Economic Laws Are Not Optional

Tyler Durden's picture

Submitted by Monty Pelerin of Economic Noise blog,

Economic laws are not optional. They are like the laws of physics - inexorable!

economic policy


Economic laws are less precise in terms of their timing and effects, only because they deal with human behavior rather than physical particles. Human beings alter their behavior to cope with changing conditions. Particles do not. Free will and the survival instinct make prediction, especially regarding timing, very different and difficult in the human realm. Nevertheless, the laws are immutable!

Long-time readers of this website know that no recovery is possible given past and current economic policies. Initially, it was argued by some that government intervention was necessary and would effect an economic recovery. By now, even the dullest of Keynesians know their policies failed. Yet they continue.

Why would failed policies continue? The political class argues for their continuance, but not on the basis of sound economics. Their arguments are motivated by political self-interest. The appearance of a recovery is more important for politicians facing another election or a legacy than the damage being done to the economy. Remember when the focus of the Clinton campaign against George H. W. Bush claimed that it was the worst economy in fifty years? That was not true, but it was effective.

Stopping the Federal Reserve juice threatens what remains of our economy. No one wants to be known as the “new Herbert Hoover,” although someone will inevitably be tarred with that association.

Early Warnings

This website began in September 2009 recognizing the futility of applied economic efforts to “cure” the problem. The very first post appeared on September 7, 2009  and was entitled No Exit From Economic Mess. To put matters into perspective, the government claimed the recession had ended in June of 2009. This economic lie was apparent to anyone who had a modicum of economic understanding or common sense. The more of the latter one possessed, the less of the former was required.

Over time I have come to believe that the two types of knowledge may now be incompatible — a sad commentary on how the economic profession has been hijacked by the political class. A good rule of thumb is to ignore any economist who is involved in politics. Unfortunately, with government grants, that includes much of the profession, including those never directly employed by government.

The first paragraph of that very first post stated the following:

Doug Noland of has it right on his “No Exit” Possible scenario. Our economy has become totally dependent upon government spending, interventions and subsidies. There is no recovery in the private sector, nor is there likely to be one in the next several years. Federal meddling will continue to create distortions that will require additional and continued meddling. From a political standpoint, there will be no good time for an exit. However, at some point, the system will not be sustainable. Markets will eventually end the meddling regardless of whether it is politically or economically feasible or timely. When that happens, our lives and economy will never be the same again.

On that same day, there were six other articles suggesting that no economic recovery was possible until policies and conditions changed. Links to them follow:

1. Stocks Divorced From Real World


2. Banking Mess where it was said:

Enron-type accounting is allowed to enable banks to keep exposure on non-consolidated subsidiary books. Banks are allowed to value assets at whatever they deem them to be worth rather than accounting standards that have been in place for centuries. Condoning this fraud may defer the political problem. It cannot solve the economic problem and likely makes it unsolvable at some point. Market forces will eventually overwhelm the charade, and put our entire economic system at risk of implosion.

3. Timely Economic Analysis from Dilbert???? The Dilbert cartoon provided a possible reason why economists find it easier to bring good rather than bad news:

It appears that the writer of Dilbert is a better economist than many Nobel laureates who are proclaiming “Green Shoots.”



4. The Banking System, The Dollar and The Welfare State stated:

There is no mathematical possibility of escaping the economic bind we face without reducing the welfare state. The current financial crisis only exacerbates a situation which long ago passed the tipping point. The Federal government’s total liabilities exceed $100 trillion (most of that from the unfunded liabilities of the welfare state: social security, medicare, etc.). With the financial crisis, we now have an additional black hole, our banking system. The condition of the banking system has been covered up, but that is becoming harder and harder to do as banks collapse under their own weight as a result of deteriorating conditions.

5. The Crash Course by Chris Martenson  presented his ideas of how the policies were economically foolish and mathematically impossible to continue.


6. Moral Hazard Destroys Social Capital and Cooperation discussed the corrosive moral effects of an immoral government:

When the “game” is perceived to be corrupt and exploitive, it is easy to rationalize immoral behavior at the level of the individual. Contracts, promises and obligations start to become meaningless. For many, the phrase “is it legal?” replaces the phrase “is it right.” Loopholes in the law trump ethics. Soon even the law becomes less of a barrier as cheating and stealing become acceptable for some.

These were posts on the inaugural day of the website. The passage of time has not changed anything, except the understatement of some of the problems from the first day. The post regarding stock market valuations was arguably incorrect as the market recovered nicely from that point. However, it is valid today, more so than ever.  Almost five full years from the date of these posts, there is less reason for optimism. The economic structure of the country has been further weakened.

The declaration that the recession ended was a lie. Polls show that a majority of the population now agrees we never left the recession. Zerohedge referred to a recent article by Eric Sprott to provide an up-to-date assessment of conditions:

As Eric Sprott points out in his latest letter, “if one looks past headline figures, things are not really getting better. As shown in Figure 1, real disposable income per capita in the U.S. has increased only modestly since the Great Recession. However, all of this increase is due to Government Transfers, not from an improvement in the real economy. If we exclude those transfers from the numbers, disposable income per capita is actually lower than it was at the end of 2005 and has been painfully flat since 2011. Also, those numbers assume that the headline Consumer Price Index (CPI) accurately represents people’s purchasing power.”


Presenting our chart of the day: disposable income with and without government transfers.



And it is not just disposable income: as Sprott explains, “the U.S. economy has been on life support, graciously provided by Central Planners. However hard they try, they will soon realize that no amount of money printing can cleanse the rot of the U.S. economy.”

Here is why for a large portion of the population, “things are not anywhere close to being better, in fact they are worse than before the recession.”

Nothing Has Changed

The smoke and mirrors obfuscating true economic conditions for five years has been deliberate. The economy has not recovered. It has been made more distorted and imbalanced by the futile attempts to pretend that all is well. Government has more smoke and mirrors left. Yet, even the political class now seem to sense that they are playing out the clock without altering the ultimate conclusion. When your time frame is limited to the next election, longer-term consequences of current policies are ignored.

The economic piper will be paid. All that has been accomplished by these actions is a deferral of the correction and the creation of a bigger debt upon which the piper will collect. The warnings expressed on the first posts on this website are as relevant now as they were five years ago.

A massive political cover-up of the true condition of the country has been accomplished at the cost of making underlying economic conditions worse. The economy is no longer growing and people are becoming poorer as a result of the political shenanigans used to hide the true conditions.  As expressed in the very first post:

There is no recovery in the private sector, nor is there likely to be one in the next several years. Federal meddling will continue to create distortions that will require additional and continued meddling. From a political standpoint, there will be no good time for an exit. However, at some point, the system will not be sustainable.

Zerohedge’s recent assessment of current economic conditions indicates that matters may be progressing rapidly toward this end:

Despite the best efforts of The Fed, its apologists, and the commission-taking talking-heads to persuade the world that the US economy is picking up and set to reach escape velocity any minute… the fact is, the US economy (judged on data not fantasy) is hurting. Consensus expectations for 2014 US GDP growth have collapsed from over 3.00% to a mere 1.7% now. But what is more critical is the incessant bleating that data is picking up and suggests a 2nd half recovery… it doesn’t.

The inevitability of what is coming is what is important. The timing remains uncertain. It need not occur in the next week or month. Timing may still be measured in years, but the outcome is more certain today than it was five years ago. The laws of economics make it so. Any geopolitical or economic misstep could trigger the event. Without such a misstep, the charade could continue for a while.

A collapse is coming. It is unavoidable and will be worse than it should have been as a result of political duplicity.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
TeamDepends's picture

A printer in motion will stay in motion unless acted upon by an equal or opposite force.

LetThemEatRand's picture

You know what they say about entropy.   

markmotive's picture


The only laws that aren't optional are the laws of physics.

Thats why the next debt crisis is unsolvable.

wee-weed up's picture



Economic laws are not optional. They are like the laws of physics - inexorable!


Poor idjiot Krugman would beg to differ...

NoDebt's picture

Before there was such a thing as the study of Economics, there was survival.  Economics is the study of survival after the creation of money (in whatever form- cows, gold, fiat currency, etc).  

Economics beyond the micro (individual level) is no different than studying derivatives.  They are a refection of the underlying conditions.  If your only perspective is top-down, you will always be surprised at the individual outcome.  If your only perspective is bottom-up, you will always be shocked by the aggregate.

McCormick No. 9's picture

To continue your thought...

Before economics, survival...

...and survival is nothing but thermodynamics. How can you keep the heat engine fueled?

Money is nothing more than a heat energy index. If you skew the index, you don't neccessarily add more heat to the system.

To a certain small extent, putting more money into the system can create a bump in heat production, but this is limited to the extent perception can drive reality, rather than reflect it. Someone somewhere has figured out the percentage- my guess is less than 2%. Money is a perceptive tool, in that it allows us to conceptualize the heat energy we control. Money is not heat energy in and of itself. But it seems that economists have forgotten this fact.

What do you have that does not require a fire somewhere to produce? Even the grass requires a fire in the sun. When your personal metabolic fire goes out, you're dead. Any discussion of economy that does not remember that fire is at the very foundation of everything is an exercize in fantasy.

Save_America1st's picture

Great post...I liked that.  Never heard it conceptualized that way.  Thanks man!!!

Now to add some fuel to my fire.  Time for another brewsky!

Sean7k's picture

This artiicle is a mess, starting with: Economic laws are immutable? Does the author understand what this word means?

There are NO immutable laws. Laws are a reflection of our limited understanding of how the universe functions. Which is why all laws have a tendency to be "updated or thrown out". We console our curiousity to temper our fear.

The economy is functioning perfectly, just as it has been intended, and benefits those whom designed and operate it. Everything else are the arguments meant to confuse and anger, thus making us too stupid to act. Solutions are in plain sight, but never implemented. Why? If you need to ask, you aren't paying attention.

Without the ingrained prejudice we receive as education, we have the ability to make observations and resolve the pressing problems of life. All the extra stuff is within our grasp as well, as we have time and leisure to pursue it. However, being slaves, our lifelines are determined and controlled by others. We receive what we are allowed and no more. Some societies allow more than others. 

All created through the nexus of the State, Law and Money. It will never change until all three are eliminated.

Carpenter1's picture

Yes, yes, we get it.

How about "there are no immutable laws, but given the limited power and intelligence of man, there are limits which will bind him, until and unless his power increases."


Sheesh! 2nd year physics students are so uppity

Sean7k's picture

Do you really think intelligence is a function of power? How could we know our limits, if we are not free to explore them? Even genetics, which could be a result of intentional outside controls limit our functionality. No, I suggest you don't 'get it". You are caught in the same group think mentality drilled into all students and professors. 

We live in a manufactured reality designed to make our slavery palatable and challenging. This reality is maintained with certain tools and processes, which compose our life experience systems. Liberty only exists as an anomaly which surfaces in certain individuals to be explored at great cost.

TheRedScourge's picture

You can't eliminate money without implementing full communism, which of course never lasts long before a major catastrophic collapse. Money is people's representation of value. Had you said centrally controlled currencies perhaps I would have agreed.

chumbawamba's picture

Bullshit!  You just live in a bubble universe.

I am Chumbawamba.

TeethVillage88s's picture

I should read the article and the link above by commenter...

But historically

We have all been fucked since 1913 and mostly didn't fight it or even realize it. Physics Schmisics. If you don't know you are a boiling frog, you might be smoking the bad hooch, drinking the bad kool aid, and maybe brown-nosing some celebrity or supervisor.

Historically the Intelligentsia who created Russian Communism in the West probably knew more about the world than 70% of US Citizens. This looks like a problem.

Communism's first rule is to educate before the revolution. They aren't doing this in the USA. But that is not to say that Socialist or Communist haven't decided to "Dumb Down" Americans.

We know that we have a US Intelligentsia who "Rule" us, and we know that we are not taught the Truth about History. They seem to be leading us to Slaughter, but who are they? Globalists are just Elites who want to make more money than the rest of us. And they want o prove they are superior, higher, or of a higher class.

Well as far as I can tell. Correct me here.

Notes; Propaganda that led us to WWI & WWII. I can't see justification for the Vietnam War even if Paranoia led us to the Korean War. All later wars seem like bullshit. Covert History is even more twisted.

TeethVillage88s's picture

Value Intelligentsia VS. Viking

US Culture is now Militarized (Good or Bad) and our people have changed to accept groping and abuse by Federal Government when military service is contracted.

But some will say I don't know shit.

I disagree.

We have a unique US Intelligentsia:

A) Military Schools
B) Military Families
C) Constitutional Scholars & University Historical Scholars
D) Business & Banking Conservative Cultures from 1800
E) Old Timers that retain the True History of USA

Study Bitcheez

Carpenter1's picture

It'll all burn


Vancouver financial advisor Vancouver Financial advisor Vancouver Financial advisor

Ariadne's picture

Which lame guesses are you calling laws now?

Kirk2NCC1701's picture

"There is nothing more predictable than the Laws on Nature, and laws of human nature" -Kirk

Plan accordingly.

Jumbotron's picture

"Bullshit.  The olnly laws that aren't optional are the laws of physicss." need to read up on quantum physics.






Ariadne's picture

No Satan, what do the Krugmanati say about entropy? Which by the way was disproven in the 1970s.

LetThemEatRand's picture

I'll tell you 23 years, 4 months, 11 days and 47 seconds.  Unless you fly coach in the next few months, in which case sooner.  Fucking free will.  I told him it was bullshit.  Anyway, see you later.

Duffy's picture

Entropy in information theory terms is information that is lost and unknowable - probably just about everything that ends up in a black hole, but not necessarily *everything* as even Hawking admits.


The more economists, imho, anyway, construct theories to explain reality, the more information (true, real facts - knowledge of that which is the case) becomes lost.


Therefore, economic "science" increases entropy as to understanding the thing-measured, the real set of economic interactions in a system.


You know...  probably.

Sparkey's picture

Excellent thinking Duffy!

Headbanger's picture

Good point Duffy.

However me thinks it goes moar like the moar economists and governments do to affect the economy, the moar disorder (entropy) they create just like with any physical process.

And thus disorder expands exponentially to the point of catastrophic failure instead of allowing the system to self correct and stabilize.

ANd all this is from the stupid delusion we've been told that THEY can do something about it.

They sure can!

They'll mess it the fuck up even worse!

QEternity's picture

Things that cannot go on as they are, go until they can't

luftmensch's picture

Nice recap of ZH history Tyler.


Basic premise is dilution of monetary supply, propping up of assets, basically using duct tape and paper clips instead of actually fixing the system.


Paper money isn't worthless, I'd say its main value is the tax revenue stream and the weapons to enforce it.  And the ability to keep the tax base strong by having a functional system in place for economic activity.  The house needs to get its share.


So if we go to a new commodity-basket backed currency (say a combination of metals, agriculture, clean, water, etc., more diverse than just gold), eliminate the Fed, no more fractional-reserve banking, castrate the bankers, did I miss anything else?


If we go to this new libertarian, in theory more "stable" model, wouldn't there be a complete melt-down and collapse of the world as we know it?  So much of the current system requires the ongoing hype, hope, irrational exuberance...if it all came crashing down at once, seems like it could be catastrophic.  Also, if just one country does it, that country could easily become the bitch of the rest of the world.


So maybe this economic slow-motion crash that ZH has been describing, is actually the best case scenario...just a constant gradual erosion of economic power, while keeping the vast majority ignorant and docile…


It really comes down to how much for the oligarchs, for the people, for me...and does the pie slicing reflect our personal and social values or not.

ekm1's picture

Another rare Zerohedge nonsense. 

There is no such thing as 'economic law'.


Only nature has laws. Economics is politics and war, based people's decisions and free will.

buzzsaw99's picture

+1 that was going to be my comment. immutable economic laws? name one. ridiculous assertion by the author. this post is wordy, pointless, absurd.

AlaricBalth's picture

This economic law may not be immutable, but in western democracies it has certainly proven to be true.

Wagner's law, also known as the law of increasing state spending, is a principle named after the German economist Adolph Wagner (1835–1917) He first observed it for his own country and then for other countries. For any country the public expenditure rises constantly. Wagner's law suggests that a welfare state evolves from free market capitalism due to the population voting for ever-increasing social services.

SafelyGraze's picture

the first law of front running: re-order the pending trades until yours has executed first


nmewn's picture

de Tocqueville observed much the same thing but attributed it (the evolution of the welfare state) to democracy, not free market capitalism (where there are voluntary winners and losers) who risk their own saved capital.

What we have now is a corruption of free market capitalism. The losers are subsidized and the winners are as well (the grub stake is not theirs) the subsidy given to welfare (by winners) is posited as charity...but its really graft & bondage.

I guess its referred to as philanthropy now ;-)

Duffy's picture

I can't tell, nmewn, if you'd agree that most welfare, in this sense, is distributed to banks and large corporations.  As to future unfunded entitlements and such... projecting forward 50 years, perhaps a closer call.  But perhaps not.

Certainly agree that what critics of "capitalism" are criticizing isn't actually capitalism at all. 

nmewn's picture

Absolutely Duffy.

I always defer to the wisdom that a simple farmer shared with Rep. Davey Crockett...

...simply, its not theirs to give away in the first place.

Put another way, if there was a rule, a law, a restraint that held that for every dollar the President, the House and the Senate misappropriates a percentage of that dollar comes off their retirement, salary, health benefits, travel expenses etc...we would wind up with one of the most frugal governments on the face of the earth ;-)

shovelhead's picture

Pay tied to performance???

Like the real world???

"Wow, that is...way out there...Spaceville."

-Maynard G. Krebs-

Jumbotron's picture

There's only one thing wrong with your observation nmewn.  The government only does what the people want.....or enough people are incapable or unwilling to do what it takes to MAKE them do what SHOULD be done.

Either way.....our reps do what we want or are willing to fight for.   You always have the anwer to that by what laws we have.....and what laws are ignored.

Ain't   N O B O D Y ' S  fault but our own.

TeethVillage88s's picture


I know some old timers who like guns, served in the military, and fully expect their Social Security & MEDICARE when they reach 64 years old. They paid into it.

And since they lost their pensions in the 1980-90s to plant closings, they are real touchy on the subject.

Anyway I like SS & MEDICARE. They were supposed to be Trust Funds. Corrupt Government takes the money for Vietnam or other reasons. And of course the corruption of money means they won't fix MEDICARE & MEDICAID or even maintain these programs and monitor them as stewards.

Just like Congress is supposed to Steward Fraud & the Economy. They have become Fascist Globalists.

AnAnonymous's picture

de Tocqueville observed much the same thing but attributed it (the evolution of the welfare state) to democracy, not free market capitalism (where there are voluntary winners and losers) who risk their own saved capital.

Indians have finally made a breach in the US so they can risk their own saved capital?

TeethVillage88s's picture


Did we have a Welfare State in 1840?? Wouldn't most place it at the feet of FDR or LBJ? OHSA signed by Tricky Dick in 1970.

Democracy in America (appearing in two volumes: 1835 and 1840) and The Old Regime and the Revolution (1856).

Urban Redneck's picture

One western democracy where Wagner's law doesn't hold up in Switzerland (one would have to play the nominal spending game on a long enough time line... to call it a law).

Either with respect to the people voting themselves ever increasing social services (links are in German, Wankerpedia has the unreliable version)

Or with public expenditures always rising (either nominally, in real terms, on a per capita basis, or as a share a share of GDP) (again- in German since OECD has a pay wall, but any translator plugin will work)

And yet there's still too much public spending increase in Switzerland (for which I blame the EUphiles and the Federal Constitution of 1999).

Citxmech's picture

How about Gresham's law?

Math in accounting would be another candidate - ie Total debits must equal total credits for each transaction.

Urban Redneck's picture

Finance (which includes accounting) and economics are not the same.

Gresham's law also doesn't hold when both the bad and the good money are both overvalued, both with respect to the domestic value of any asset underlying the money, and with respect to the foreign value of any asset underlying the money. Fed charlatans/economists have other arguments but then they also have an interest in defending bad money.

Citxmech's picture

Regarding finance - I basically agree with you - BUT - an economic theory that disposes with general accounting principals at its foundation, I feel, is doomed to be flawed from the start.  Look at what the accounting changes approved under Bush II (Mark to Fantasy) have done to market valuations in the stock market.  

The extension of this principal would be the economic law that you can't print your way to prosperity (at least for very long - there will be a reckoning). 

Regarding Gresham's law - these principals are all processes - you can't take a snapshot and say, "see, there are imbalances - hence the principal is flawed."  We're talking about tendencies and flows in a chaotic system.  

This is similar to the weather.  Hot air rises and cold air sinks.  That is a law.  Doesn't mean we can predict the weather next Tuesday with certainty. 

FYI, I do not hold up economics as a "science" proper because it's implementation mostly fails Karl Popper's falsification protocol - but that does not mean that there are not economic truisms.

PS  My favorite:  "There is no free lunch."


Urban Redneck's picture

The difference I see between economics and finance, banking, accounting is that in the "applied pseudo sciences", there is a very clear distinction between theory and practice (which is dictated by local laws/regulations). In theory- a derivative is marked to a valuation model; in practice, whether that valuation model is market value, maturity value, or some number Blythe Masters pulls out of her ass is up to FASB.

In regards to Gresham's Law- what I see as the strongest argument over time against the theory being a law, as opposed to a truism, is the existence of coinage, both PM and base-metal. The US has had copper, nickel (and silver) in side-by side circulation where the underlying melt values fluctuate over time and against each other - as long as the good, bad, and indifferent money all exceeds the melt value they can peacefully coexist over time, but as soon that changes Kyle Bass calls his banker with a coin fetish.

tmosley's picture

Economic laws are self referencing, and therefore difficult to define mathematically. That doesn't mean they don't exist.  Supply and demand is certainly real. 

Most economists are not scientists, even though economics is a science.  It's just that economics is the most difficult science imaginable, due to its self referencing nature.  Were we to create an algorithm that could accurately describe it, you would find that you have a strong AI with computational power equal to or greater than every human being on earth put together.  

Austrians recognize this fact on a subconscious level, dismissing it as "impossible" to describe using math, and therefore attempt to use their own brains as oracle machines.  Human brains are very, very good at modeling other human brains, so they make accurate predictions (x policy will cause Y outcome), but they can't predict timing or magnitude.  Humans simply aren't smart enough.  And if we were, then we still wouldn't be smart enough, as the complexity of the calculations increases with the intelligence of the members of the economy.

shovelhead's picture

How about this one:

Spend more than you make, borrow to fill the gap, but eventually* you WILL BE BROKE.


*Printing until nobody takes your paper still falls under eventually.

tickhound's picture

Freaking amazing but I absolutely agree with you.

Total BS.

The article assumes THIS economic model is the only way of life.

And for you Easter Islanders who don't understand... Your problem wasn't a lack of trees, it was the model itself that made cutting the last one down WORTH THE BOOST.

We don't live to work, we work to live. We chase and scalp cuz the model says chase and scalp... Like the easter island model said build statues out the ass.

Changing the LOL laws of this economic bullshit we call a model for life is easy. Most people cog dis right there.

buzzsaw99's picture

if there were such a thing as economic law and that being in line with capitalism as a central tenet then easter island is the exact result you get every time. the author makes it sound like (vague, nonexistent) economic laws, if obeyed, yield good results whereas violation of those (man made arbitrary, theoretical, conflicting) precepts results in negative consequences. bollocks.

DavidPierre's picture

Derivatives: Abuse, Props, Risks

By: Jim Willie

The topic of financial derivatives is a huge can of worms. The subject has arisen in the financial press much more in the last few years since the global financial crisis turned critical and became a clear case of grand struggle to prevent a veritable collapse. In a loose sense, the derivatives are the scotch tape, bailing wire, band-aids, and chewing gum holding the system together, the glue and adhesive, with rose colored glasses used with a large amount of deception.

The 1987 stock slam that occurred was a wake-up call. The response was the creation of a derivative banking foundation of vaporous substance. It was a shoddy attempt to compensate for the gross insolvency of the US Banking system.

The return to the Gold Standard is the answer, but the clean-up crews will be busy for a long time. The Gold Price will reach incredibly high levels when the derivative implosion occurs, which should occur when the East introduces a legitimate gold-backed new BRICS currency for trade settlement.

The fallout will be tremendous, as the USDollar is rejected on the global stage.

The United States is a hair away from losing both Germany and France to the Eastern Alliance. They will embrace gold, and walk away from the USDollar, with a certain absorbed cost.

Great changes are coming like a fierce new storm.

Bastiat's picture

The Germans will lose the gold held by the US of they go east . . . but it's not like they have it anyway.



If Glass-Steagal was kept we would not be in this mess to begin with.

GS was economic law. Dodd-Frank does not replace Glass-Steagal IMHO. Leverage got us here without the leverage we would not have