Fat Chance

As a boy I attended an agricultural Secondary School, that is it specialised in agriculture (it is strange grounding for becoming an economist, I know). We had a teacher who would tell a wayward boy, “You’re taking a fat chance”. The reckless economic experiments to avoid the consequences of decades of money creation and monetary policy abuse are similarly taking a fat chance.

The same teacher gathered a number of older boys together at the request of a local farmer. He proposed to the school an educational real life opportunity to prune his orchard. The older boys (no child labour here) had to complete a course in pruning and do a practical evaluation in the school’s own orchard. The group of budding arborists were taken to the farmer’s orchard to fulfil the contract. Each boy was allocated a row of peach trees to prune. Each row had about 50 trees in it. Each boy was paid per tree pruned. It was a good workable system and the pruners were clicking.

Then the cheating started. The bullies quickly worked out that a row would randomly contain smaller trees easy to prune, average trees and other monstrous trees growing wild which could take hours to prune. They then formed a group, we called them the “Group of Rocks”, for they gathered rocks and set forth to mark all the small trees in the orchard with a rock in the first fork of the tree. Soon work was subdivided into all the small trees for the Group of Rocks, while the rest of the group had to content with normal and monstrous trees.

The rest of the group went to Mr Fat Chance and complained but he did not wish to disturb the status quo as the Group of Rocks was also the group normally considered “leaders”.

The next day only half of the remaining group of boys reported for pruning. The Group of Rocks were in full force. On the third day it was only the Group of Rocks who reported for duty. It now became clear that they would have to do all the work and the rock marking system collapsed. This did not please them so on the forth day nobody reported for duty.

The educational objectives of the school and the farmer all came to nothing. The farmer hired professionals and the school went back to teaching only in the classroom. I would have had an entirely different story to tell had the Group of Rocks failed in their bid to control the allocation of the pruning purse.

Macro evaluations and micro events are interchangeable. The economic playing field is now dominated by the “too big to fail”, the Government Supported Entity, the Public Private Partnership, organised labour and the Siamese twin of Government and Central Bank. This Group of Rocks has control over the national purse in the national interest. They get to allocate the national purse to themselves at the expense of all others. They do not have to suffer the discipline of market principles. The harsh reality of penalty for mistakes and reward for getting it right does not apply to them. They get the personal reward when the going is good and the public purse when the going gets rough. They live and operate on favour and the public purse; rather than live or die by the merits of the market.

Zimbabwe did the same. They printed money and handed it to their Group of Rocks. Ruthless Central Bank activity was combined with ruthless and determined Central Government policies. In the end we see that the Group of Rocks in Zimbabwe owns everything. Everything of hardly anything. Zimbabwe recently reported 94% unemployment so the printing presses were engaged in the national interest, not so? The printing presses averted unemployment in Zimbabwe, not so? The entrepreneurial incentive has been removed from the economy. The risk reward relationships of economic activity have been perverted.

There is a simple but profound lesson in the Group of Rocks. People will labour willingly and with enthusiasm while assuming the risks of randomness in a system based on merit. Is this not a principle inherent to the “American Dream”?

Favouritism and control over the public purse will enslave those outside the inner circle. Debt is but a result of this enslavement. Favouritism destroys the co-operative specialisation inherent to free markets, destroys initiative and encourages unemployment. Thus a belief in bailouts for the Group of Rocks; so called stimulations funded by monetary theft of the savings of the rest; and an explosion of the Sovereign debt funded from the printing press will not save the economy, nor is it in the national interest or international interest.

The printing press is the route to depression, unemployment and social unrest. This is the road to Zimbabwe. The debate about a deflationary depression or a hyperinflationary depression is of interest to those with a desire to protect their savings but let’s not forget that a depression is a horrible economic event. Yet, a deflationary depression is preferable to a hyperinflationary depression. A suitably determined Central Bank and Central Government can convert a deflationary depression into a hyperinflationary depression. Still the actual problem of a depression has not been attended to. Inflation or hyperinflation is not a remedy for a depression or unemployment. Fear not the deflation, or inflation, or even hyperinflation for these are merely symptoms of the control over the national purse. Fear depression for it does not care which flavour of flation accompanies it.

Free market principles where merit allocates the national purse in a fair rule of law system will restore the economic structural imbalances. This option does not suit the Group of Rocks and no prizes for guessing who gets to decide.

I find it incredible and disturbing that access to debt to be created with public debt is offered and praised as a solution for overindulgence in debt. Debt consumption is simply spending the future today and at some stage there is just no future left to discount to today. Does anyone really believe that the Group of Rocks will forgive the debt? The Group of Rocks will shackle you with debt and collect your labour or your assets, you choose.

Thus the economic world travels the road to Zimbabwe which on the economic roadmap is on the other side of Japan. Distances are measured in unemployment. To those with an unholy faith in printing presses I say; “Fat Chance” and prepare myself for the economic and social consequences of a printing press global economy.


Sarel Oberholster
BCom (Cum Laude), CAIB (SA)
22 February 2009


© Sarel Oberholster


Please email me at ccpt@iafrica.com with any comments. More links and essays can be found on my blog at http://sareloberholster.blogspot.com/ .