"A democracy is nothing more than mob rule, where fifty-one percent of the people may take away the rights of the other forty-nine."
-- Thomas Jefferson
"Democracy consists of choosing your dictators after they've told you what you think it is you want to hear"
-- Alan Coren
Lately, I've been predicting some pretty catastrophic stuff – like the United States defaulting on its debt, and the failure of the world's major currencies. And every day that passes seems to bring us closer to the inevitability of those predictions.
None of this makes me happy, by the way; I would really like to be wrong this time.
At any rate, I have received a great deal of gratitude and praise for my theories, but I have also been inundated with comments like, "You're stupid," and "You're immature," and "No way," and "Gold is bad," and "Go back to Russia." And things like that. Which is all fine, I guess.
Look, I've been writing for a long time, and yes I think it's reasonably safe to say that some of my theories are radical. And, of course, if a person decides to promote radical theories, he better be ready to absorb some heat for it. Luckily, over the years I've pretty well inured myself to the barrage of criticism that descends upon me like a swarm of ravenous mosquitoes every time I publish something, and I guess I owe my proverbial calluses to a simple maxim: popular people get elected because they regurgitate the status quo, whereas dissenters get ridiculed because they challenge it.
Now, does this mean dissenters are always right? Of course not, but I'm hard-pressed to think of one technological, medical, social, or academic innovation inspired or created by mere popularity. And I find it equally difficult to count the number of breakthroughs that have erupted from the minds of dissidents.
"But," you say, raising your eyebrows and sticking your finger in the air. "Einstein was popular." And that's true. But it doesn't diminish the veracity of my conclusion; popularity is rarely an ingredient in progress, and even then, it's not causal. I would wager that Einstein's popularity (or lack thereof at the time) didn't inspire his special theory of relativity.
Every day, I watch Barack Obama speak and I find myself as impressed with his style and eloquence as everyone else seems to be. But then I hear the "substance" of his messages and I cringe. For hundreds of years, classical economists have been trying to save us from ourselves, warning us that -- regardless of their intentions -- governments don't solve problems, they create them. So why do political leaders keep making such bad decisions? And more importantly, why do we keep putting so much faith in our elected officials?
It's simple, really. Most people make poor decisions, because most people are like children. Allow me to illustrate my point by asking you a simple question: which is better for the human body – broccoli or ice cream? Now, if we put 1000 children in a cafeteria, and we give each of them one bowl filled with broccoli, and another bowl filled with ice cream, what do you think is going to happen? And what if we perform the same experiment every day for a year? Would the results differ? Probably not.
Now let's talk about some common behavior exhibited by "adults." Adults smoke. They drink too much. They abuse drugs. They don't educate themselves. They play video games all day. They talk on their cell phones while driving. They spend incomprehensible amounts of time, money, and energy watching pornography. Yes, adults do lots of stupid and unproductive things.
I'm in quite an analogous mood right now, so I wonder if you might indulge me as I offer yet another hypothetical. Let's say the economy is suffering one of the worst recessions in a century. And let's say you're a dyed-in-the-wool free market economist with an I.Q. upward of 160. Let's also say you want to be elected to the office of President of the United States. Are you going to tell people that, in order to get out of the recession, the government must do nothing? Are you going to tell people that it's better for the government not to print money? Are you going to tell people it's better for the government to reduce its debt? Of course you're not – at least not if you actually want to get elected. Why? Because people want ice cream, not broccoli.
If you want to be a politician, you must lie. You must promise the people that the government will do something – even if you know that anything the government does will only cause more damage. For the last century, this is precisely the recipe that has caused policy maker after policy maker to implement programs that have damaged economies and currencies time and again. And the resultant peaks and troughs are neither purely cyclical, range-bound, nor predictable. Debt has increased exponentially. Productivity has collapsed. The charade has been maintained through burgeoning easy credit and an ever-expanding amount of currency. The economy is a top, forced to spin faster and faster by politicians eager to be elected, but eventually the laws of physics are going to tear the entire thing apart. The conditions we face are unprecedented on so many levels, and I am afraid the catastrophe is looming.
I certainly welcome any criticism I get, because approaching the truth is far more important to me than defending a broken theory. Yes, I want to be wrong, but more importantly, I want to know why I'm wrong. And yet I fear I am not, because the old rules aren't working anymore, and most of the counterarguments fail to provide much substance.
So I will continue to dissent, because it is a dangerous time to be an empiricist.
Disclosures: Paco is long gold, DXO, and UCD. He's getting excited about the recent rise in Treasuries, but he hasn't acted on that excitement yet.
Copyright 2009, Paco Ahlgren. All Rights Reserved.