"Yeah, Bernanke. Another baby-boomer mush head screwing up
a perfectly good system of transferring wealth from the middle
class to the investors. I mean seriously. Enough with the boomers
already! They're incompetent! They can't win wars, they can't rig
the stock market, and they sure as heck can't stand a little Gen X
competition on the internet."

- The Lukewarm Butterknife - Tenth Edition

Ben! Ben! I was joking, Ben! Honest!

For those of you who have been following the rise and fall of the global markets you might have noticed that after I sent out the April Fool's Edition of the Burning Blade this year that the markets lurched upwards faster than Alberto Contador on steroids. And if you're following the independent tracking of the M3 measure of money in the United States you know that while the measure was going up at 7.6% before the Fed stopped reporting it, that it has been going up by over 13% for most of this year. Contrary to how I portrayed things in the humorous version of this newsletter, Ben Bernanke has been hard at work pumping up the stock market and with the exception of the last two weeks, he's done a heckuva job.

Of course, my savings account is getting a meager 4% interest, which, if you subtract the inflation in M3, is actually losing money at a nine percent clip against the growth of the money supply. &#%@!! Somebody call the cops! I'm getting robbed!

Back to being serious. Sure, money is important, you might say, but I feel that many of you out there are wondering why I discuss economics fairly often in the Burning Blade. I can sympathize. It's a boring subject that most of us take for granted and ignore. After all, for almost everyone alive on the planet, their money has always been good and has always lost only a little bit of its value each year. There's no reason to think that will change. And furthermore, to focus on money beyond that which you need to get by at an acceptable standard of living is often taken as a sign of greed. I always used to think that money matters were the exclusive realm of accountants and money-hungry MBAs, but the more that I examine the world through the prism of the Fireaxe perspective the more that I realize that economic systems are part and parcel of ideologies and that one cannot understand politics, religion, and how people get along with each other without knowing how modern economics works.

In ancient times, religion was the law. There was no separation of church and state. Thus, in various religious texts you will find laws governing property rights and the repayment of debts right alongside laws dictating how witches are to be dealt with and the proper way to worship one's god. Usury for example, usually defined as charging excessive interest, is regarded as a sin in most religions. But in modern times, where religion's power to enforce the law has been taken over by secular and pluralist ideologies, and where advances in mathematics and communications have made economic systems vast and complex, economics has risen up to become an extremely powerful force in the world, one that ideologies must account for and control. Furthermore, economics has become so powerful that it has even had more than a minor influence on ideological thought.

Like it or not, modern civilization has deprived us of our independence and ensnared us in a vast network of inter-dependence. Almost everything we need is brought to us through that network which relies on a multitude of logistical, contractual, and financial relationships to function properly. Most of us are far away from anything resembling subsistence farming and we rely heavily upon the network to support us. This can be seen in any area where war breaks out or a disaster takes place. The support system breaks down and instantly there is a humanitarian crisis which needs both immediate attention and long term planning to resolve. Without assistance, the crisis will quickly devolve into immorality and anarchy as desperation overrides social conscience. We need the system to work, and the rules which the system follows are governed by economics.

The economic system, through market forces and regulation, satisfies our physical needs, but more importantly from an ideological standpoint, it influences our role in society and determines, to a large degree, our sense of self worth. Most of us have jobs, and our jobs have a certain income which is determined by the economic system. Our income is the primary determinant of the lifestyle we lead, whether we can afford luxuries or we struggle to get by. Our incomes also convey status which has far-reaching social repercussions. The rich have far more opportunities than the poor beyond merely their ability to buy more and better things. These are things we all know and accept, but does income really translate into a sense of self-worth? The answer is yes, but not entirely of course. A person's place in society is determined by a number of things: how they treat others, how honorable they act, and how wise they are, but also by what they do for a living. The whole of society benefits when each individual contributes to the system in some way and thus it is vital that the system reward individuals for their contributions to keep them working to support it. But while non-monetary contributions and rewards are important, they cannot replace economic ones, and so professions and incomes are a vital part of the social order.

In modern times the importance of a functional economic system has grown as the importance of family and social ties have diminished. Sons seldom follow in their father's footsteps and take over the family business anymore and seeking employment via familial connections is frowned upon in modern, merit based societies. Today most people are expected to find their own way in the world, choosing paths that can be quite different than the ones which their parents took, and prospering by doing good, professional work. Thus, it is no longer the community which is expected to take care of individuals, but rather the economic system, which provides opportunities and rewards hard work. Being able to hold a job is a rite of passage in modern society. It represents an individual's coming of age. It shows that they are responsible members of society. It gives them a feeling of self-worth and rewards them with money, which imparts no small amount of freedom along with it. Earning money translates into independence, provided that you earn enough of it to get by at the standard of living that you are comfortable with. But when you achieve that goal you feel like you are a part of a larger whole, like you're earning your keep.

As a part of the community most people take an interest in making sure that their town, state, and nation is the best that it can be. They identify with their community and take pride in it. They support their community and it supports them and everything is as is should be. At least, that's the way it's supposed to work. But an economic system is just like any other system created and maintained by humans, it isn't perfect, and it is vulnerable to dysfunction and corruption. One of the most common dysfunctions of an economic system is the misallocation of resources, which is a fancy way of saying that too much money gets spent on things from which too few people benefit. Market based systems are supposed to work against such misallocation but the markets often fall victim to manipulation and herd mentality. When the economic system becomes dysfunctional, it has the collateral effect of eroding the self-worth of those who are not benefiting as much from their labors as they should be. An economic system which has high unemployment, or which forces people to work at jobs which are below their level of talent or expertise, or prevents too many people from realizing their potential, or deprives people of the things that they need, is one that disrupts the connection between the individual and the community. When the system treats someone poorly and unfairly, that person will find fewer and fewer reasons to support the community in return. They will cease to identify strongly with their community and regard it with contempt, anger, or simply not care much about it at all. They may turn to crime, drug use, or other anti-social behaviors which hurt the community and the economy. One can argue that having a functional economy is the foundation of any community, of equal or perhaps greater value than religion or a political system, since immorality and intransigence will result when the economy does not work for all. Preachers can preach and politicians can make promises, but if neither can put food on the table then their words will not find the ears of the masses. If the bad times persist, revolution becomes inevitable.

Thus, modern ideologies, such as Democracy, Communism and Fascism, must incorporate methods of managing or controlling the economy of a nation so that dysfunction is prevented and revolution is avoided. Economics is too important a factor in a post industrial society to leave unattended. But economics is more than just a way of managing limited resources. Economics reflects and influences the values of a society. Communism is focused on both social and economic equality which requires a totalitarian government to ensure that economic inequalities do not occur. Democracy is focused on freedom and independence and regulates the economy as little as possible, allowing market forces to determine merit. Fascism seeks a middle way between the two, allowing the government to have far reaching powers to prevent dysfunction but still allowing enough economic freedom to reward those who perform the best. All three ideologies seek to manipulate the economy so that it reflects their basic ideals regarding a person's relationships with other individuals, the community, and the state, but as long as people have at least some freedom on how to spend their money the economic system within any ideology will tend to shift and change. Sometimes these changes will result in a less productive economy which the state needs to step in and correct, and sometimes these changes will result in a more productive economy that can force a change in the laws of the state and even in the ideology itself. A perfect example of this is China, where the recent opening up of the economy of the communist state has resulted in massive changes in both the economic and social order and left over a billion people confused about what ideology they are actually following. Is it Capitalism? Communism? Some odd mixture of the two? The Chinese government is trying to stay in control of the economy, but it is finding it difficult to reign in the ravenous beast without causing bigger problems in the process. Indeed, a nation's economy can be like a frisky young stallion, sometimes it goes where the rider tells it to go and sometimes it just goes where it wants to go.

No ideology has solved the problem of how to prevent an economy from becoming dysfunctional. This is due to the fact that the falsehoods that make up ideologies permeate their economic systems. I've discussed ideological falsehoods in editions 8.6 and 9.6 of the Burning Blade. Those essays can be summarized by stating that ideologies must provide powerful incentives in the form of future gains in order to motivate their believers. In economic terms this means that ideologies must deliver increasing growth in economic measures such as income and gross domestic product. These numbers are used as proof that things are getting better and can be used to maintain the faith of people who are not personally doing well by showing them that the overall economy is expanding and that good times will be heading their way soon.

A functional economy generally grows at a steady pace over time due to innovation, increases in productivity, and population growth. While this progress is encouraging, the main focus of a nation is not on absolute gains, but on relative gains against its rivals. If your nation grows at a 5% rate but the average gain worldwide is 8%, then your nation has actually declined 3% relative to all others. Not only does this represent a loss in a nation's power and influence but it brings into question the competence of the government and even the efficacy of the ideology. No one wants to see their nation go into decline, even in relative terms. Such a thing makes a nation more vulnerable to foreign interference, in both economic and military terms, and doubts are cast on the beliefs of the people that their nation's ideology is truly superior and that it will eventually achieve global dominance or at least last a very long time. If your nation grows at an above average rate, or higher, all is well, but for those nations which are below average, their populations will believe that something is wrong. For those unfortunate nations the fault must be placed somewhere, such as on the unfair practices of a rival, the poor performance of the government, or in the flaws in one's ideology. Of these the easiest for people to accept is that the fault lies outside one's own nation. However, blaming the government, especially the members of the "other" political party, is also quite popular.

The central problem is that while not all nations can grow at an above average rate, all are expected to do so (an inherent property of ideologies), and the populations of some nations demand that their nation be the best every year. These unrealistic expectations cannot be met by all nations, and so many seek ways to make it appear that their nation is doing well despite the truth that it is not. Fudging the numbers is one of the best ways to create growth out of nothing, such as getting creative with inflation figures so that it is much lower than it really is. Since all economic statistics are compared against inflation, making inflation seem low makes everyone seem richer, especially when money is being borrowed or printed at an exceptional rate. Making credit more available is another way of making people seem richer than they are. This allows people to borrow more of their future gains for enjoyment in the present, but if the risk of defaults is not adequately accounted for this guarantees economic shocks down the road as promises fail to be delivered upon and dreams crash to the ground.

Both of these gimmicks represent moral failings in the realm of economics. One is simply bald-faced lying and the other is yielding to temptation. The problem with these types of moral failings is that they solve problems in the present at the expense of causing greater problems in the future. This presents a moral dilemma. If your focus is on survival in the long term, allowing such moral failures to occur is unacceptable, but if short term survival is of the utmost importance, then these moral failings are not only tolerated but encouraged. In democratic systems, where politicians must be reelected at frequent intervals and where many of them do not serve for long terms, one would expect to see politicians accepting economic malfeasance as being vital to their careers. This is not to say that democracies are uniquely vulnerable to economic malfeasance as the leaders of all nations must show economic growth or be called to answer for the decline. No one wants to be the one stops the printing press and calls for restraint. Politicians who tell the people that everyone is going to have to suffer through some bad times while a recession runs its course are seldom popular and rarely remain in office. So there is an extreme temptation to indulge in immoral economic practices to meet the demands of the present and let someone else deal with the consequences. Of course, after this process has been repeated a number of times, and the future consequences of past bad decisions have grown to epic proportions, it becomes more and more important to a nation's leaders to push the bad times off just a little farther so that they occur on someone else's watch. No one wants to appear responsible for bringing down an economic house of cards. So higher and higher it goes.

But once the tools are in place to make the economy of a nation appear to be stronger than it is, dysfunction in the economy can flourish with the general population being none the wiser. If growth appears to be strong and everyone feels richer, the balance of how economic rewards are distributed throughout society can become extremely skewed without the people realizing that they are becoming effectively poorer. While one's income may appear to be going up as fast as the reported amount of inflation, the real rate of inflation will eat away at one's income, degrading one's standard of living making it difficult to bargain for better raises since their bosses will just point to the government's figures as proof that the raises they have given are fair. To make ends meet many people often have to turn to borrowing to get by. Borrowing just adds another drain on one's income and can only be considered a short term solution, but for those who need the money there is no alternative. Like their governments, they push their problems off to the future and hope that it will all turn out for the better. Also, the government's unemployment statistics can appear to be quite low, but not indicate that the high paying jobs are being moved overseas and replaced by lower paying ones. Slowly but surely wealth gets transferred from the masses to the rich while the widely reported economic statistics tell a story of growth and prosperity.

The result of all this is moral decay, both in economic terms and in social terms. The immorality on Wall Street is frightful, with the global marketplace appearing to be more and more like one gigantic Ponzi scheme teetering on its last legs. Greed has run unchecked for decades and the world has collectively borrowed deeply into a future that has no chance of being realized. Unfortunately the powers that be continue to kick the problem down the road with many of them refusing to believe that a problem even exists at all. After all, the system hasn't crashed yet, maybe it will all work out. But more importantly is the moral decay on Main Street. Here I'm not referring to gay marriage, flag burning, nudity and profanity in popular culture, or abortion rights which are moral issues in name only. The true moral decline in a nation is rooted in the bond created between individuals and their communities through economic contributions and rewards. When standards of living decline and needs go unmet it's no surprise to see people caring less and less about their nation and the law. When the promise of good employment after attaining a degree in higher education evaporates and only far less palatable opportunities remain it's hard to keep believing in the work ethic. Gambling, in casinos, public lotteries, and the stock market becomes endemic as people strive for that lucky strike which will allow them to lead the kind of life that the economic system denies them. Certainly a few individuals can prosper, even in the worst conditions, through hard work and taking initiative, but if the system does not work for the majority of people there will be breakdowns in morality across the board. When people lose their self respect they will not respect others. When people lose their sense of self worth they will treat others as if they were worthless. Relations of every stripe break down, not just economic ones, and trust is replaced with lying, cheating, and doing whatever it takes to get what you want or need.

Moral decay also occurs among those who are rewarded handsomely by the system, particularly when wealth and income come too easily. It is common for the rich and powerful to lose their respect or concern for the community since treating others well can become irrelevant to their well being. Also, those obsessed with accumulating power and wealth, who generally obey few or no morals, prosper in environments where economic malfeasance is rampant. When immoral people become powerful, they open the door for further immorality. Cheating is contagious. And once an economy begins to become dysfunctional, moral decay on both the rich and poor ends of the spectrum tend to push the system towards more dysfunction rather than righting the ship. It's not inevitable that the system proceeds to a complete calamity though. One solution for several nations has been to elect what is essentially a dictator, someone who seizes power with the goal of correcting the system, such as Putin has done or as F.D.R. and Hitler did during the 1930s. Of course, such a solution has potentially serious repercussions.

Thus, economics is important, both to the Fireaxe theory and to people in general since it controls our fates more than we realize. Taking it for granted is a mistake as it does not always function in an honest manner, and leaving it in the hands of the politicians, the wealthy, and the herds of investors has always ensured dysfunction and the eventual breakdown of the system. In the end we all suffer, not just the rich, the powerful, and those who owns stocks and bonds, but everyone who is a part of the economic network, so it's necessary that we all make sure that problems are stopped before they grow to epic proportions. Unfortunately, this time around it appears that I, and many others, are too late.