There is considerable confusion among both Republicans and Democrats regarding the true challenges facing America today. In many Middle American red state towns, residents find themselves trapped in a self-imposed opioid crisis, while affluent blue state cities on the coasts suffer from systemic decay.
Despite these issues, both political parties remain committed to embracing large-scale government interventions and significant deficit spending in pursuit of an ideal society. But do the President and Congress genuinely believe that the very source of many problems—expansive government—could somehow offer solutions for the nation’s struggles?
We propose that this is not the right question. The crux of the matter lies in the concept of control—specifically, the government’s aspiration to exert total control over individuals, their possessions, their finances, and their futures. This ambition goes beyond mere political slogans like “Make America Great Again.” Historical precedents underscore this troubling trend.
Control, at its core, seeks to eliminate uncertainty. It implies that by implementing meticulous social engineering and planning, a perfectly ordered society can be achieved. The belief is that without risks and with guaranteed equality, a more equitable world will emerge, allowing the government to dictate outcomes and reward passivity through political means. However, we remain doubtful about this vision at the Economic Prism.
An Unthinkable Alternative
While complete control and uncertainty elimination might be advantageous in managing an aquaculture system, the same approach is disastrous for economic management. History reveals that the Soviet Socialists’ pursuit of total economic control through forced central planning resulted in stagnation and oppression. This strategy quelled both social and economic progress, even leading to the establishment of an extensive network of gulags across the nation.
When examined objectively, the notion of control is greatly overrated. It necessitates subservience, establishing hierarchies of masters and servants. Control requires coercion and the neglect of individual freedoms, often involving property seizures and promoting dependency among citizens. Furthermore, control fosters conflict, exacerbates economic downturns, leads to asset bubbles and crashes, contributes to famine, causes supply disruptions, and can result in catastrophic societal violence.
In contrast, embracing personal liberty means enabling those who work hard and save to reap the benefits of their efforts. Encouraging freedom allows societal progress to unfold naturally.
The alternative to pervasive control—characterized by limited government, balanced budgets, sound money, and individual freedom—seems unimaginable to the current 116th U.S. Congress. Nevertheless, as control-based policies edge the nation closer to collapse, they will inevitably confront this alternative.
In the interim, these controlling policies are likely to continue distorting both the economy and financial markets, undermining public confidence in unprecedented ways.
Why Government Control Is Overrated
The New York Stock Exchange has provided dependable data dating back to 1871. For an impressive 87 years, until 1958, stock yields consistently outpaced bond yields, except for three brief interruptions. It was long considered unimaginable for bonds to yield more than stocks. Gilbert Burke, writing for Fortune magazine in March 1959, stated:
“In the U.S., it has become practically a given that good stocks should yield more income than good bonds, and when that’s not the case, stock prices will quickly decline.”
However, just as Burke was making his observation, this long-standing relationship began to shift. Two decades later, the reversal became starkly pronounced.
In the early 1970s, shortly after President Nixon severed the U.S. dollar’s direct connection to gold, the yield on the 10-Year Treasury Note jumped above 5 percent for the first time since the Civil War. For roughly three decades thereafter, this yield consistently stayed above 5 percent, peaking at over 15 percent in the early 1980s.
Although the yield on the 10-Year Treasury Note dipped below 5 percent in the early 2000s, it has largely remained higher than the S&P 500 dividend yield, continuing the trend of the past 60 years. Presently, the 10-Year Treasury Note yields about 2.63 percent, while the S&P 500’s dividend yield sits at 1.91 percent.
What changed, besides the dollar transitioning to a purely fiat system, that allowed this previously stable relationship to reverse for such an extended period?
By 1958, the U.S. had already implemented countercyclical economic fiscal stimulus, where policymakers aimed to revive a slowing economy through borrowed funds. By the late 1980s, thanks to the so-called “Greenspan put,” the Federal Reserve began countercyclical monetary interventions by supplying affordable credit to a faltering stock market.
At their core, Keynesian fiscal policies and Friedman monetary strategies aim to exert control, attempting to eliminate inherent risks and uncertainties from economic and financial systems. However, the unintended consequences of these policies were never fully anticipated.
They didn’t foresee that such fiscal and monetary stimuli would essentially become permanent fixtures. Once an economy embarks on this trajectory, there’s no reverting to prior economic norms. Over time, the risks associated with escalating debt and financial bubbles have become an inextricable part of contemporary life.
Keynes himself acknowledged the reality of his actions:
“Practical men who believe themselves to be exempt from any intellectual influence are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, distill their frenzies from some academic scribbler of a few years back.”
In conclusion, control is indeed overrated. Whether it manifests as heavy-handed socialist wealth redistribution or through direct intervention in the economy via fiscal and monetary policies, the consequences are strikingly similar—a world rife with conflict, fraught with discord, and where stability is elusive.
Sincerely,
MN Gordon
for Economic Prism
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