Ever since primitive homo sapiens began gathering pebbles and sticks human beings were endowed with a sense for quantity. Mathematicians now call it number theory. In practice, however, how the numbers were created matters. Otherwise, they can be causes of extraordinary illusions.
Homo economicus is adroit at passing off gauche policies by dressing it up with data to pass the baton to the political animals that we really are. The data is now settling on the prognosis of a potential stagflation. The year-on-year consumer price index (CPI) inflation could be around 2.5 per cent by Christmas. It is bonus season. As long as gaudy paychecks are earned by those earning them, what is after all a loss of $2.50 purchasing power out of every $100 among friends? The receding tide has lifted all in some boats. Executive compensation is not a concern as long as there is socialism in the upper income brackets. To them their economy is real. It is all household economics. The oeikos.
The traders cannot be blamed for buying into oil and gold when money is cheap. “They are hedging against inflation because of all the money supply” says conventional economic theory. “But are they creating the specter of inflation in order to hedge against it” asks the political economist. “Why?” asks the political scientist, the homo sapien.
The rise of oil and commodity prices can spiral into more inflation. It is a tax. Corporations and businesses would not want to borrow to invest when they do not get the bang for their buck. When they have to pay more because money is cheap. It is the same as higher interest rates. The fear of higher interest rates and higher borrowing costs could raise unemployment some more, because the employers want to keep labor costs down. So, the liquidity trap begins to form, with vacillating investors moving between commodities and currencies as the economy bobs between recovery and slowdown.
The complacency of being a rich country removes the urgency of having to do real work. The instant gratification of a bonus could end up squelching the nascent recovery even if the Fed does not raise rates, which it cannot because it could engender a depression if it did, but for a few overzealous central bankers who give the game away, perhaps hoping to provoke commentaries such as this.
As the rest of the country is looking for work, it is not merely the markets who do not want to do real work. Even the politicians don’t. The falling dollar is always “strong” until it is not. American goods and services become cheaper abroad as if once again the United States wants to compete on exports as it did during the Industrial Revolution when imperial Europe was expensive. What else could be a better way to compete with the Chinese but dropping the floor off the dollar to encourage import substitution, making the currencies of the former foes, the “German” euro and the Japanese yen expensive?
The country can then ride out the recession without having to change a thing. The “Change We Believe In” President suddenly begins to look like a prophet, for the change will have cometh not causeth, paving the way for a second term instead of a political crucifixion. Reasonable people whose expectations have been set down by the President on the day of the first inaugural will not blame him for the mess he inherited as long as the country is out of a recession. Incumbents always have the advantage unless they are Jimmy Carter confounded by Ronald Reagan or the elder Bush confounded by Bill Clinton. And Obama is sufficiently politically skilled to match Reagan and Clinton. Homo sapiens is about human nature.
But the catch though is that the real work cannot be put off forever. At least beginning January 20th, 2013. The political case for realizing the implication of his portrait placement on the left side of Ronald Reagan on the Capitol building during his first inaugural would be ready, etched into the American experience of the prior four years. America would have turned inward sufficiently because the rest of the world is suddenly so much more expensive with the Federal Reserve having “prevented” another depression.
Foreigners jettisoning American debt would become a blessing in disguise. America would print its way out of both its national debt and retooling the country for the new age blaming thegreedy Benedict Arnold bankers who fled the country and its currency. After all, the Clinton projections will have been prescient. John the Baptist before the second coming of Jesus to end the Reagan Revolution to the dismay of the usually religious Republicans, with the Democratic Party firmly occupying the entire fertile political real estate from the center left to the center right.
The second inaugural address shall herald à la liberté with a new Obama portrait firmly in the center of the Capitol dome and Reagan nowhere to be found. The world would be converging on France. The foreigners will begin creating jobs in America through Wall Street in foreign currencies competing side-by-side with public government job exchanges. It is all a safety net in a mixed economy with inflation no longer a cause of worry due to an all-government nuclear energy policy. The public square, the polis, shall become public. A pure public good.
More government would be how this economic crisis would have been won. After all, according to the President’s Chief of Staff Rahm Emmanuel, crises are opportunities for change. The change can go either way. It depends on which way is chosen. This President is likely to choose more government. “Better government,” he will then say, “can come later.”