Concerning The CARES Act

     As I said yesterday, I’m of two minds about this “bailout” bill, which appears to provide relief for immediate financial obligations at the price of an inflationary surge. Most people don’t understand inflation – some very smart individuals, with well established records of achievement in their chosen fields, have insisted to my face that it’s “big business’s fault” – but that doesn’t keep it from following a law more reliable in operation than anything else in political economy.

     Some years ago, financial guru John Pugsley explored this subject from the perspective of financial self-defense: i.e., what one can do to protect oneself against inflation. His discourse on it remains both enlightening and compelling. It’s too long to reproduce here, but the key observation is compact and striking:

Money Is Not Wealth.
Goods And Services Are Wealth.

     The victims of Germany’s Weimar inflation could tell you.

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     Under the current “lockdown” conditions, goods and services are being produced and provided at a sharply reduced rate. This has brought about a temporary impoverishment of the nation. No amount of money, whether cash in hand or electronic bank balances, is relevant to that consequence. It can only be remedied by getting back to business: each of us to his particular post in the American productivity machine.

     That must happen fairly soon. The transition to “just in time” inventory practices has reduced our standing reserves to a level not seen since pre-money barter economies. Pretty soon we’ll have “spent our savings.” Then what?

     Not to put too fine a point on it, more money wouldn’t help.

     If President Trump understands this, it would mean that he backs the CARES Act because its distribution of funds would make possible the satisfaction of millions of formal requirements to pay: mortgages and rents, salaries, contractual obligations to pay, and so forth. The private citizen who’s currently without an income because of the shelter-in-place regime would not face the blow to his credit that would come from not being able to pay his bills. The small business owner who must rent a storefront, or meet a schedule of accounts payable, would be relieved of worry in the near term. But the supply of goods and services available would not magically increase...and the consequences for the further diminution of the dollar’s purchasing power would be foreordained.

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     Chess players know that it doesn’t matter how good your long-term strategy is if your tactical situation is fatal. Your Queenside pawn majority will never matter if you get checkmated before you can capitalize on it. From that perspective, the CARES Act makes sense as a “Band-Aid^® bill:” it would close a wound that must not be allowed to bleed further. But we must not look to further monetary “stimulus” for salvation. We must get back to work.

     President Trump has named Easter Sunday – April 12 – as the drop-dead-decision date for lifting the shelter regime. I hope that’s soon enough. Our supply lines are already under stress. There are things we can do without, surely, but that doesn’t include everything that’s currently not being produced. Ask the homeowner whose plumbing is leaking whether he can afford for America’s plumbers to remain unavailable for another two weeks. Ask the mother whose newborn needs diapers she doesn’t have on hand. Ask the retail store owner who, even if he were permitted to open his doors to customers, couldn’t get the goods to populate his shelves. I’m fairly certain I can predict their answers.