On Treating Fevers and Economies

A recently released medical study has detailed the widespread overtreatment of childhood fevers. Doctors at Johns Hopkins Children’s Center found that up to 70 percent of parents treat their children for minor fevers of less than 100.4 F degrees. They also found that 53 percent of parents give fever reducing drugs, such as ibuprofen, too frequently; parents even wake their children up in the middle of the night to overdose them.

Of course, most fevers should not be treated at all. Fevers are simply a symptom of the body fighting off an illness. The fever is a sign that the body is working well; treating the fever does not treat the illness. In most cases, treating the fever slows down, rather than enhances, the body’s ability to heal itself. Unfortunately, health illiteracy is widespread in this country; and the urge to treat even trivial fevers is widespread.

As our physical bodies have a built in capacity to heal themselves, so do our economic markets. In the same way that treating a non-life threatening fever will slow down the capacity of our body to heal itself, “treating” the economy will slow down the market’s ability to heal itself.

This Monday, Timothy Geithner, President of the Federal Reserve Bank of New York, spoke before the Economic Club of New York. In his speech, Geithner called for broad and new Fed authority over the financial system. The current crisis, he said, “is going to require significant changes to the way we regulate and supervise financial institutions.”

Geithner’s claim that the Fed needs more power over the financial system makes about as much sense as saying that McNeil (the manufacturer of both Tylenol and Motrin) should increase the safe dosage labels on its products in order to accommodate indiscriminate consumers.

Mish Shedlock, writing in his excellent blog Mish’s Global Economic Trend Analysis, has been a very knowledgeable observer of the economic distortions caused by the Fed. This is Mish’s “Fed Uncertainty Principle, Corollary Number Two”:

The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.

Where Mish predicts that the Fed will attempt “a big power grab,” I would add, “and they will enjoy widespread public support for doing so.” Why do I predict widespread public support? The general public is simply using a different lens than Mish. Einstein wrote: “Whether you can observe a thing or not depends on the theory which you use. It is the theory which decides what can be observed.”

We live in an economic environment where the stock market is falling, the dollar is falling, food prices and energy prices are rising, and unemployment is rising. At the same time, we are told we live in a capitalist free-market economy. Sadly then, the bulk of the population blames free-markets for their hardships. No wonder, they are told incessantly by the media and the politicians that their misery is evidence that free-markets are not working—they are told that their misery is evidence that government needs to take a stronger hand.

The truth is that our current economic troubles provide evidence that free-markets are working. Think of it this way. If you drink excessive alcohol and then throw up, isn’t that evidence that your body is working? If your mind is focused on angry, unforgiving thoughts, would you be surprised if you experienced sharp stomach pains or chest pains? Aren’t those pains signals that you need to examine your how you are living your life? If the Fed distorts interest rates and thus creates artificial bubbles, what does the corrective aftermath signal? Is it evidence that markets are working? Of course, the answer is yes—the bursting of our economic bubbles is evidence that markets are working. And just as overtreating a fever creates delays the return of health, overtreating an economy delays the return of prosperity.

That the public should be confused is indicative of something larger than just economic illiteracy. As with parents overdosing their children with Motrin and Tylenol, it is evidence that the public wishes for magical solutions to their discomforts. Rather than increase their own understanding of basic principles of health or the basic principles of economics, they ask “why don’t they do something about it?” In the case of health issues, the drug manufactures will be only too happy to exploit ignorance and sell another pill. In the case of economic problems, the Fed or the politicians are only too happy to exploit ignorance and provide solutions that will increase their powers.

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6 Responses to On Treating Fevers and Economies

  1. Jim D says:

    This post hits the point of the whole thing right on the head! Bubbles that pop go as far back as the 17th century (I’m sure similar scenarios go back even further), when demand for Dutch tulips exploded, prices went through the roof, and speculators lost their shirts when the bubble popped. Of course this was propogated by a self-regulating guild of florists getting the backing of Parliamentary decree. Sound familiar? A group with no real oversight gets government backing and things get out of hand? Hmmmm.
    But this comes down to a basic facet of human nature. When something is wrong, we want to do something about it. Its an extension of fight-or-flight. We expect our leaders to do something about it. But, as we have learned, doing something about a system is not the best idea. A dog barks, and people run away. the dog then chases and bites them. The person blames the dog. This is backwards. The dog barked, and the person acted like prey and ran away. The dog (operating on instinct) saw the person running and (figuring that only prey run away from them) the dog gave chase. The person, not the dog screwed up.
    Sadly, something similar has occurred in the popular conscience. I’m not blaming Clinton for this, but it was during the 90’s that somehow everyone got used to unchecked growth. Kind of like the Roarin’ 20’s. We forgot that business moves in cycles–that its supposed to have down times. Nature has winter. We have sleep. The business cycle goes through a similar period where the economy is supposed to clear itself of the old and no longer functional and make way for new growth. Recessions used to be a lot longer and more painful than they are today, and these gentler cycles are generally attibuted to the increasing rate of knowledge transmission across the economic sectors.
    But now the government is trying to do whatever it can to keep the up side of the cycle from turning. Like a driver who keeps popping No-Doz when what he really needs is sleep, we see the wreck coming. If Greenspan hadn’t over reacted when the dot-com bubble burst (in my opinion the start of this round of trouble), it might not be as bad today. Of course Greenspan was simply catering to the popular, so blaming him doesn’t make much sense, either. We got what we asked for. If you want my opinion of what I think of getting what we ask for out of government, dust off your Bible and read 1 Kings.
    The people want to be saved, and the leaders are responding to the call–no matter how bad an idea it might be. Bear Sterns should have been allowed to fall and set the standard for failing to understand what was going on. The credit system needs to lock down for a little while until wiser heads can prevail–not get taxpayer funded cash infusions. Give the Fed more power? Nonsense. Bail out banks (whose leaders probably did know better)? No–they need to learn the hard lesson of not writing loans that are a bad investment. Most homeowners should not be bailed out, either. I know its harsh, but they won’t learn the lesson of reading their mortgage contracts and understanding what’s going on any other way.
    If we suffer though the fever now, without treatment, it will take care of the illness and we’ll be back on our feet in no time. If we keep swallowing fever-suppressants, this is going to last a whole lot longer.
    Mother Nature gives us an interesting analogy. When the Exxon Valdez crashed, some of the beaches got “cleaned” and some didn’t. 20 years later, the beaches that got “cleaned” have not recovered as well as the beaches that didn’t. Mother Nature knows what she’s doing, and we need to leave well enough alone. Same with the free market. Sorry for the length of the post.

  2. Jim,

    No need to apologize, you are speaking wisdom. Thank you for your great comments!

  3. Bob G. says:

    This is a fantastic post that should stimulate critical thinking by providing an appropriate analogy from which to examine and discern root cause from effect in an area that is not well understoond by most.

    There is empirical evidence to support the idea that complicated economies are derived from relatively uncomplicated guiding priniciples and NOT through a complex set of rules and regulations that are created by great leaders. The injection of complicated rules and regulations are really designed to create engineered outcomes that may or may not happen in the due course of an evloving economy. Once these unintended consequences begin to manifest themselves and create even more undeisrable results, the proposed fixes need to become even more complicated as those who propose them always do so in a way to explain away responsibility for creating the problem that now needs fixing.

    History indicates that trying to engineer the results or outcomes of economies has never worked however well intentioned they might be.

    Our politicians and leaders want to serve us even higher doses of the same medicine that got us sick in the first place! The only answer is an educated public on matters of economic prinicples. Until then, it is too easy for most to believe the same old mantras that got us here in the first place.

    Bob G.

  4. Bob,

    Thank you for your astute comments.

    You are right on. For the foreseeable future, the trend is pretty clear–more bad “medicine” will be “sold”.

  5. Jim D says:

    Bob,
    You’re absolutely right–“the more complicated the plumbing, the easier it is to screw up the works.” I forget who said that “simple rules create complex systems and complex rules create simple systems” (McMaster?), but you delineate the point perfectly. And so long as the public relies on the leaders to do their thinking and problem solving for them, it certainly smells like more bad medicine to me.

  6. Bob G. says:

    There is a sea-change that is occuring in our lifetime. These are my observations and summary of the drivers of this;

    A. The public’s reliance on an ever increasing governing class and the willingness of too many to accept the false premise that the gradual erosion of liberties, self-reliance and the personal consequences of risk taking is an appropriate trade-off for the mistaken belief that the ever growing governing class can keep us safe and in the life we have become accustomed to.

    B. Public education continues to increasingly provide indoctrination in the governing class approved politically correct and approved thinking and revisionist history instead of fact based history and critical thinking skills.

    C. The exploitation of current events and the horriifc acts of those outsiders who have and would continue to do us harm for short term political gain and maintenance of power at the expense of long term solutions and change in the governong power structure.

    D. The melding of the media and political institutions into a joint media celebrity- status that is more appropriate foe People magazine than serious decision making and choice discernment.

    E. Finally, the failure to recognize the reality that our greatest national threats are internal and not external.

    Education and the reality that our comfort zones cannot be maintained on the easy to believe but false premises promised to us by the continaully emerging governing class is the only thing that can reverse our declining trends. An internal explosion much greater than anything we saw on 9-11 is awaiting our grandchildern otherwise.

    Bob G.

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