Since the dawn of civilization, humans have negotiated their time and labor with other humans who posses capital and/or currency. At first glance, one would think that man is a rational economic animal; humans interact daily in exchange of goods and labor with money acting as a conduit. They navigate overstocked supermarket aisles and congested superstore parking lots in order to meet their sustenance and acquire other items that, though not necessary for their existence, make their lives “easier” and/or "happier" (what George Carlin would refer to as Stuff). Based on these basic observations, one might conclude that humans are both a rational and economic species.

However, if humans think logically in economic terms, how do you explain periods of irrational exuberance quickly followed by panics that have littered history? From the tulip mania bubble of the 1600s and the South Seas bubble of the 1700s to the more recent Internet and real estate bubbles, it would appear that humans are not very rational when it comes to economics. From their earliest days, people are taught that two plus two equals four, but throughout their lives, they continue to hope that one day the answer will be five.

During periods of unbound optimism, commodity and/or real estate prices rise rapidly.  In Japan during the 1980s or the recent real estate bubble here in the United States, old clichés like, "Real estate: they're not making any more of it," or, "Real estate: it never goes down in value" are resurrected, and if you point to countless episodes in history where real estate did depreciate, the answer becomes, "This time things are different." This time two plus two will be five (or six or ten billion). The same people who can act rationally (except for on Black Friday) in mundane economic matters of survival transform themselves into something resembling a stampeding herd of wild elephants or a multitude of lemmings leaping off a cliff.  

Are the laws of economics comparable to the laws of physics or something akin to picking the winning numbers for this weekend’s Powerball lottery drawing? During the internet bubble, “investors” kept bidding up stocks for new start ups that in many cases were nothing more than an office with a desk and a phone (and sometimes even a computer). In the most recent real estate frenzy, people were buying real estate without taking into account such basic concepts as income versus expenses, the buyer’s ability to repay their financed purchases, or absorption rates in relation to realistic demographic growth.  

In both cases, the immutable laws of economics provided a harsh wake up call to all of those that ignored them (two plus two is four, not five or 30 billion) by bringing prices of both stocks and real estate back to reality. Reality is sometimes cruel, so most folks opt for the dreamy, nebulous economic netherworld.  

So what are our “best and brightest” minds doing to right our current floundering economic ship?  

Congressman Charles Rangel has called for the appointment of a Car Czar (probably because the Drug Czar has worked out so well) to accompany a multi-billion dollar bailout of the “big three” US auto makers. Which brings to mind a few very pertinent questions: What is the fascination of US politicians with a word associated with ancient tyrannical Russian rulers? Did the czars of Russia do such a great job there that we must resurrect the name here in the US ? Would the Car Czar treat the UAW rank and file like 19^th century Russian peasants? Why just a Car Czar? Why not a Financial Fuhrer, Communications Kaiser, Internet Caesar, Housing Emperor, Movie Capo or Airline Pope? Or rather than czar, wouldn’t a name more closely affiliated with our own history like Auto Industry Imperial Wizard be more appropriate? What would Mr. Rangel think of that? 

Secretary of the Treasury and mastermind of TARP (I think it stands for Totally Asinine and Retarded Policy) is now insisting that Congress make available the remaining $350 billion (of an original $700 billion) for all the bankers and auto manufacturers that ran their businesses into the ground. However, House Speaker Nancy Pelosi insists that some of those TARP funds must be diverted to homeowners who for the most part paid too much for their homes or did not budget properly. So let’s get this straight: both the Treasury Secretary and the Speaker of the House want to take the money from folks that are making their payments on time and living within their means and use it to pay corporations who have overpaid their workers and lavishly compensated their executives while turning out a substandard product and also pay for the mortgages of folks who bought homes without seriously taking their finances into consideration. Brilliant!

Not to be outdone, President Bush, through his press secretary, Dana Perino, said, "What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America . And banks exist to lend money." Someone ought to inform the administration that banks do not solely exist for the purpose of lending money, but also to safeguard the money of those that deposit their money in them (oops, I forgot the taxpayer-funded FDIC does that now). Banks, if they are to remain viable, should only lend money to individuals or companies who have an ability to repay. Exactly what "system" is it that we have in America that requires banks to lend money without taking a borrower’s ability to repay into consideration? Perhaps the politicians are confused and think that banks have legislative and executive branches that dole out money without any preoccupation with ever getting it back, since the Federal Reserve can just print more of it.  

President Bush has also said on more than one occasion that the free market "isn't functioning normally" and that's why he is taking such "extraordinary measures” to fix it. I’m not sure exactly where Mr. Bush learned his economics, (probably the same place he learnt his grammar, phonics and foreign policy), but this semi-free market is functioning exactly as it should under the weight of a fiscally irresponsible government and a monetary policy that would make John Law blush.  

New York Times columnist Paul Krugman writes in an article titled “Life Without Bubbles” (no, the article isn't about a stripper), “. . . getting to the point where our economy can thrive without fiscal support may be a difficult, drawn-out process . . . ." Mr. Krugman's statement turns every sound economic theory on its head. Where exactly do the funds that make the "fiscal" support of the economy possible come from? From the same economy Mr. Krugman says can't thrive without them. This would be like a junkie telling his drug dealer to give him money so that he can buy his drugs.

Gustav Le Bon in his book The Crowd accurately depicts leaders of crowds (parties, nations, armies, etc.) as those “…recruited from the ranks of the morbidly nervous, excitable, half deranged persons who are bordering on madness.” That explains a lot about past and current (as well as future) crop of “leaders.” Le Bon describes their motivation as, “However absurd may be their idea they uphold or the goal they pursue, their convictions are so strong that all reasoning is lost upon them.”

If governments and the politicians who run them (mostly with the complicity of voters) want to perpetuate their power, they have to try at all cost (even if it means wasting trillions of their subjects’ own dollars) to keep their subjects oblivious to reality. How do they do this? With perpetual Ponzi schemes like Social Security (all the day old bread and cat food you can eat for only 15% of your earnings) or the Federal Reserve Bank (where money is NO object), or illusions of aid at the expense of someone else allegedly wealthier than them, all the while using buzzwords like accountability, stimulus, oversight, or transparency.

Politicians have played that Pied Piper of Hamelin tune for centuries and unfortunately that tune is still music to the ears of the masses. As Gustav Le Bon astutely noted, “The Masses have never thirsted after truth. They turn aside from evidence that is not to their taste, preferring to deify error, if error seduces them. Whoever can supply them with illusions is easily their master; whoever attempts to destroy their illusions is always their victim.” Two plus two is five.