A Wise Lesson From the Past

For 40,000 years - maybe longer - our ancestors have walked the very earth. They lived. They died. What did they know? Scientists say they were as smart as we are. What did they talk about? What did they think about?

"Every time something is given, something is taken away," life is a zero-sum game...that it can never get better...that it can never really improve...that there can be no real progress..."

"Well, not exactly, there are no free lunches in nature. That if a man is smarter, he is not likely to be faster too. According to one theory, for example, mankind migrated from Africa to Europe. In Europe, during the Ice Age, he encountered a great challenge: cold weather. Most humans and pre-humans probably couldn't survive it. But some did. And they did by evolving into maybe smarter...maybe slower...people with bigger heads. According to the latest thinking on the subject, the bigger brains were a disadvantage in warmer climates...because they got too hot. Maybe they took up too much energy?”

"But they were an evolutionary necessity in colder climates...where the cold weather not only made possible a colder head, but also made it a necessity. People needed bigger brains to anticipate the change of seasons and save winter, for example. They had to see what was coming. They had to look at what was coming...and prepare for it. They had to work together too...to hunt large game...and to fight off competitors. Those who couldn't do so died out.”

Well...that's the theory.
“For thousands of years, people exchanged information. Then, it must have been a different kind of information...things we can barely imagine...about where animals were getting their water...about where to find seeds and how to avoid sickness...how to prepare for winter...and how to fend off wild animals. Then, the dominion of the human species was not so sure. There were saber-toothed tigers, lions, wolves, even mastodons...giant sloths... Early man was for sure a hunter going after his prey.” He had to be on his toes to survive.

“Information was one thing. But there was more. He needed wisdom...and technology... as well as facts. He had to learn to store food for winter as well as beat back attacks by wild beasts. He had to know how to make cloaks out of animal skins...and how to stock firewood for a rainy, snowy winter...and how to find shelter.”

The stories reported victories and defeats...disasters and triumphs...heroes and enemies. But the stories also were more than just information: they carried lessons...moral lessons...about what to do and what not to do.

Nowadays stories are about heroes and villains, fatal flaws and inevitable disasters.

The common flaw is an old one. The Greeks couldn't seem to tell a story without mentioning it. ”'Hubris'...the kind of pride that goes before a fall, the arrogance that leads people to think they can get away with something that they not only can know their fates, but that they can control them.”

Ben Bernanke is a tragic hero of this time. His flaw is as obvious as his challenge. He thinks he can stop the world from turning, by avoiding the hard, correcting winter by applying bailouts, stimulus and cheap credit. His arrogance is an insult to the spirit of today’s life.

Governments want to return to the days before 2.007 where consumers fueled the economy, borrowing money that wasn’t theirs spending on goods and services they actually didn’t need. With the result that China financed all the spending in the west by lending the earned money back to keep the west on a never-ending shopping spree for which China provided the stuff.

But all this was wiped-up air that was caused by empty promises from the US government, which meanwhile stays US$2 trillion in the red and telling the Chinese that with more borrowing the American consumers will start shopping again is a right-out lie.  

Instead of a healthy new boom, the world is enjoying a sick echo of the old one. Governments, led by the U.S.A., attempt to re-inflate the bubble with guarantees and giveaways equal to an entire year's annual output of the world's largest economy. Since every penny of this money is borrowed, it makes sense that every penny will have to be withdrawn from the world economy at some point.

In fact, economists are already looking ahead to the moment when deflation fears give way to inflation fears.

"If President Obama and the Fed continue down their current path, we could see a repeat of those dreadful inflation years [the 1970s]." Said Professor Meltzer while he warns that cutting off the inflation of the '70s wasn't easy. The feds turned the screws, and let the prime rate go above 21%. Of course, today's Fed has this information. And Paul Volcker, who was Fed chairman during that period, was invited economic advisor to Barack Obama, but later swept out.

Still, "I do not worry about their knowledge or technical expertise," continues Mr. Meltzer, "What I doubt is the commitment of the administration and the autonomy of the Federal Reserve ... Under Bernanke, the Fed has sacrificed its independence and become the monetary arm of the Treasury..."

"The Fed's job is to take the punch bowl away," said an Eisenhower era chief. “But we have come a long way since the Ike and Dick years. This time, the inflationary party is likely to get out of control.”

When the I.O.U.S.A. team interviewed Paul Volcker in December of 2007, he said, "...when I look back on my lifetime, it is obvious that letting inflation get a little bit out of control and not dealing with economic problems effectively in the'70s led to a very uncomfortable crisis. We don't want to have to go through big recessions again to teach people fiscal responsibility. Instead, we should anticipate what needs to be done while maintaining the growth of the economy. And the threat will always be an unstable economy and an unstable currency. And that's not just destructive to economic life, but it can be destructive to America's position in the world, which to me is the greatest concern."