwellian conceived "private public partnerships" which literally means you supply all the capital, labor, and ideas and then give me most of the profits for letting you do your business in the first place.

Al Capone would be proud.

Capitalism is a dispensable cow that should be milked to death with the firm belief there will be another cow just around the corner.

I'll be honest. I'm looking towards my roots too for answers. I see immense poverty and suffering every day just walking the streets in downtown Seattle. Cold, starving people looking for food to survive and suffer just one more day are everywhere. Desperate drug addicts doing deals in plain view, right out in the open in front of everyone, especially all the tourists, paints a grim picture of society and how it treats its unhappiness.

Lectures on personal responsibility or resume writing down solve these problem. You can't pick yourself up from your bootstraps when you don't have any. Unlimited handouts don't work. Police crackdowns aren't the answer.

Orthodoxy doesn't work here. Black and white thinking fails. It's easy to be academic and detached at 20,000 feet but not when you see the carnage at sea level literally on your doorstep and on your way to work every day.

I understand what Andrew Mellon was saying in 1929 about "liquidating the farmers" and basically he was right. His advice would have been best for the market and for business.

Just not for people.

Economists, just like historians, need to resist the priestly teachings of their particular denomination and remember that no "ism" has all the answers, and some "isms" have no answers at all. It's okay to be a Keynesian or a Friedmanite when you are sitting in a bar downing some decent adult beverages and debating with friends, not when you are running a central bank or voting on legislation in Congress or, heaven forbid, teaching freshman Economics 101.

Robert J. Abalos, Esq.