By Travis Fast
What a week hey! Do you remember that econ class where right after you were introduced to the invisible hand in the form of some bullshit general equilibrium model and then you were led to the inextricable conclusion that there is no free-lunch? And can you recall in that ideological daze masquerading as value free and clear thinking rigour you still could not square your education with the reality which appeared in the business pages?
Well this week is a particularly bad week for those still clinging to an ontology of capitalism which requires little state intervention. No less than 285 billion US dollars worth of liquidity was pumped into the markets on Thursday and Friday with the ECB kicking in a whopping 213 billion and the US Fed kicking in another 62 billion. And the markets want more! (See this weekend’s WSJ and FT for a fuller account).
But that is not all; the Fed did not just open the window wide open, it did not just provide short term liquidity, it actually directly bought morgage backed securities. That is right folks the Fed is propping-up prices in the securities market. And I thought Liberal Market Economies (LMEs) did not require any form of coordinated government intervention. I wonder if the executive officers are going to get paid according to their marginal contribution this year. Don’t hold your breath that tends to only work in one direction.
Moreover, I doubt we are going hear too many REAL economists cry about the massive government intervention (Austrians do not count as REAL economists) into the markets. Nor are we likely to hear too many cries to let the market choose its own equilibrium. The situation will of course be different if this “perfect financial storm” does real damage to the real economy and real workers start hitting the unemployment line.
Then you can bet when the first bright politician suggests state intervention into labour markets we will be retold some bullshit story about the invisible hand, Say’s Law and the litany.