Fear, Expediency, and the Economy

September 25, 2008 by Mike Wilson

So leave everything you know and carry only what you fear.

Daily we face the onslaught from the media. A murder here, a rape there. Illegal immigrants taking your jobs here; globalism outsourcing your job to over there. It is called news. Fundamentally, however, it is fear-mongering — and if succumbed to, it is fatal to our soul.

Both political parties attempt to play on fear, portraying the opposition candidate in the most negative light possible to the point where this campaign has become more immature than a kindergarten shout-down (”My dad can beat up your dad!”). In order to achieve support for means that we know are questionable, those in office instill fear of the unknown or the different. Fundamentalism Muslims are referred to as “Islamo-fascists” (a convenient compounding of any word to denigrate the former term).

Our current economic situation is a result of fear…fear of work, fear of hard times, fear of the housing Termite Damage market plunging more deeply. This fear will cause us to operate from a position of expediency. Expediency resulting from fear pushes us towards means that seem to be fixes to the fearful problem, but are really methods that will, like termites, slowly eat away at our structural foundation.

In the years of the Roaring 20’s, economists (mainly following the theories of Irving Fisher) were convinced that slowly increasing the money supply would allow for continued expansion of the economy without increasing prices too much or causing any damage to the financial and industrial structures. However, an economist in Austria (Ludwig von Mises) was writing a contrary view, contending that increasing the money supply, thus lowering interest rates and making borrowing cheaper and more attractive than savings, might just pull the rug out from under the glass table on which the economy sat. He felt that “if monetary policy pushed ‘market’ interest rates below the ‘natural’ rate, the central bank could create an unstable business cycle that could lead to financial disaster” (’natural’ rate of interest defined to be “the rate that equalizes the supply and demand for saving based on the social rate of time preference”) [Skousen--The Big Three in Economics].

Mises predictions were ignored and the Federal Reserve in the U.S. continued to increase the money supply and lowered interest rates below the natural rate such that structural imbalances were introduced into the economy, contributing to the Great Depression.

Fast-forward to the 1990’s, a time of great economic growth and increases to the money supply as demonstrated by the decreasing interest rates imposed by the Federal Reserve over the last 18 years. What are we facing again? An economy that isn’t saving because the cost of borrowing was cheaper than it should have been is loading the investment market with mortgage-backed that are described as “radioactive toxic waste.” Fear of the economy slowing down during the 90’s and the early 2000’s gave impetus to regulators to adjust the money supply to such a degree that it is likely to have dropped the market rate of interest below the natural rate of interest, leading to the instabilities we’ve seen over the last few months, coming to a head these last ten days.

We know that in order to prosper we need to save. However, we buy into the information spoon-fed to us by a media that is inherently a business and operates on a 24-hour news cycle, thus it is not only subject to fear-mongering, but media is also an objective participant in the generation of economic fear. Politicians also aren’t hesitant to promote fear since our fear gives them greater power as we feel a deeper need for security and every politician will tell us that “changing horses midstream” is a dubious and dangerous proposition.

I started this post with a line from Bruce Springsteen’s ironic warning entitled Magic. We need to listen to the warning voice by holding onto “everything [we] know and [letting go of] what [we] fear”. We must recognize that fear, as described in the following lyrics, is a dangerous thing and if allowed, will turn our heart black and take our God-filled soul and “fill it with devils and dust.”

Now every woman and every man
They want to take a righteous stand
Find the love that God wills
And the faith that He commands

Well I’ve got God on my side
And I’m just trying to survive.
What if what you do to survive
Kills the things you love?
Fear’s a dangerous thing.
It can turn your heart black, you can trust;
It’ll take your God filled soul, fill it with devils and dust.

Decisions based on fear using expediency instead of principles will most often destroy those fundamental principles. Let us be aware of what is seen and unseen and make decisions based on principles and re-establish liberty.