Monday, November 1, 2010

In Case You Missed It

And the problem, in case you missed it, is that we use dogmatic, open-ended rules of thumb in our economic thinking, rules of thumb like printing money causes inflation and this one: Credit use is good for growth.

Open-ended rules are rules we apply without letup. The inflation rule tells us that if there is inflation, they must be printing too much money. But the rule doesn't ever have us check to see if there is even any money left.

And the credit rule tells us that if we want the economy to grow, we need to use more credit. This rule doesn't ever have us stop to see if we've used too much credit already, if we've accumulated too much debt, if we've passed a Laffer Limit, if we've crossed the line. The rule just tells us to use more credit.

In the Arthurian view, these two rules of thumb together created the problems in our economy. We always restrict the quantity of money, and we always use more credit. (Thus the name AlwaysLand.)

After you do those things for a good long time, the economy doesn't work any more.

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