don

Interesting that figures such as Faber and many others find themselves at such a diametrically opposed position to that of Roubini, Shiller, etc., who say more fiscal stimulus is needed. The later simply do not see the dangers of a monster fiscal deficit.

The idea that the state would stand aside and maintain a passive posture as the “markets” are allowed to self-correct and the process of creative destruction runs its course is simply mistaken, even naive. It is simply untenable that the state would not intervene to put the brakes on a speeding train wreck. It would be political suicide to do nothing but aide and comfort those without income, security, etc.. Failure to act would set the ground for a crisis of state legitimacy – which isn’t to say this won’t eventually happen.

So, Faber is either trapped in muddled thinking or this obvious political economic situation escapes him. He fails to see that state intervention is to be expected, just as state intervention has existed over the course of decades (intervention to varying degrees), leading right up to the crisis; libertarian notions of a “free” market as something that exists outside the state is ideological myth. It hasn’t existed and it isn’t going to start in the midst of a crisis. If allowed, all hell would break out, and the politicos would be tarred and feathered.

The real question is not one of state intervention vs. non-intervention, but the kind of intervention. The kind we have seen is aimed at saving the mega-banks rather than breaking them up for the common good. The anger over this, as one class enriches itself at the expense of all others, has made it all the more difficult for Obama to move forward with state programs that might aid those very people excluded from the privileged actions accorded the mega-banks, and by consequence the big time speculators.

I have my doubts whether an ever expanding fiscal deficit will work – if the aim is to prop up consumption in hopes that eventual economic recovery will take hold, based on the same global imbalances. The state has neither the will or power to bring about structural change, change which, in any case, could not occur in a vacuum, that is, would need to be global, requiring international cooperation. What are the chances of that level of cooperation? About as much as my finding the sun rising tomorrow morning from the west.

don

Dean, thanks for the thoughtful response.

I understand Mr. Faber is Austrian . . . and I certainly do not mean to belittle his intellect. The world is much bigger than just Keynesian and Austrian, and from my reading of Jesse’s piece a few days ago it seemed clear his understanding of economic schools beyond them was lacking.

My point is that the political establishment is not going to remain legislatively and administratively passive, nor is the central bank. The notion that the economy should be allowed to cleanse itself (implicit here that a Depression is a correction), and then out of that economic expansion can resume rests on the belief that the economy and the political largely, if not entirely, function independently of one another, or at least that they should. Just doesn’t happen in the real world. Thus, it should be no coincidence that the direction taken by both the political class and the Fed are consistent with one another.

Over decades it is clear that the pendulum swings from greater emphasis on markets, then in a crisis the swing back to greater state intervention, in an attempt to correct dysfunctional market consequences. As the state becomes more interventionists, it risks exposing itself to the burden of success or failure. As the state attempts to manage crisis and to produce rational outcomes, failure to succeed will result in disillusion not only with dysfunctional markets but also with the failure of the state to administer crisis avoidance strategies. Should this evolve, then things will get especially interesting. I sense Mr. Faber is alert to the prospects of such a more profound crisis.

AWF

Don and Dean — neither one of you get it
Bad business decisions have consequences!
Don would have us believe that statism is the only cure ?
Whenever I hear statements like ” the common good ”
I get sick–let’s make sure the “common good” includes everyone!!
If there is anything the state can do- it would be to incentivize new business
example–oil drilling in alaska, plus open up off shore driiling on both east and west coast
expand clean coal technologies expand nuclear power
this would cure unemployment overnight and these would be long term business .

There are many more examples of long term business growth that can replace our current economy of scale