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You're Saving Too Much! Or Not Enough!

WSJ in a collectivist muddle...
A RECENT Wall Street Journal article gave vent to a scare-story full of Underconsumptionist claptrap, writes Sean Corrigan of True Sinews for the Cobden Centre.
Its catchy headline? "The Coronavirus Savings Glut". Ironically, and only a day later, the paper ran a second piece entitled "How Coronavirus Upended a Trillion-Dollar Corporate Borrowing Binge and Kicked Off a Wave of Bankruptcies".
Huh? Does the Journal think we have too many savings or too few? Who can say? The only thing that is clear is that editorial consistency comes a distant second to clickbait and column inches.
Meanwhile, politicians everywhere have been urging those they have at last let out of Lockdown to get out and 'spend' as a means of speeding the recovery. Nor have the various banks' Talking Heads been slow to chime in with predictably supportive exhortations for their various home governments to adopt policies aimed at 'driving demand'.
This last nonsense is the one most easily dealt with.
It is not 'demand' that the state needs to 'drive': it is the restrictions upon production – for which it shares much of the blame – and the uncertainties inherent to entrepreneurship – to which it greatly contributes – which it jointly needs to minimise. Once the burden of such deadweight is lessened, production will resume, exchange will quicken, consumption will be the reward and well-merited 'spending' will hence increase, organically, sustainably, and all along the line.
The message should be clear: the horse will always drink if you allow someone to earn an honest Dollar for leading it to a trough full of water.
As for the evident schizophrenia of commentators at once bemoaning the fact that debt loads are too heavy AND that deposit balances have become too swollen, we might point out that there are TWO sides to a balance sheet. If the Fed, the ECB, and their peers, are straining manfully to monetize as much debt as they can, it should not be hard to see that they are both encouraging that debt's creation AND turning its proceeds primarily into deposits.
In truth, the inability to recognise this simple fact has been the abiding idiocy of the past couple of decades. In all that time, there has barely been any let up in the insistence that the central bank visit ever more violence on market processes by 'easing'. Yet such wearisome repetition tends to comes from the same pundits who routinely fill their 'research notes' with alarming-looking (and misleadingly linear) graphs which show the results of that ease piling up – as they must – on the liability side of somebody's balance sheet, somewhere.
This leads to a continual, contrapuntal cacophony of doom. One half of the choir shrieks that too much is being borrowed while the other half wails in response that too little is. Bien pensants throw their hands up in horror at the fact that 'the average American has only x hundred Dollars in the bank to meet an emergency', yet instantly turn to outright Keynesian panic if said American makes any serious attempt to augment his or her war-chest or to pay off his or her credit cards.
These mental contortions are only aggravated when it comes to what our Overlords propose to borrow in our name.
The deficit is frighteningly large; the red ink stretches out to for years – even to infinity; we are putting ourselves at the mercy of overseas lenders and foreign powers; the dominance of our currency is under threat; future generations are being burdened by our lack of restraint, some will warn you.
No! We owe it to ourselves, others will counter. The state is providing us with a much-needed outlet for our savings, argue the likes of Stephanie Kelton, Professor of Stony Broke – sorry: Stony BROOK – University and High Priestess of the cult of MMT.
With bond yields so low, we'd be insane not to borrow more to 'invest' in boondoggles and bridges-to-nowhere, cry yet another pack of reheated New Dealers. "Exactly!" enthuse the intellectuals, anxious as ever to please their Masters by adding their somewhat suspect imprimatur to this transparent excuse for vote-buying incontinence.
These pointy-heads are quick to assure us that if 'R-star' – that Cheshire Cat of Woodford's Wonderland economics, the 'neutral rate' of interest – is as low as bond yields CLEARLY tell us it is (and you are NOT to ask who it was who drove them down to those Stygian depths), then we have finally found the fabled free lunch by using the monies raised so cheaply to boost 'G' – the rate of growth – even if only by a little bit and even if 'G' really stands for 'Governmental waste and overreach'.
Incidentally, when the Company Quartermaster marches up a squad to empty your grain store so they can fill the bellies of their fellows – all presently trampling down your unreaped crops – and then, when he's done, he issues you with a barely negotiable requisition chit as official evidence of his theft, R-star is also conveniently lower than G.
Just sayin', as the expression goes.
But confusion over the merits and demerits of debt are one thing. Worse yet is this notion of the existence of a 'glut' of savings – much less that its manifestation, were it ever to occur, would be a curse and not a blessing. But, in truth, in a world where people still starve (if, thankfully, proportionately fewer of them over time) and where material needs in general remain unsated, there can be no 'savings glut'.
There CAN, however, be misallocations of saving – and the waste of such precious funds may be made all the more widespread and debilitating by corrupted price signals, corrupted polities, or some combination of each – but that's a very different matter from what is being posited here.
In part, this persistent misconception arises when people lose sight of the crucial distinction that 'saving' is supposed to represent the availability of a so-far unutilized resource – whether one destined directly for end-consumption or first for ongoing production – and hence that it is NOT something which magically appears when the central bank or its pack of commercial minions sit, tapping at a keyboard.
If Jerome Powell or Madame Lagarde cause a million smackeroos to appear in everyone's demand account overnight, bank balances will certainly be seen to have risen: savings, however, will NOT. Even a man as unnuanced as Mussolini got this, sneering during his 1920s 'Battle for the Lira' that Italians' wealth would not rise were he to force more printed pictures of himself into their pockets.
One wonders what makes the mainstream macromancers incapable of displaying a similar level of common sense by simply acknowledging that when central banks choose to expand their balance sheets, what they do NOT do is generate 'savings' in any meaningful sense – quite the converse, in fact.
In any case, one can not state firmly enough that savings are the fuel for growth and prosperity, not some sort of choking weed, clogging up the channels of commerce. Savings
are what allow entrepreneurs to try to enrich themselves by making all our – their customers' – lives richer in their turn.
If you dry up this flow of savings and if you further hinder genuine entrepreneurial activity (bull market, pass-the-parcel, easy-money, buy-me-out-before-the-cash-runs-out 'serialists' do NOT qualify under that rubric), no amount of monetary inflation will help, however convincing the disguise may be and no matter how meretricious that inflation's immediate effects may appear.
Sadly, the chances of these truths being accepted are vanishingly small.
Rather than saving, politicians – already long straining at the leash, but now entirely let slip amid the havoc being wrought by the Covid episode – are being given license to luxuriate in massive dis-saving – both in the superficial sense of the state spending wildly beyond the revenue it extracts from the rest of us and in the deeper one of consuming scarce resources in the pursuit of undertakings of dubious worth, subject to little budgetary discipline, and absent much genuine democratic oversight.
To see this, note that the Neo-Marxists at the World Anti-Economic Forum in Davos are busy pushing the narrative that 'capitalism needs a HASHTAG "Great Reset"' – i.e., that it needs to become more akin to something Il Duce himself would have easily recognised: a system dominated by state interference and top-down directives – whether in the form of a pervasive Green corporatism or by de-emphasizing shareholders' rights and conscripting businesses to serve the state rather than the customer and so earn ticks on Gutmensch piety checklists, in place of earning distributable profits for the rightful owners.
Like all forms of Collectivism throughout history – whether or not their mailed fist was deceptively sheathed in a velvet glove – this can only lead to moral – as well as to material – immiseration. It will increase inequality the worst way: not by allowing the worthy few to improve their well-deserved affluence ahead of a generally rising curve, but by reserving bigger slices of a shrinking pie to the Rulers, the Nomenklatura who justify them, and the Apparatchiks who do their will.
Be under no illusions: this is a motley crew of intellectuals and chancers who are members of the same 'clerisy' responsible for most of our current adversity. This is a grouping who have come to imagine that when Schumpeter propounded his famous doctrine of 'creative destruction' he was suggesting they spend their days in office working out ingenious new ways to pull the Temple down around our ears.
This exhausted elite's increasing desperation has led them in recent years to try to deflect our wrath by means of the grandiose programmes of dirigisme and interventionism which they have routinely wrapped of late in the shamanic robes of millenarian Climatology – schemes which are intrinsically dangerous to the common weal, to free choice, free association, and free markets.
However, in realising that, for all Greta's dubious charm, this has not been able to persuade us to stride willingly through the gates of the stockade, they have next confected the economic and social catastrophe of which the measures imposed as their response to the coronavirus pan(dem)ic consists.
Disorientated by being cut off from friends, family, and comforting routine; our economic independence snatched from us; subject to a constant media barrage warning us that either our lives or those of our loved ones are at risk if we dissent from our enforced ostracism or rebel against our committal to the epidemiological Gulag, they have sought to sell us on the sinister concepts contained within the drastically shrunken horizons of 'The New Normal' they insist is the unavoidable consequence of the disease.
Ah! The 'New Normal'. How pithy! How wonderfully Utopian! How chillingly confining!
The Two Minute Hate may not yet have come to dominate public life – at least, not outside the impersonal Rage Generation machinery of social media – but among an ever-growing Leftist liturgy we are being exhorted to 'Build It Back Better'. We must 'Clap for Carers'. Fridays are 'for Future', and so on and so forth.
Along the same lines of impressed conformity, we are now enjoined to 'Take a Knee', ostensibly to protest what a court will probably decide was the unlawful killing of a man, but also so that some of us be made to abase ourselves in atonement, not for our sins, but for those of a narrow selection of men and women, long since dead, who inevitably subscribed to a very different set of mores and whose historical deeds we more fortunate and enlightened Moderns rightly – if utterly anachronistically – now view as abhorrent.
Such cheap – rather, such CHEAPENING – exercises in sophomoric sloganeering are those which should at once warn us of the dark, totalitarian intent which lies behind them. All of them play upon superficially unobjectionable and calculatedly emotive causes. All of them are aspects of a multi-pronged, ideological assault upon the very fabric of society – a campaign no longer even to be classed as 'subversive' since it has patently come to permeate every last strand of that fabric, to frame every discussion, to inform every policy.
Herd virtue signalling aside, Our Guardians' latest turn of the screw confronts us with a much more tangible peril. Their effort to distract us with the wholly avoidable communal discord – and the outright street violence – now being widely propagated while they simultaneously demonise those charged with protecting us from such affray, can be seen to have triumphed when, like the Spartoi sprung of Aeëtes' dragon's teeth in the myth of Jason and the Argonauts, we fall to fighting among ourselves and so allow them to perpetuate their long and sorry period of misrule.
The eager new Red Guards and the keen Young Pioneers, as well as the volatile mob of Enragés who have been incited to act as their shock-troops, may currently seem to be leading this movement but they should be aware that they, too, are its intended victims; that very few pawns advance all the way up the chessboard to become crowned Queen.
Brûler n'est pas répondre.
As that eminent expositor of revolutions, Crane Brinton wrote, eighty years ago, there are many common factors in each revolution, however different their particulars may be. Among them: "financial breakdown; organization of the discontented to remedy this breakdown;...revolutionary demands on the part of those organized...which if granted would mean the virtual abdication of those governing; attempted use of force by those governing; the failure of that attempt; and the attainment of power by the revolutionists."
Sounds familiar, no?
As for the revolutionaries themselves, they are "...not unprosperous [but] feel restraint, cramp...rather than downright crushing oppression..." Millennial humanity students, groaning under their ill-contracted college debts, perhaps??
But the strife does not end there, for the revolutionaries' seeming success only brings new conflicts in its train. They "...have hitherto been acting as an organized and nearly unanimous group, but with the attainment of power it is clear that they are not united. The group which dominates these first stages we call the 'moderates' ....but power passes by violent methods from Right to Left..." and to more Left still.
Alas for such purists of the Terror, finally the far Left is itself purged by those marginally less extreme; the newly pragmatic few who have learned to be fearful of being outflanked in their appetite for destruction and thus condemned in their turn as reactionaries.
Briefly, the madness then seems to be at an end and the Revolution at last secured. But the ultimate fate of all those involved is typically NOT the one envisaged either by the fresh-faced vanguard of the Proletariat or the rampaging horde of sans-culottes tearing up the boulevards around them.
As Brinton sums it up: "silken threads of habit, tradition, legality having been must [still] be held together in society" – an inevitable binding which is only to be achieved, he tells us, by the "iron chains of dictatorship"
You may despise a Trump and deride a Johnson: you may have contempt for a Macron or a Morrison – to name but a few among the cardboard cut-outs who briefly preside over a largely self-similar, self-replicating brand of politics.
But before you take to the barricades or start looting the nearest Apple store, please ask yourselves: would you really rather a Cromwell, a Bonaparte, a Stalin, or a Mao be in charge?

Stalwart economist of the anti-government Austrian school, Sean Corrigan has been thumbing his nose at the crowd ever since he sold Sterling for a profit as the ERM collapsed in autumn 1992. Former City correspondent for The Daily Reckoning, a frequent contributor to the widely-respected Ludwig von Mises and Cobden Centre websites, and a regular guest on CNBC, Mr.Corrigan is a consultant at Hinde Capital, writing their Macro Letter.

See the full archive of Sean Corrigan articles.

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