"Insanity: doing the same thing over and over again and expecting different results."

-- Albert Einstein

The Einstein platitude above is so overused that I'm almost disgusted with myself for planting it at the beginning of this article. Almost. But then I think about how utterly applicable it is to this piteous disaster we're still calling an economy, and I really have no choice.

For nearly two decades, I have been writing about free markets and how important they are to progress - to the growth of knowledge, as the philosopher Sir Karl Popper would call it. I am by no means alone; minds far more advanced than mine -- along with groups like Cato and the Mises Institute, to name a couple -- have been defending market liberalism since long before I took my first breath. Yet, for all the effort, the arguments have met with phenomenal resistance - often ferocious and virulent. Politicians and academics have been blaming markets for our collective problems for ages, and yet I fail to see their reasoning.

Wall Street, for instance, is the favorite whipping boy for the housing crisis that has descended upon us like a poisonous fog, and yet it was created not by banks, but by government programs that all but demanded these banks loan money to anyone with a pulse. And do you know why the government did this? Because people with poor or no credit can still vote, and if you get them into houses - regardless of their ability to make payments each month - they're going to see you as a hero, and they're going to put you in office.

Now what do the banks have to do with that, except for acting as facilitators for the transactions? Let me put it another way: if you were a banker, and the government told you it was okay to lend money to people who shouldn't qualify, and told you that you would be paid handsomely for the transaction, would you say no? At best, you might say to yourself, "Is this smart?" But then you would, as everyone did, justify it by reminding yourself that if Uncle Sam says it's all right, well then it must be all right! Hey, we've all got to put food on the table!

In any case, the point of this piece is not to defend investment banks, per se, but it is rather to point out that large, centralized governments are irresponsible, inefficient monsters that destroy innovation and productivity; they are the source of all our economic woes at this moment in time (or, really, at any moment in time), and yet I firmly believe we could have done things differently -- much differently. Below are some major points that free market economists have been making for decades (or longer), and I believe that, if the world had taken them to heart, we could not only have averted this crisis, but we would be existing in an era of unprecedented prosperity.

1. F.A. Hayek - the Austrian economist, author of The Road to Serfdom, and 1974 Nobel winner in economics - observed that centralized bureaucracies lack the resources and meticulous insight to manage an economy's trillions of components. This tenet inspired the following analogy in an piece I wrote several years ago: imagine your brain trying to manage the decisions made by every cell in your body. How long do you think you would survive? Well that's what Washington has tried to do with the U.S. economy for almost a century, and we are now paying the price, yet again. Only this time, it's going to be far worse than ever before - and, indeed, may be insurmountable (see any number of my previous articles if you want to learn more about the death of the dollar and the U.S. economy).



2. In his milestone work Socialism, another Austrian, Ludwig von Mises - after whom the above-mentioned institute was named - proposed what I consider to be the most powerful economic axiom ever posited. It is called the Economic Calculation Argument, and it essentially states that any manipulation of price structures distorts the ability to perceive scarcity. In other words, scarcity is the product of every individual actor in an economy casting his or her vote, through transactions, for the relative value of any good or service. The value the collective places on goods and services is the result of these miniature "votes." When the government tinkers with the money supply, it necessarily distorts price structures and creates inefficiency. But more than that, it destroys any possibility of understanding true scarcity, and when that happens, our ability to discern who needs what, and where, becomes impaired.
   
   The Soviet Union -- which is inarguably the biggest joke of a planned economy ever -- perpetually failed to ascertain scarcity, and its people had to stand in lines, ad infinitum, just to get toilet paper. For my part, I thank the stars every day for the Soviet Union, because it established, irrefutably, the veracity of Mises' theory (although I do feel sorry for the people who couldn't get toilet paper).
   
   Unfortunately, other folks - like, oh, say, most academics, along with every single politician in Washington (except Ron Paul) - do not see the irrefutability of Mises' Argument. No, they have kept doing the same things, over and over, for a century, because what feels good gets votes. Who cares about the eventual consequences? And so it goes -- as the rest of us suffer day after day through this economic version of the Black Death.
   
   What is insanity again?



3. I don't care how fancy Ben Bernanke's helicopter is; a government cannot print money to solve economic problems. Printing money creates economic problems. It's called inflation, and it sucks. If you don't believe me, would you believe the Romans? How about the Spanish? The Portuguese? The British? What about those aforementioned "geniuses" in the Soviet Union?
   
   Do you really think the U.S. is somehow different than all those empires of yesteryear, who so recklessly manufactured their own currencies -- ultimately whittling themselves to a mere fraction of their former, majestic selves? No. The U.S. is subject to the same economic principles that every other foolish empire has had to face, and printing $12.8 trillion isn't going to do anything but ensure that our children better learn to speak Chinese. And they better learn to speak it real good, because that big groaning sound you hear in the sky - yeah that one - that's the sound of the center of economic power heading east.

So here we are - wallowing in the filthy muck created by generations of politicians and central bankers. You would think global governmental establishments would finally see the light, right? Surely it's time to stop this cycle! Isn't this the hour to listen? Hail Mises! Hail Hayek! Take us back to sound money and true liberty!

Well, apparently listening isn't part of the equation, because governments everywhere are printing unprecedented sums of money. They are creating still more easy credit. They are doing all the same things - on the largest scale ever -- that got us here in the first place. Above everything else, though, they are fulfilling Einstein's famous dictum.

For the entire world is now truly and incontrovertibly insane.

Paco Ahlgren has worked as a financial analyst for sixteen years. He has spent the last two decades studying quantum physics and its implications on modern scientific, economic, financial, and psychological theories, as well as its dramatic similarities to Eastern philosophies and religions—most notably, Taoism. Discipline, his first novel, is a confluence of these passions. Paco also maintains the blog, Ahlgren Multiverse.