Tuesday, February 10, 2009


I thought it was interesting last night in the Press Conference that President/Messiah Obama had absolute certainty that his $$ Trillion 'stimulus' was the only thing that could save us from utter and irreversible economic catastrophe. His certainty about this leads me to conclude that he has absolutely no idea what he is talking about.

Let me explain the reasons for this conclusion.

James K. Glassman in Commentary today discusses "Stimulus: A History of Folly" where he carefully looks at all the situation since the Great Depression when the government used fiscal or monetary 'stimulation' to get the economy moving again. He concludes (and please read the entire thing):
The truth is that we have learned almost nothing about the use of fiscal stimulus since the Great Depression, and it is a fatal conceit to assume that we can hurriedly construct a fiscal policy that will produce the prescribed results today. Economists seem to admit this fact by advocating what they prefer anyway, for political or ideological reasons....

On being presented the Nobel Prize in economics in 1974, Friedrich von Hayek devoted his Stockholm lecture to acknowledging the severe limitations of his profession. “It seems to me,” he said, “that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences—an attempt which in our field may lead to outright error.” Government simply cannot know enough to direct an economy successfully, and when the President claims that his fiscal stimulus plan will create (or save) at least three million jobs, he is taking a wild, and dangerous, leap. Said Hayek:
If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.

What is that environment? First, it provides a confidence that, in a crisis, bank deposits are safe and insurance policies will be paid in full. Such confidence can be provided only by the government of the United States in its legitimate and essential role as the lender of last resort. Second, the environment supports, rather than denigrates or browbeats, productive members of society. The U.S. will not emerge from a serious recession unless businesses and investors lead it out. Third, it recognizes that Americans have undergone a financial calamity and that we need time to adjust; we cannot, like a car battery, be shocked back to life, and we aren’t in the mood to have someone blow in our ear.

In fact, stimulus may be precisely the wrong metaphor. Rather than getting jazzed up, we need to be calmed down and to take the time to learn from the Great Depression, a time when government did too much, not too little.

What our Fearmonger-in-Chief has left out of his grandiose certainty that only his plan will save us from certain doom is the fact that the economy is a complex system. In fact, it is a very very complex system.

Michael Crichton gave a classic talk some years back about complex systems and how difficult it is to predict what they will or won't do; let alone to try to 'manage' them. Crichton's speech was primarily about how badly the environment was being managed by "environmentalists"; but his concluding ideas are very applicable to the unintended consequences that always result from any attempt to intervene in a complex system:
Now, if we are to do better in this new century, what must we do differently? In a word, we must embrace complexity theory. We must understand complex systems.

We live in a world of complex systems. The environment is a complex system. The government is a complex system. Financial markets are complex systems. The human mind is a complex system---most minds, at least.

By a complex system I mean one in which the elements of the system interact among themselves, such that any modification we make to the system will produce results that we cannot predict in advance.

Furthermore, a complex system demonstrates sensitivity to initial conditions. You can get one result on one day, but the identical interaction the next day may yield a different result. We cannot know with certainty how the system will respond.

Third, when we interact with a complex system, we may provoke downstream consequences that emerge weeks or even years later. We must always be watchful for delayed and untoward consequences.

The science that underlies our understanding of complex systems is now thirty years old. A third of a century should be plenty of time for this knowledge and to filter down to everyday consciousness, but except for slogans—like the butterfly flapping its wings and causing a hurricane halfway around the world—not much has penetrated ordinary human thinking.

On the other hand, complexity theory has raced through the financial world. It has been briskly incorporated into medicine. But organizations that care about the environment do not seem to notice that their ministrations are deleterious in many cases. Lawmakers do not seem to notice when their laws have unexpected consequences, or make things worse. Governors and mayors and managers may manage their complex systems well or badly, but if they manage well, it is usually because they have an instinctive understanding of how to deal with complex systems. Most managers fail.

Why? Our human predisposition treat all systems as linear when they are not. A linear system is a rocket flying to Mars. Or a cannonball fired from a canon. Its behavior is quite easily described mathematically. A complex system is water gurgling over rocks, or air flowing over a bird’s wing. Here the mathematics are complicated, and in fact no understanding of these systems was possible until the widespread availability of computers.

One complex system that most people have dealt with is a child. If so, you've probably experienced that when you give the child an instruction, you can never be certain what response you will get. Especially if the child is a teenager. And similarly, you can’t be certain that an identical interaction on another day won’t lead to spectacularly different results.

If you have a teenager, or if you invest in the stock market, you know very well that a complex system cannot be controlled, it can only be managed. Because responses cannot be predicted, the system can only be observed and responded to. The system may resist attempts to change its state. It may show resiliency. Or fragility. Or both.

An important feature of complex systems is that we don’t know how they work. We don’t understand them except in a general way; we simply interact with them. Whenever we think we understand them, we learn we don’t. Sometimes spectacularly.

I urge you to read Crichton's entire argument, because it is extremely good and unquestionably relevant (and devastating) to the fatal conceit that this hugemongous spending spree our manic and hysterical government is about to engage in is going to solve our economic problem. It is actually much more certain to have unintended and severely negative consequences that no one could have possibly imagined.

Consider for a moment the Fannie and Freddie Lending Fiasco that was a critical factor in the mortgage meltdown. Did the government and its stooges like Barney Frank and Chris Dodd--whose intentions were sooo pure and good and compassionate (I mean, who could possibly object to making the American dream affordable to low-income citizens who could not afford a mortage?)-- even imagine in their wildest fantasies that such a benign and well-meaning intervention could have such dire consequences for the entire financial system?? Of course not. First of all, they could not imagine it because they were thinking linearly; and second, they were too busy patting themselves on the back for being such wonderful, compassionate and well-meaning people it was hard for them to appreciate they were functioning in a narcissistic and self-gratifying bubble of emotion.

Barack Obama not only has been hailed as a Messiah by the clueless left, he actually seems to think of himself as The One; and the fatal conceit that he knows how to 'properly' manipulate the complex system known as the US Economy is nothing but a grandiose narcissistic fantasy that is doomed from the start.

I repeat, he doesn't have a clue to what he is doing, or what unintended economic consequences he and the Democratic Congress are about to unleash. But, since we are all in this together, we are all about to find out.

I notice Obama keeps saying that he inherited the current $$ Trillion debt from the evil BusHitler; but at least it took Bush 8 years to get us that far into debt--Obama's spending spree will triple that inherited debt in a mere 3 month timeframe! One wonders what the Miracle Worker will do for an encore? i.e., when his stimulus doesn't stimulate in the same way FDR's stimulus didn't back in the 30's and actually prolonged the Great Depression.

I think the failure of the stimulus will be the impetus and the justification to fully nationalize a number of key industries. Make no mistake: it will be business and the Market that will be blamed for the failure of Obama's recovery plan; and certainly not the government or any of the plan's architects. Knowing the underlying neo-Marxist and fundamentally fascist ideology that drives the President and many of his more extreme supporters (who regularly stoke the fires of class envy and identity politics) you can bet that they really don't much care what happens either way. Because, once the stimulus is passed, no matter what happens, we will be on an almost irreversible course toward socialism and economic suicide.

UPDATE: (from Ace)

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