Economic Outlook

This was publish in Media Star’s newspaper and elsewhere.

В українській мові: here.

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It is difficult to contemplate the enormous extent to which the world changed when the Soviet Union collapsed. The more economists and historians study the Soviet Union, the more apparent it becomes that it existed as a house of card built upon economic fallacies and that its collapse was inevitable.

We should remember, however, that the economic fraud of Soviet central planning is not only known historically, in retrospect. It was predicted before it happened. Based strictly on a theoretical understanding of human action, in other words, of economics, the eventual collapse of the Soviet Union was apparent to L’viv-born, Austrian School Economist, Ludwig Von Mises.

In 1921, before Lenin was even forced to restored partial property rights through his New Economic Policy (Новая экономическая политика, НЭП, Novaya Ekonomicheskaya Politika ), Mises criticized central planning in a book entitled “Socialism.” He predicted not only that the Soviet Union’s collapse, but that it would eventually have many factories and empty stores. His reasoning was simple: without market prices, society is blind to its true desires.

We are now facing a second collapse which may alter the world as much as the collapse of the Soviet Union did — the collapse of the dollar. Using a similar theoretical understanding of human action, economists of the Austrian School unanimously predict the dollar’s collapse. The reason is also simple and should be self-evident: the United States government cannot stop printing money.

The intellectual work of the Austrian School is largely devoted to unmasking the many euphemisms the government and its apologists use to conceal this fact: economic stimulus, quantitative easing, liquidity traps.

The exact date of the dollar’s collapse is not only unknown, but unknowable. As Mises noted, an objective way of determining the date of a significant economic event cannot exist because the knowledge itself would change the date of the event.

For example, if we could determine that the dollar was going to lose half its purchasing power on Friday, this would cause people to spend dollars as quickly as possible on Thursday, changing the date of the collapse. Theoretically, however, it is clear that the United States government will be forced to chose between destroying the dollar and defaulting on its debt, and default appears out of the question.

It is very likely that the hryvnia will collapse along with the dollar. The price increases plaguing Ukraine are at least partially (perhaps totally) attributable to the country’s monetary policy. By keeping a fixed exchange rate between hryvnias and dollars, Ukraine’s central bank imports inflation from the United States.

There are probably two reasons for this monetary policy. First, Ukraine’s government is dependent upon IMF loans to avoid it’s own long-overdue default. The IMF promotes dollar-friendly policies. The more inflation gets exported to other countries, the longer the collapse of the dollar can be delayed, and the further the gravy-train of printed money can carry the vast bureaucracies of government. (In the United States, one of out six people works for government.) It is likely that the IMF pressures Ukrainian monetary policy.

Secondly, large industries which export their products benefit in the short term from a devalued currency, and many of Ukraine’s most influential people are industrialists who rely on exports. They may also be pressuring the Central Bank of Ukraine to import inflation from the United States. It is important to remember, however, that they only benefit in the short term. In the long term, all of society suffers under the skyrocketing prices and the chaos they create.

The question remains, what to do about this?

For individuals, both dollars and hryvnias should be treated like the hot potato in the similarly named children’s game. Do not get caught holding a large amount of dollars or hryvnias when the music stops. People who have worked hard and lived modestly and want to preserve the value of their savings for the distant future should find ways of doing so that do not involve keeping large quantities of currency.

For society, we should distinguish between what Austrian School economist F.A. Hayek called the voluntary, private-sector economy and the coercive, public sector economy. He called the public sector economy coercive because it runs on taxes which are collected by force.

After the collapse of the dollar, the voluntary sector of the economy will go through a difficult time as it finds a new medium of exchange. Where currencies have collapsed, cigarettes, cows, flour, and bottled water have served as temporary mediums of exchange. Gold have silver almost always emerge as the voluntary choice when a society isn’t forced to use its government’s currency.

The private sector will recover naturally and peacefully because people will still want all the goods and services it produces — food, clothing, entertainment, books, technology, travel. Those businesses who fail to produce goods and service which others want at prices they are willing to pay will go bankrupt, and their land, labor and capital goods will eventually be incorporated into more productive enterprises.

By contrast, the coercive sector of the economy will recover neither naturally nor peacefully because it doesn’t produce goods and services which people voluntarily consume. They run on money which is collected by force or printed. Look for the vast bureaucracies of governments all over the world to suddenly find themselves starved for money, and look for all manner of demagoguery as they attempt to justify their existence and reimpose another system of wealth extraction upon the private sector of the economy.

The recent protests in Greece and in the U.S. state of Wisconsin were protests by government workers and their economically misguided allies against fiscal responsibility. They are a premonition of what is to come on a much larger scale.

Preserving bloated, unnecessary, inefficient government bureaucracies, will make everybody, including those protesting, poorer. Forcing these people to enter the voluntary sector of the economy and to produce goods and services which you and I will voluntarily pay for will make everyone richer. Those who contend that there is a limited number of jobs in the world over which we must all compete are wrong. The only limit to the number of jobs in the world is the number of needs and desires felt by humanity. In other words, none whatsoever.

Perhaps the most important question of our time is what comes after the dollar’s collapse. The rather obscure question of whether people will be free to choose their own medium of exchange, or if another printable, government currency is imposed on society by the brute force of law is a question between freedom and slavery. It is too late to save the dollar. I hope it is not too late to educate society about the nature of money.

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Roman Skaskiw Media Start Article Roman Skaskiw Media Start Article

3 Comments

  1. Ed K

    I can see where is says published in Media Star, but who is author? Maybe one R. S.?

    Sounds like it could be, yes?

    So we need to know author.

    Ed K

    Reply
  2. Ed K

    Oh!!!

    It is signed in the Ukrainian version!!!

    Congratulation on well written article.

    Kudos! Super Kudos!

    Ed K

    Reply
  3. Ed K

    I received the following in response to Roman’s article:
    ————————- // ———————————–

    Trouble is, not only are most of the union goons/bureaucrats too lazy to
    read this article, most are also too stupid to understand it.

    Educate them???? Good luck with that. Before any of this can make sense to
    you, you must first lose your sense of entitlement. I’m afraid that sense of
    entitlement is deeply entrenched in the larger share of our liberal
    population and will be difficult at best to remove. You can’t teach
    capitalism to people who’s only understanding of business is, quittin’ time
    is 4:30, payday is Friday and the boss is an asshole.

    ————————- // —————————–

    BTW, the response is from Minnesota, USA

    Reply

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