Tea Party North

Last week, Travis noted Terry Corcoran’s strained argument that over-regulation of banks is what ails the global economy. Terry’s next column went even further off the deep end, endorsing the hard-money libertarianism of gold bugs like Eric Sprott. Today’s column is a full-blown defence of the US Tea Party.

I have the following response to the gold-bug column in today’s Financial Post:

Good as gold?
Erin Weir, National Post, August 10, 2011
Re: “Making money as good as gold,” Terence Corcoran, Aug. 5.

Mr. Corcoran claims that “economists and establishment theorists continue to repeat calls for stimulus and quantitative easing.” In fact, bank economists and political leaders have been preaching and practicing the opposite for more than a year.

Canadian, U.S. and European governments have been winding down stimulus programs and enacting spending cuts. Central banks in Canada, Europe and emerging economies have hiked interest rates. The U.S. Federal Reserve has not gone that far, but did end its program of quantitative easing on June 30.

Expansionary fiscal and monetary policies stopped the economic freefall that started in 2008 and supported a modest recovery. A premature abandonment of those policies in favour of austerity has now weakened the recovery and kept unemployment unnecessarily high.

This instability has made gold a good investment in recent years. However, the economic theories of gold bugs like Eric Sprott imply that other prices should also be skyrocketing. If the disease were too much “fiat currency,” the symptom would be rampant inflation. In reality, the inflation rate is only around 3% in Canada and most other advanced economies.

The macroeconomic problem is not too much money, but too little demand. The solution is to maintain, if not increase, public investment in needed services and infrastructure.

Erin Weir, Senior Economist, International Trade Union Confederation, Brussels

Corcoran also claims that Sprott “accurately forecast . . . The U.S. housing bubble, and the collapse of the government-backed Fannie Mae and Freddie Mac mortgage giants.” Really?

As noted by The Globe’s Derek DeCloet:

[Sprott] has held the view for years that the United States would endure some kind of financial cataclysm. But when it happened, the Sprott Canadian Equity Fund still lost 43.7 per cent. Why? Because he hadn’t thought that a Wall Street meltdown would translate into a crash in mining and energy shares, which he owned in abundance.

Sprott has acknowledged this error, which Corcoran overlooks in trying to build him up as an economic guru. On balance, I think Sprott deserves credit for having been a successful investor over his career. However, that does not mean he has a coherent analysis of the economic crisis, let alone a viable policy response.

Today’s Corcoran column goes after Canadian-born Republican David Frum, who recently observed:

Imagine, if you will, someone who read only the Wall Street Journal editorial page between 2000 and 2011, and someone in the same period who read only the collected columns of Paul Krugman. Which reader would have been better informed about the realities of the current economic crisis? The answer, I think, should give us pause.

Terry writes:

After seeing the recent poor growth data for the United States, [Frum] singled out as a possible cause “the drift of so many conservatives away from what used to be the mainstream market-oriented Washington Consensus toward Austrian economics and Ron Paul style hard-money libertarianism.”

Putting that quote in context clarifies that Frum views this shift in conservative thinking not as a cause of the recession, but as a reaction to it:

. . . almost all of our thinking has been somehow affected [by the crisis]: hence the drift of so many conservatives away from what used to be the mainstream market-oriented Washington Consensus toward Austrian economics and Ron Paul style hard-money libertarianism. The ground they and I used to occupy stands increasingly empty.

The crisis has discredited the free-market Washington Consensus, underscoring the need for Keynesian macroeconomics and prudential regulation in microeconomics. Rather than come to terms with these lessons, many conservatives have decamped to the Austrian/gold-bug fantasies of Ron Paul and Eric Sprott. Corcoran is leading this intellectual retreat in Canada.