Bill Bonner: ready for the shovels

By Bill Bonner Feb 20, 2009

Bill Bonner.

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The snowball that was Obama's bail-out plan rolled downhill this week, gathering all manner of trash and stones. On Tuesday, the president signed the $787bn scheme. In a Churchillian moment, he admitted that the end of the war on depression was not at hand, and more sacrifices would have to be made, but "today does mark the beginning of the end".

At least he has the whole world behind him. America's mayors, for example, have enlisted en masse. Heeding a call from the White House, they came up with 18,750 projects that are 'shovel ready' – meaning, they can begin digging holes within hours of the transfer. Las Vegas, for example, said it could use $2m to put in more neon signs. Shreveport, Louisiana, said that if had $6m, it would put in three new aquatic centres with slides.

Whee! These are the worst of times for many – but they are the best of times for some. There is a bull market in claptrap; politicians haven't had it so good since the New Deal.

In France, the Sarkozy government recently announced a plan to bail-out the nation's auto industry. The government will lend €9bn to Renault, PSA (Peugeot) and their related finance companies. In return, the state hopes to collect interest and requires that the companies continue to employ French voters. Slovakian autoworkers don't vote in French elections; they can go to Hell. Gordon Brown's own bail-out plans for the British banking industry will, he says, provide a 'rock of stability' for the system. Traditionally, gold provides solidity to a banking system. But Brown, when he was chancellor, sold off tons of British gold at barely a quarter of today's price.

When the going was good, people believed things that weren't true. Now, they still believe things aren't true – but in the opposite direction. Where they once believed they could get richer, eternally, by squandering money they hadn't earned, now they look to the government to do it.

Depressions are so rare that there is no statistically reliable evidence about them. Each one is sui generis. Hardly anyone is still alive who remembers the depression of the 1930s or what the Feds' bail-outs wrought. Here on the back page, we have already given our version of the story. A depression is not a pause, we recall explaining; it is a time when debt is squeezed out of a saturated economy. Bail-outs, hand-outs, and government stimuli actually retard the process.

But ours is a minority view. Only that great economist Fidel Castro seems to agree with us. The geniuses can't help, he says; structural change is needed: "Even if Kant, Plato and Aristotle were resurrected together with the late brilliant economist John Kenneth Galbraight [sic], they would neither be capable of solving the more frequent and deeper antagonistic contradictions of the system."

But the burden of proof is on us. Which is too bad; Fidel is retired and we have no proof of anything. All we can do is marvel, and guffaw, at things that couldn't possibly be true.

In the bubble era people spent too much money they didn't have on too many things they really didn't need. Then came the credit crunch. Now, they hallucinate that if they spend even more money they don't have on things they hardly even want, they will get what they really need – jobs, growth and inflation. Even respected economists say they believe in miracles. Resources have been made 'idle' by the depression, they claim, like strong backs in an unemployment line. Government spending is just putting them to work. By this reasoning, things that were too expensive even in the boom years miraculously become cheap at any price. And things that weren't worth spending money on in the fat years become miraculously indispensable in the lean ones. It is like a man who didn't care for caviar when he had a good job; now that he is unemployed, he must have it every night.

They are only taking up 'idle resources' that would otherwise go to waste, explain the miracle workers. In their minds, an umbrella is useless unless it is actually raining. But sometimes capital needs to take a break and hang on the coat-rack. Every banker, householder and investor needs a reserve against mistakes. Now, more than ever. Until the crisis is over and a new economy takes shape, any investment of labour or capital is likely to be another mistake.

In normal times, residents of Chula Vista, California, turned up their noses at spending a half a million on a public park for dogs. But now that the hard times are here, a place where dogs can run off the leash seems a fitting use for money the town doesn't have. In the best of times, Lincoln, Nebraska, was in no position to spend $3m on an "environmentally friendly clubhouse for a municipal golf course". But cometh the worst of times, and the golfers suddenly deserve not just a clubhouse, but one that is pals with nature.

Things we used to take for absurd we now take for granted. But it is just one of the wonders of the human race that it is capable of believing anything. The sunny years have passed. Now, there are storm clouds on every horizon. And instead of protecting its precious 'idle' reserves, the government turns them into dog runs.

Published in Economics | More articles by Bill Bonner

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