Glass-Bubble Investment Advice, Part II

By Robert Ringer

In Part I of this article, I expressed my view that the best investment advice needs to be accompanied by an asterisk. The asterisk is for “Subject to the extent of government intervention.” The reality is that a powerful government can change economic reality through the use of force.

Which brings me to the notion of “animal spirits,” popularized by John Maynard Keynes, who coined the term in his 1936 book The General Theory of Employment Interest and Money. He used it to describe the phenomenon of economic activity that is sometimes driven by waves of optimism or pessimism.

Going all the way back to the Tulip Bulb Mania in Holland in the 1630s, the madness of the crowd has always had an impact on the markets. But so long as the markets were relatively free, it was just a matter of time until economic reality set in. And when it did, bubbles created by unfounded optimism ultimately burst, while economic downturns created by unfounded pessimism (not nearly as frequent) ultimately rebounded.

Now, along come two progressive economists, George Akerlof, a professor at the University of California, Berkeley (Need I say more?) and Robert Shiller, from Yale, coauthors of the book Animal Spirits. In their work, they try to make the case for massive government market intervention as the best way to quell pessimism and motivate people to spend.

Oversimplified, what Akerlof and Shiller are saying is pretty much the opposite of what I said in Part I of this article. It is my belief that government mischievousness in the marketplace distorts economic reality, prolongs deflationary collapses, and, at worst, can lead to runaway inflation.

Akerlof and Shiller believe that government should use its power to deceive people into being optimistic. I’m not making this up. These two permanent residents of the Ivory Towers recently laid out their zany idea on Glenn Beck’s show.

The far-left blog Daily Kos expounds on their book with these cringe-inducing words: “With Animal Spirits we hone in on how incentives and narratives can be created to channel the human psychological factor into collectively healthy directions [my emphasis], and how to be aware of the fictions we tell ourselves about how we wish the world and greed and financial security worked.” Again, I’m not making up this Orwellian babble.

Dr. Keith Ablow, a Fox News contributor, is far more than a highly respected psychiatrist. He is also remarkably astute about governments and economics. In a recent appearance on Glenn Beck, Ablow refreshingly and repeatedly made the point that people are often delusional when it comes to economic reality.

He specifically alluded to Barack Obama’s recent statement (without naming him by name) that “our current level of spending is unsustainable,” after which BHO turned right around and continued to promote the idea that more spending is the solution to our problems. Huh?

Ablow says that when you are fed this kind of gobbledegook by those in power, your best defense is to use your common sense. If the daily mantra of the president is that the Bush Administration “got us into this mess” by running up huge budget deficits, your common sense should be asking, “How does quadrupling the deficit in your first few months in office make things better?”

Your common sense should also make you feel like responding to the president’s nonstop blame-game comments by saying, “Fiscally sane people are well aware of what George Bush did to the economy, but that was yesterday. Today we’re looking at what you are doing to the economy.”

By simply changing the meaning of words and using such abstract phrases as “economic and social justice,” social progressives are able to change the nature of the dialog. In other words, they control the argument by controlling the language.

Daffiness aside, Joe Biden, Obama’s worst nightmare, recently said: “We don’t call it redistribution. We call it fairness.” Gee, and here all this time I thought fairness was allowing everyone to keep the fruits of their own labor.

What we need is to rewire ourselves and make a commitment to return to the real world. Rational optimism is based on economic reality. And the short version of economic reality is that we and future generations of Americans are responsible for nearly $60 trillion worth of unfunded government obligations.

To make this short version of reality just a bit longer, I should add that the chief reason — not the only reason, but the chief one — for the creation of a debt that can never be repaid is the failure of the vast majority of Americans to come to grips with the liberty-based truth that no one is entitled to anything except what he earns, in a totally free market, through his own efforts.

This is especially true of labor wages. Unions, backed by government force, have intimidated employers into paying far higher wages than they would have to pay in a laissez-faire market. In other words, most wages are artificial because they did not come about as an agreement between consenting adults, sans coercion.

Some months ago, 60 Minutes, that paragon of objective journalism, did a show on the plight of auto workers. When asked about the common taxpayer complaint that auto workers make exorbitant wages — as much as $150,000 a year — the two workers being interviewed insisted that they haven’t made that kind of money in a long time.

One of them then went on to scornfully say that he now makes only about $60,000 a year. Which prompted the question in my mind: “What makes that worker believe he is entitled to even $60,000 a year?” I don’t get it.

But I do know this: The notion that anyone is entitled to any specific wage or benefit — which can be put into effect only through government force — is the main reason that the decades-long invisible depression has now become visible. Sorry, Messrs. Akerlof and Shiller, but years of animal-spirit optimism is finally yielding to reality.

Dr. Ablow is right, though, when he says that many people are still delusional about economic reality. If you believe that government slogans, cheerleading, edicts, and meddling in the economy is reason for optimism, that means you.

The good news is that you are also a human being — and human beings have free will. Which means you can choose not to be delusional and take action accordingly. If you haven’t consciously thought about this, I strongly suggest that you do so sooner rather than later — because later may be too late.

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