Friday, August 24, 2012

That's it! Peanut Butter Cups!

So Jane underwent this medical procedure that rendered her house-bound for several days. The doc said she can return to work in a week, but to take it very easy and expect to remain sore for at least three weeks. To Jane's pleasant surprise, she found herself virtually pain-free by day fourteen (a full week sooner than expected). Now she's wondering. "What gives? What did I do that caused me to recover so much faster than I was supposed to?" Then she remembered, while she was home recuperating, she stumbled across her husband's stash of Reese's Peanut Butter Cups and, in her weakened state, Jane couldn't resist. She figured she downed, on average, six a day—a habit that found her in the Costco bulk-candy aisle on her lunch break the first day back to work. Eureka! That's it! Peanut Butter Cups! Jane discovered that the consistent daily dose of six Reese's Peanut Butter Cups, speeds up recovery after surgery by 33% (well worth the weight gain). Now, should she ever undergo another procedure (gastric bypass perhaps), she'll know to double-up on the Reese's—now a staple in her diet—to quicken her recovery.

So we had this great recession, people lost their jobs, real estate tanked, stocks plummeted and the politicians and the Fed jumped in with a few trillion in fiscal and monetary stimulus. The recovery is less robust and taking longer than those "experts" predicted, but we are nonetheless growing, and they did stimulate. It, therefore, makes perfect sense—stimulus works. The recovery began whilst they were pumping in all that liquidity. So now we can conclude that, had they borrowed and printed twice as much, we'd be growing at double the pace. They now have all the empirical evidence they need to justify all the intervention their hearts desire the next time the economy contracts.

Never mind the distortions caused by programs like Cash for Clunkers and the Home-buyer Tax Credit—two (among others) that proved to be very costly—while delivering virtually nothing but a brief sugar high followed by renewed, accelerated even, declines in both sectors. Never mind that we've added trillions in public debt while the needle barely budged. Never mind that the Fed has bloated its balance sheet to the trillions—purchased assets [with newly created money] to inject liquidity into the system—and headline unemployment remains north of 8%.

I can't help but wonder, had the politicians and the Fed stayed out of the economy's way—had they let the markets work—if we wouldn't be feeling a whole lot healthier (leaner  for sure) right about now?

1 comment:

  1. [...] because of the “coordinated actions of those uncoordinated actors”. Like I said in That’s It! Peanut Butter Cups! “Never mind the distortions caused by programs like Cash for Clunkers and the Home-buyer [...]