All of the Debt, None of the Recovery

At RealClearMarkets Jeff Snider, in a post less opaque than usual, offers a similar critique of what both the federal government and the Federal Reserve have been doing for the last 15 years:

The problem isn’t really debt, though, at least not how most people look at it. They naturally worry governments will run out of capacity to borrow, that there will come a day probably soon bond markets will go belly up the way Wachovia once did.

No. The real danger is quite the opposite. Perversely, the more Big Government fails to add anything outside the shortest run, the more demand there is for its increasingly shoddy paper. That’s because by “shoddy” I mean credit profile. That isn’t what determines demand.

What we’ve instead seen is the public sector getting larger and larger at the expense of the private sector which cannot flourish in the post-2009 environment. There are simply too many constant “headwinds” starting with a monetary system and credit capacity that was never fixed from “subprime mortgages.”

The government takes on a larger share of economic activity and greater responsibility for redistribution. Both of those only make things worse. The poorest and those most negatively affected by the disastrous economy get hooked and can never come off. They often vote accordingly.

It is actually the same in China, too. As the Chinese economy continues to dwindle, economic circumstances worsening all the time, Beijing takes it upon itself often forcing local authorities to shoulder more of the marginal load. An already-overbearing central system becomes more centralized.

Washington is really no different. Since Bush, it’s only a matter of degree.

Because none of it actually works in the economic sense – it sure does in a political one – appetite for government debt in the market remains as stout as ever; at the expense of the private economy, of course. Worsening economy feeds more demand for safe and liquid. Central governments can borrow however much they wish, while hardly anyone else outside giant companies can.

They used to call this “crowding out.” I haven’t heard that term thrown around in years, maybe decades. If there is a Chinese equivalent, it probably hasn’t been uttered since Mao. The real downside of all this government spending isn’t finance, it has always been the economy.

November 2008 was a watershed. It was supposed to have been when governments collectively rescued us all from another 1930s. There is no evidence, real proof, that was ever a possibility. On the contrary, there are mountains of evidence that we did and continue to suffer a depression. Does it really matter if it wasn’t Great?

To any rational observer aware of all the facts, we ended up pretty darn close to a worst case anyway. What do we really have to show for it? All the debt, none of the recovery, a centralized spiral of bad ideas, predictably ineffective results, and, above all, no way out.

The future continues to be one of more government and its debts, not less. They’ll sell you on the Great Depression that didn’t happen so you won’t notice the silent one that did.

Just a few observations.

First, although it may not be obvious, the effect of taxation is to remove money from the private sector. When you remove money from the private sector while resolutely adding it in the public sector through issuing of increased credit, referred to by Mr. Snider as debt, if you’re surprised that the federal government gets bigger, you haven’t been paying attention.

And, second, if the wealthiest can get wealthier without taking any risks, don’t you think they will? Hiring employees is a risk. Building new facilities or starting new companies are risks.