Goldbugs, Marxists, And Central Bankers

We live under a system that is extremely flawed. A large part of it is due to the people we listen to. Nowhere is this more evident than with the economy.

You would think the list in the title is rather diverse. The reality is they are all the same. These people have a track record that extends well into the past.

There are a couple consistencies:

  • all parties are usually wrong, for decades on end
  • they believe they can alter the business cycle

The second causes the first.

Our system is run by people who truly believe they have the power to change the business cycle. While they might take different approaches or bring alternative ideas to the table, the end result is the same.

Therefore, we have to group them all together because their core belief is simply fallacy.

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The Business Cycle

The business cycle has been around for at least a thousand years. This is something that has occurred in every economy, regardless of the circumstances. It happened under every type of government, many different forms of money, and economies of various sizes.

Yet the end is always the same: the business cycle cannot be stopped.

For those who are unware of this concept, it is based upon human psychology. This is why it has stood the test of time. Humans, for all our advancement, do not really change. We are subject to the same mental constraints, mostly driven by fear and greed. It is not only the primary driver of markets) but, also, economies.

The ideas is one of peaks and troughs. Exiting a trough, we have an acent towards the peak. During this period, economic productivity expands, employment increases, and optimism takes hold.

Here is where human psychology takes place. As things expand, we tend to forget. Businesses keep hiring, overlooking the finer points of the income statements. Markets take off and people are convinced it will never end.

There is another fact: during the ascent, prices go up. This includes assets and most other facets of the economy.

During the Gold Rush in the U.S., the labor rate in the east was $1-$2 a day. Yet, out west, there are hotel rooms going for thousands of dollars per night. Booms are synonymous with this.

Of course, there is the flip side.

As the peak starts to end, somebody starts looking at the financial statements. Suddenly people question the size of the labor force and why so many are in a department or division. Earnings tighten causing people being pushed out the door.

This is where the employment situation starts to worse, causing households to redu their spending. Of course, this spread throughout the economy, sending prices plucemmeting. Money becomes tight as investment and lending dries up. In short, people get very conservative with their approach.

It is the widespread psychology that impacts the economy. This is evident first in markets, which tend to move quicker than the economy. Nevertheless, it will eventually branch out.

All The Same

Karl Marx believed he could change the business cycle. So did John Maynard Keynes. We can add Lawrence Summers and his negatgive interest rates. And Paul Krugman, the Godfather of Quantitative Easing nonsense.

All these economists believed they could eliminate the business cycle.

The same is true for gold bugs who ignore history and overlook the fact that swings were just as wild under fixed money regimes too. This long predates the Federal Reserve System and central banks.

Of course, they are easy target since they operate under the same misguidance. They falsely buy into their own power of monetary policy somehow falling victim to the idea they can prevent economic devastation. Sadly, their actions tend to either make the present situation worse and/or set the stage for the next crisis.

In effect, all these people are claiming they can change human nature and how people behave. The boom-bust cycle is psychologically driven. It matters none whether it is tulips, gold booms, easy money, long-term interest rate manipulation, or redistribution policies.

All always fail in the face of the business cycle.

There is, however, another constant in all this: mismanagement. The manipulators of the economy end up blaming others for the damage they cause. This is what usually sinks empires, destroying them in ways foreign invaders could never achieve.

It is why history keeps repeating itself. Humans, for all the changes we make, tend to keep doing the same thing over and over.

Even today, there are those among us who think they can control the economy and alter the business cycle.

The track record is pretty clear.


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Thank you as always for the insights! ☺️

I'm not sure that I entirely agree with this, however. I'd have to give some of these people more credit for intelligence than we sometimes give them; they understand human psychology, at least to some degree, and can take advantage of it for their own benefit, should they choose to do so. The concept of the economic cycle is not new to them; however, maybe they believe that they can decrease the amplitude of peaks or troughs, or shorten or expand them, rather than eliminate them altogether. There are many factors that would affect the amplitudes and timing of various parts of the cycle, and it's not unreasonable to think that these can be altered to some degree, whether for better or worse.

That said, the ones who are more publicly vocal about it are more likely to lean on the megalomaniac side... those who are knowledgeable but humble may not be as vocal as we'd like. That's an insight that we sometimes have to apply when we look at ourselves in the mirror as well.


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I think we are just dealing with degree of wording. You are claiming the same thing.

Decrease the amptitude means they think they can control it; alter it; and impact the biz cycle.

History shows this is not the case.

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I agree with the main idea of the article. On the other hand, I have an objection. Even if central bankers, Keynesians, and Marxists cannot abolish business cycles, they moderate the waves. Central banks do this by adjusting the amount of money circulating. The Marxist understanding increases the rigidity of the job market and ensures that economic growth becomes more stable. The government has a stabilizing effect on the economy by increasing expenditures during slowdown periods.

As technological development accelerates, the resonance in the economy increases. This situation complicates efforts to keep the economy balanced.

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I would disagree they claim they can but do they really.

For example you cite:

Central banks do this by adjusting the amount of money circulating.

Central banks truly have no control over the money supply under fractional reserve banking. The Fed doesnt create the dollars anymore. They most print reserves which are not legal tender. So their impact is almost none on the circulating supply of a currency.

The government has a stabilizing effect on the economy by increasing expenditures during slowdown periods.

Governments never slow down their expenditures so how do they speed them up. That is where Keynes deficit spending, if valid, was obliterated.

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Is the business cycle really just psychology? If it were, it's actually plausible that it could be manipulated. If it's something that has to do with cascading effects within the complex system of the economy as a whole, then sentiment is not the dog that wags the tail that is sentiment.

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Certainly it is complex system. Yet it is grounded in human psychology. Now to say that could be manipulated could be correct as we saw a few years ago. However, that was temporary. What happened after a couple years, the cycle reappeared.

So in the end, nothing was really changed.

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The construction sector is one of the drivers of business cycles. That involves land use and building materials and from there many sectors of the rest of the economy. Real estate is a huge asset class.

Generally, nothing in the economy is in static balance. Economic decisions are made based on forecasts. When forecasts are overshot even when that is done unintentionally, a boom results in one sector and spreads into others. Booms cannot but be followed by busts. That is hardly just psychology. A bust results from reality kicking in.

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It's unavoidable and at some point QE wouldn't be able to stop the recessions. I just wonder how bad things will get when things fail because they always push the system to the brink before it fails on them.

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