If you had just returned from a year-long sabbatical in the jungles of Borneo and were leafing through the financials you might conclude that the bull had fled the gold market. But as you get caught up on the rest of the news you grow ever more perplexed.
On every page you find evidence that not only had nothing improved in the economy, but almost everything of import had grown worse. Then you come across Paul Krugman’s piece in the New York Times dismissing the notion that a “structural transition” was taking place for the alternate notion of “an overall lack of sufficient demand.”
You read the second part of the sentence again, certain you must have misread it: “…the kind of lack that could and should be cured quickly with government programs designed to boost spending.” You sigh deeply and fall asleep in your chair, your bags still unpacked and at the ready in the foyer.
Government spending is not a solution. It fixes nothing. All it creates is window dressing, something for passers-by to gaze upon and imagine better times. But the dollars spent are dollars paid in taxes, greatly diminished by the inefficiencies of an enormous bureaucracy and compounded by the burden of debt.
In his seminal work “Economics in One Lesson,” Henry Hazlitt urges us to look at the “longer and indirect consequences” of government spending programs and at “what the effect of the policy will be on all groups.” Nowhere is that more relevant than it is in efforts to spur the economy through spending on job creation.
The price tag for each new job created is widely reported and enormously costly. While a small region of the country may benefit from such programs, the nation as a whole cannot. Every dollar spent to create a job means several dollars had to be withdrawn from the economy. Dollars that could have been spent directly on goods and services, creating real and lasting demand, are instead diluted and frittered away on an illusion.
That illusion is the bear’s clothing. But it is basic nature that the gold market bear must eventually reveal itself for the bull it still truly is.