The increase in noticeable economic activity caused by new money and below-“natural” interest rates* is often mistaken for progress. But no wealth is increased by these maneuvers. As in all “get rich quick” schemes, in currency and bank manipulation wealth gets shifted from difficult-to-notice holdings into easy-to-notice bustle.

In the case of increasing debt, where the money seems to arrive from the future, this is also an illusion. The money lent comes from some people’s current savings, and, by being loaned at interest, constitutes an investment.

But there is a sense in which wealth does come from the future.

What cheap interest rates accomplish is entice loans that are less likely (than at natural rates) to be paid back in full. The “not paying back” happens either by outright default or partial default-by-inflation.image

So some of the people with holdings lose those holdings to procure for others the present utility of obvious “economic activity” — either consumer spending (in consumer loans), business activity (commercial loans), or infrastructure spending (the problematic investment in “public goods,” usually by contract with private providers — contractors, sometimes the lowest bidders, but often “cronies”).

New money influx and cheap interest rates seem magical. But remember: Magic is all about illusion, about parlaying limitations in attention and our natural cognitive biases to focus on “the wrong things,” thus misconstruing what is really happening.

Most of the magic, er, savvy scheming, promised by politicians is just a form of public fraud.

Such machinations work by misdirection and rely upon our natural attention to “the seen” bustle of industry, not “the unseen” costs and “non-chosen alternate uses”** — and time-lines. The complexity of everyday life thus becomes an impediment to ready understanding, and sets up the substructure that supports modern dirigiste economic policy.

Mundus vult decipi.

* The natural interest rate is the equilibrium rate theorized by Knut Wicksell and his immediate followers, Ludwig von Mises and F. A. Hayek. It is an inter-temporal rate, balancing future and present values. We have reason to believe that markets exhibit some tendencies to find this rate, but some influences on the market, particularly central banks and their political backers, work mightily to scuttle the instantiation of this rate.

** We cannot see counter-factuals. And yet it is by imagining alternate courses of action that we appraise the advantages and disadvantages thrown open to us by our alertness to opportunities. We are creatures for which the non-existence of counter-factuals is a defining feature of our actually experienced reality.

This may be the most astounding thing about what it means to be human. And it because of this that positivism, as is usually conceived, goes off-track. Positivists conceive of facts — facticity — as pertaining to existence. But for beings who choose, contemplating possibility in terms of alternate courses of action, and comparing chosen courses with the unchosen, brings into the world of our consciousness the crucial element of non-existent states of being, states that never actually exist, but upon which our very lives are judged.