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Infallible Law of Supply and Demand

Posted by Steve Markowitz on March 14, 2014

One of the more outrageous attributes of Progressive logic is their belief that merely by recognizing a societal problem they can, by the strength of their will, invoke corrective action.  Correcting such problems is difficult enough when the cause and consequences of actions are clearly understood.  A realistic view of how complex societies act makes this an unreasonable expectation.

Examples of misplaced Progressive interventions fill volumes.  Perhaps the best example during contemporary history was the Paris Peace Conference of 1919.  After World War I Progressives, led by America’s Woodrow Wilson and joined his counterparts in France, Britain, Italy, and other countries, net in Paris to create a new world order that would supposedly ensure that the first world war would be the last.  In six months they re-created the world’s map, redefining countries’ borders and creating new countries that previously did not exist.  The result was another world war just 20 years later that inflicted even more bets and destruction on humanity.

While the world rightfully blames the tyrants Hitler, Mussolini and Tojo for the World War II, many ignore the significant blame that rests with the Progressives who met for in Paris to inflict their unrealistic view of peace and stability on the world.

We continue to pay a heavy price for the Progressives’ interventions in the world.  In recent weeks the world has been focused on Russia’s intervention the Ukraine.  Ukrainian is one of the Progressives’ creations.  After the USSR dissolved, Ukrainian became an independent country in 1991.  However, with large ethnic divisions it this country may end up dissolving into smaller pieces.

Progressives do not learn from their failures.  To them, mistakes of the past are but failed experiments offering them still more opportunity for further interventions.

Barack Obama is a classic Progressive, but with radically Leftist bent.  His interests have been focused on domestic policy.  His $800 billion Stimulus Package passed over five years ago failed to fix the economy and it still remains weak.  The wealthy have become wealthier and the banks and others were bailed out.  Instead of admitting failure, the President demands that we double-down on the so-called “investments”.  Remarkably these interventionists believe that more of a failed policy will lead to different results.

No one would realistically argue that the 2008 financial meltdown was a serious economic occurrence that threatened the world order.  However, there is willful dumbness from those who ignore the potential consequences of the radical governmental and central bank interventions since.  Mark Melin posted an article titled Seth Klarman: Investors Downplaying Risk ‘Never Turns Out Well’” that offers a realistic view of the consequences.  Comments are included from the renowned hedge fund manager, Seth Klarman, who is known for pursuing value in a field that is typically less conservative.  Klarman’s comments include:

“Someday, financial markets will again decline.  Someday, rising stock and bond markets will no longer be government policy.  Someday, QE [Quantitative Easing] will end and money won’t be free.  Someday, corporate failure will be permitted.  Someday, the economy will turn down again, and someday, somewhere, somehow, investors will lose money and once again come to favor capital preservation over speculation.  Someday, interest rates will be higher, bond prices lower, and the prospective return from owning fixed-income instruments will again be roughly commensurate with the risk.”  Translation: What goes up will come down.  Nothing new here, except that the Fed’s easy money policy will significantly magnify the next downturn.  In addition, the Fed has no bullets left in its arsenal should it desire to limit the impact of that inevitable downturn.

Before 2009, the Fed had never bought a single mortgage bond in its nearly 100-year history.  By 2013, the Fed was by far the largest holder of those bonds, holding over $4 trillion and counting.  For that hefty sum, GDP was apparently raised as little as 25 basis points in the aggregate. In other words, the policy has been a near-total failure.  Bernanke is left arguing that some action was better than none.  QE in effect, had become Wall Street’s new ‘too big to fail’ policy.”  Translation: The Fed has spent significant capital on a failed policy.

The 2013 Nobel Memorial Prize in economics was shared by three academics: two were proponents of the efficient market hypothesis and the third was a behavioral economist, who believes in market inefficiency.   We suppose that could be considered a hedged position for the awards committee, one that would never occur in the hard sciences such as physics and chemistry, where a prize shared among three with divergent views would be an embarrassing mistake or a bad joke.  While a Nobel Prize might well be the culmination of a life’s work, shouldn’t the work accurately describe the real world?  Translation: Economists are disconnected from real-world economics.  They have been wrong often in the past, yet we continue to look for them at your guidance.

“Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings.  But what is the right multiple to pay on juiced corporate earnings?”  In addition Klarman says: “Our assessment is that the Fed’s continuing stimulus and suppression of volatility has triggered a resurgence of speculative froth,” and “In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987.”  Translation: The law of supply and demand has been manipulated by interventionist governments and bankers.  The farther off economic reality the bubbles become, the more painful the corrective action.


The political elites in Washington continue offering supposedly free lunch solutions to the complex economic issues.  They hand out some taxpayer funds to other constituents and special interest groups in their desire to maintain power and elective offices.  There is no such thing as perpetual motion nor is there alchemy.  Unfortunately democratic societies often require crisis before being able to address serious economic issues.


2 Responses to “Infallible Law of Supply and Demand”

  1. Lee Stadele said


    A prime example of progressive behavior is government involvement in the auto industry. The GM Volt sells less product in a year then several days production of Chevy pickup trucks. A truck is generally used for business and a Volt for transportation. The fact that the public rejects the Volt concept proves absolutely nothing progressive thinking.

    WW One was a disaster for all Europe and the USA. As you mention it set loose the evil players of WW Two. We should all hope that the current progressive failures throughout the world will not be a repeat of the progressive thinking a century later.

    Lee Stadele

  2. Well said Lee. My guess is that Progressives will repeat the same problem. Putin is now doing his imitation of Hitler in the 30s. But, Progressives led by Obama are responding fretlessly, just as Chamberlain did in the 30s. Such fretless responses generally embolden bullies forcing more drastic reactions once the Progressives are replaced by realists. So sad.

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