Column by Jakub Bozydar Wisniewski.
Exclusive to STR
In this day and age of easy and equal access to a practically infinite supply of independent information, a serious economic crisis can potentially have intellectually beneficial consequences. It can make people start questioning the "mainstream consensus" on, say, the nature of central banks, ex nihilio credit expansions and fiat money systems. In the best-case scenario, it can lead to the cleansing of a backlog of logically incoherent technocratic experiments with the economy and their replacement with well-tried, commonsensical principles of the monetary free market (notice that this last term is by no means a tautology).
However, what should make one at best cautiously optimistic about the prospects of the above scenario taking place is the fact--most forcefully and succinctly described by Frederic Bastiat--that statism of every kind draws its strength from clientelizing its victims, which always assumes the form of pitting them and their claims against one another. Union leaders, government bond holders, welfare recipients and politically connected bank oligarchs abhor the vision of sovereign debt defaults, so they can be relied on with regard to supporting debt monetization schemes and the resultant unprecedentedly vast inflationary redistribution of fiat monies' purchasing power. Rather than endorsing the commonsensical solution mentioned earlier, which would involve short-term pain for themselves and long-term gain for everyone (except the technocratic coercion wielders), they prefer short-term gain for themselves and long-term pain for everyone. What will be the ultimate nature of this pain--a relatively quick hyperinflationary meltdown or decades of protracted recession interspersed with regularly occurring partial debt defaults of public and private institutions--remains to be seen.
Some say the former would be more desirable insofar as it would vastly speed up the intellectual turnaround necessary to counter the root causes of the current economic woes--i.e., the acceptance of the logically incoherent, inherently unsustainable system of monetary socialism. But then again, did, say, the Germans really learn their Weimar lesson? After all, we should know all too well what the only really infinite thing in this world is.
I myself would (should I already say “will”?) probably look at the unfolding of either of those scenarios with more hope than fear and more relief than gloom. The world of public finance and economic policymaking is already saturated to the brim with irremediable distortions based on decades of magical thinking, of what would be regarded by the 19th Century mainstream of the dismal science profession as “anti-economics.” There can be no more maintaining that economic development is driven by value destruction in the form of spending, consumption and massive indebtedness, rather than by value creation in the form of saving, investment and non-political entrepreneurship. There can be no more claiming that an efficient, sustainable and morally acceptable way to revive a moribund stock market or pay back sovereign debt consists in printing large quantities of colored paper tickets or creating large numbers of virtual bookkeeping entries. There can be no more obstinate chanting that water can run uphill, two plus two can equal twenty-two, and coercive busybodyism can light the way towards unceasing prosperity.
The presently ongoing spectacular unraveling of the institutional edifice grounded in dreams of monetary dictators should be welcomed as a breath of intellectual fresh air, but also as an incentive to intensify spreading the message of commonsense economics in general and sound money in particular. It has never been easier to popularize the logical science of human action (both due to modern technological possibilities and the manifest failure of all the existing alternatives) and it has never been more necessary to make it popularly known. Thus, let us not rest on our laurels in the complacency of “vindicated prophets,” but utilize this great opportunity for mass economic education to the fullest extent possible.
In concluding, let me reflect once again on the central insight of Frederic Bastiat – I believe that a somewhat underappreciated point is that it does not just describe the institutional conditions of a society-wide tragedy of the commons. More importantly, it describes the process whereby institutional coercion makes nominally private property vulnerable to such a tragedy. And there are certainly more and less pernicious forms of such coercion, the level of their respective harmfulness often corresponding to the level of their relative inconspicuousness. Hence, in the present context, Bastiat's most famous assertion needs to be expanded: It is not just the state in general, but fiat money in particular that is "the great fiction through which everybody endeavors to live at the expense of everybody else." Fiction in the most literal and insidious way imaginable.