Managing the Unmanageable

“In the latest sign of an economy addicted to artificial stimulus,” writes Fortune’s Colin Barr, “the Federal Reserve on Monday posted a record $81 billion profit for 2010.” Barr points out that the central bank’s take is “more money than the entire U.S. banking industry has made over the past three … years.”

He also observes that most of the money has come from interest on the garbage mortgage loans the Fed took on to relieve its Bankster buddies when their exploitation of the subprime market took a turn for the worst. Economic laypeople could be forgiven for wondering how, in the midst of the present economic malaise, the Fed is achieving such favorable outcomes, and we might even regard it as heralding broader recovery.

That, however, would be a mistake. Like the money it prints, the profits reported by the Federal Reserve aren’t what they seem, representing returns on precarious investments that no sane actor would undertake. Those putrid investments include not only the storied mortgage-backed securities that became the focus of the financial debacle, but Treasury bonds that sponsor the federal government’s debt. Even while these holdings generate income now, their purchase with imaginary money that was “printed” electronically means that financially-accountable, free people never got the chance to discover their clearing price.

Since the Fed can’t assign to an asset a value it doesn’t actually have, that market price will ultimately have its way, but not before we pay the piper. The Fed’s theft is a discreet, impersonal process whereby the anonymous everyman of “the taxpayer” is depleted “to keep funds flowing through the economy.” And that goal — managing the economy — is the Fed’s ostensible reason for its madness, although it doesn’t hurt that all of the institutional structures favor the “Too Big to Fail.”

No matter which way you drive on it, the political process is an avenue leading up to a dead end, with all activity within the process fundamentally a waste. And this isn’t for a lack of well-intentioned, morally-sensitive people or an overabundance of malefic evildoers. No, the results of politics follow instead from the immutable fact that its laws cannot nullify or alter the higher laws — whether we source them in natural reality, God or anywhere else — that make it impossible to achieve positive results through violence.

“Hegemonic intervention,” wrote Murray Rothbard, “substitutes chaos for … order,” that order being the “mechanism of harmony, adjustment, and precision” that he located in the consensual conduct of self-managing individuals. The chaos that is symptomatic of the “hegemonic principle” is evidence of not just the impracticality of controlling people and free society, but indeed of its impossibility; the state — the people and institutions that, through acting aggressively, comprise it — simply can’t know all of the things it would have to know to successfully “manage” the interactions within society.

Consider the example of one household charged with managing every other home on its street. Even the most well-organized, methodical family couldn’t possess all of the facts necessary to conduct all of every other house’s business, to allocate their resources efficiently or master their particular issues. Even assuming that the family could compile the relevant facts, it wouldn’t be able to make sense of them in a way that would allow it to dispense funds and materials appropriately.

The political elite’s control of our economic system is more circuitous and less direct than that on our hypothetical street, but the fundamental principle and its coinciding problems are the same. Hierarchical organizations like the Federal Reserve, the huge bureaucracies at the helm of our society, enjoy a presumption in their favor within our conceptual scaffolding. If we probe what they do, though, we’ll find that they perform through a combination of insanities that we would never entertain in running our own lives.

Translations for this article: