How to spot convenient clap-trap...
The LONG FLIGHT over from Ireland gave us time to think, writes Bill Bonner in his Diary of a Rogue Economist, reporting from Baltimore, Maryland.
Specifically, we were cogitating on the question that disturbed Nietzsche's sleep, drove Kant into seclusion, and got Socrates killed:
How can you tell the difference between convenient, pernicious myths...and those that are useful and true?
How can you tell blue skies from pain or Heaven from Hell?
We give you four tests.
How long has the myth survived? Generally, the older, the better. It proves that they are useful. Myths survive when they tell us something important that we don't have to learn for ourselves – often some enduring truth that would be painful or impossible to learn on our own.
The idea of saving is ubiquitous and as old as the hills. "If you don't save for your retirement, you could end your days in misery," say the old timers.
But you only live once. If you reach retirement age and haven't saved, it's too late to say: "Okay...I won't do that again."
That is a lesson best learned from others...by following the myths, old wives' tales, and moral lessons of the past.
Economists used to call themselves "moral philosophers". They realized that actions have consequences...and that the "moral to the story" – eternal and ineluctable – was what they were looking for.
But those economists are dead. And moral lessons are regarded as "mere myths" by the modern quacks. The old rules felt like a curfew or a stiff collar limiting their movements. So they invented new myths.
The idea that "deficits don't matter" dates only from 1998, when Dick Cheney used the expression to excuse the runaway deficits of the Reagan era.
But which is likely to be most useful? The idea that you should save your money or that deficits don't matter? Which is likely to be true? Which is likely to help you manage your financial life...and which is likely to get you into a peck of trouble?
Generally, the more personal...individual...and down-to-earth the myth, the more helpful and reliable it is. "A bird in the hand is worth two in the bush" tells us something important: Beware of promises.
Betting one bird in the hand today against two possible birds tomorrow implies a 100% interest rate – daily. Maybe an investor would take that bet. Maybe he wouldn't.
But imagine $10 trillion of sovereign debt trading at negative interest rates. That depends on a new myth...and a big one: that today's bird in the hand is worth less than a single bird in the bush tomorrow.
No small-scale, private lender – in an honest market – would take that bet.
Likewise, "deficits don't matter," is huge, impersonal, and abstract.
Every fool knows it won't work on an individual basis. But he imagines that it might be different on a large scale.
And yes, of course, the feds can get away with more foolishness for longer – and on a much larger scale – than you can. But nature doesn't change just because you get bigger. The fundamental things still apply.
The surest test is this: Is the myth backed by the feds?
Remember, anyone can make a mistake. But if you want to make a real mess of things, you need the government.
Only the feds claim a monopoly on the use of violence...and only they can use violence to enforce a large-scale, uncorrected myth.
Private, small-scale myths are corrected all the time. You think you are a genius; your wife sets you straight. You think you can drink and drive safely; a telephone pole settles that. You think deficits don't matter...until the repo man shows up for your car.
But the feds? No myth is too loony, too murderous, or too counterproductive to be cherished for centuries.
They burn witches at the stake...break enemies on the wheel...hang Irishmen, Catholics, and blacks...send Jews and gypsies to the gas chambers...put the guillotine to work on the necks of aristocrats in Paris...and shoot the counterrevolutionaries in St. Petersburg.
Tax, regulate, control, fix prices, pay off cronies...all of it is backed by large-scale violence and myths so absurd as to make gods chuckle...
Later, even humans despise them.
A shortcut to myth-testing: If it is backed by the feds, it is almost surely a convenient lie and not a useful myth.
Is it win-win?
Ah yes...our favorite test.
Useful myths benefit anyone who takes them seriously...The saver. The hard worker. The generous spirit. The caring parent. The good neighbor.
And they do so without harming anyone else. The saver is better off. But so is the borrower; he has more funds available.
The hard worker adds to the world's wealth, not just his own. The generous spirit helps others...and himself.
The caring parent spares his children the crippling effect of too much money and too little affection. The good neighbor builds a good fence.
The convenient lie, on the other hand, is win-lose. It only benefits some people – at others' expense.
Mexicans, terrorists, Muslims, Catholics, drug dealers – you can choose any of "them" you want. Someone will find a way to make them pay.
Everybody else loses.
Imagine that your neighbor says that he likes the color blue...and he believes he has the right to tell you to repaint your house so it will be more pleasing to him.
On this scale, the myth/delusion is easily dismissed. You tell him to get lost.
But then, the neighbor rallies all of the nation's half-wits and meddlers. They say that people whose houses aren't blue are traitors. They pass a law. Patriot Act II, they call it. Everyone must paint their house blue!
Now, the myth – that he has the right to tell you what color to paint your house – is the law of the land. Same myth, larger scale. Harmless on a small scale. Great for makers of blue paint on a large one.
The myth that deficits don't matter pays off for some people, too. Bankers, cronies, speculators, zombies...and, of course, millions of other people who get the crumbs that fall from the table.
But it comes at a cost. Every penny of borrowed money must sooner or later be reckoned with. No one knows how, when, or by whom.
Win-lose deals, imposed by the feds, enforced with violence, and justified by some cockamamie lie, are always expensive. And generally, the bigger myth, the more expensive it is.
The war on drugs is thought to have cost the feds $1.5 trillion so far. The war on terror has a price tag estimated at $7 trillion. Even more has been spent on the war on poverty – $22 trillion. As for the fake-money system...how much in real growth, real savings, real capital, and real resources has it squandered?
We don't know...
But when it blows up, there will be Hell to pay.