In fourteenth-century Italy, alchemists came to be known as frauds because they deceived others into believing that they could create wealth in the form of gold from nothing, that is, base metals. In The Divine Comedy, Dante meted out especially excruciating punishment to these miscreants in hell. Capocchio, one such alchemist whom Dante consigned to hell, observed that he (Capocchio) had in life been “a good ape of nature.” In other words, he was damned for creating and representing fakes as real.
In twenty-first-century America, to be sure, we are far too sophisticated to be taken in by such hokum. However, as Kipling so incisively observed many years ago:
As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire.
So it is that not only did many Americans up until recently believe that housing prices would ever increase, they — or at least a large number of sophisticated investors — also believed that Bernie Madoff had solved the challenge of how to produce consistently above-average investment results with minimum risk. Such was their trust, they invested their hard-earned wealth in such nostrums.
We now find ourselves informed by “leading” economists and politicians that the solution to our current economic malaise is for government to embark on a gigantic spending spree. This spending, we are assured by one of the leading securities rating organizations, Moody’s Economy — whose recent history of ratings brings into question its judgment for quality analysis — that these expenditures will generate “multiples” of growth in GDP in magnitudes exceeding 1.5 times the amount spent. These estimates are supported by complex macroeconomic models which are incomprehensible to all but the most elite cognoscenti. In other words, the “experts” say the answer to economic stability and wealth creation is for our government to spend borrowed funds, to be repaid from our future wealth. Thus, miraculously, we are led to believe, our wealth will multiply and economic growth will be miraculously restored.
On the one hand, then, we are informed that we are in our financial straits as a result of a “bubble” caused by excessive spending which caused housing prices to grow beyond any sustainable level. On the other hand, we are advised that the way to solve this economic problem is to indulge in a massive spending program.