Children engage in much “make-believe” to stimulate their imagination and creativity. Adults are supposed to distinguish between make-believe and reality. Yet increasingly, we seem to be governed by people who fail to understand the difference.
From 2020 through 2021, the money supply grew by 27%, the highest in our nation’s history. This money growth was far faster than experienced during WWII or any recessions over the last hundred years. We are supposed to make believe that such unprecedented money growth will not cause severe problems such as a great rise in inflation. Officials at the Fed and the U.S. Treasury Department first denied that inflation would occur and then, when it did, said it would be temporary. And now, those who engaged in this monetary make-believe are finally admitting there is an inflation problem — and their only solution is more make-believe.
For 70 years, the International Monetary Fund has been engaged in make-believe, with the line that if the IMF lends money to countries that have misbehaved in fiscal terms, the recipient countries will suddenly change their ways because they promise to now act responsibly. If you have a friend who has been irresponsible and comes and asks you for a temporary loan to tide her over until she can get her fiscal house in order, you may well take a chance to try to help her. But after some time, if she comes back with the same story, one would be reluctant to provide another loan.
The IMF has a friend, and her name is Argentina — beautiful and pleasant — but a spendthrift and a liar. She asks for loans, with tearful pleas that she has learned her lesson, and this time will reform her wasteful habits and repay it in a timely fashion — but she never does. Argentina has been running the same scam with the IMF for an amazing 21 times over 70 years. Argentina and the IMF are now in their 22nd negotiation about a new bailout, with the promise from Argentina that this time it will be different. I will take that bet.
Argentina is a pleasant place to visit, with very good food. The IMF officials who grant the bailouts are not doing it with their money (it is the global taxpayers). Whether Argentina pays the loans back or not does not affect the salaries and very lavish pensions of the folks at the IMF — and so engaging in make-believe has little cost to them, and they avoid more recrimination from the Argentinians. (A recent poll revealed that most Argentinians dislike the IMF and blame it for their troubles — talk about biting the hand that feeds you.)
It took a private hedge fund manager, Jay Newman, who understands the difference between make-believe and real-world finance, and his team to recover billions of dollars from Argentina’s biggest default after many years of effort. Mr. Newman has just published a well-reviewed novel, “Undermoney.” It is a riveting global financial adventure story, which is also a first-rate primer on global finance.
The Biden administration is engaged in make-believe when it comes to guns. They insist the great rise in crime is because of the availability of guns — ignoring the fact that there have been more guns than people in America for several decades. They also make-believe that they are unaware that many communities where gun ownership is easy and guns are plentiful are some of the safest places in the U.S.
When I was a kid, we all had toy guns — cap guns — with tiny amounts of gunpowder to make a big bang. We played cops and robbers and knew it was make-believe. As far as I know, none of my childhood playmates who had toy guns were ever arrested for crimes with real guns when they became teenagers and adults. Many of us acquired our first real guns as teenagers — and would go small game hunting with our buddies (no parents). We all realized that guns were dangerous and took great care, so no one was ever shot or hurt. This was the real America outside of the big cities — very little gun crime.
We all knew the difference between people with criminal intent and a physical object — a gun. We did not make-believe they were the same, and we were safer because we did not make-believe.
There are those who claim crime will abate if you make believe that you can leave criminals on the street and provide counseling. Only a child or one truly ignorant of history and human behavior could believe such a tale — and yet that is what is being peddled.
There are also still those (almost always with a vested interest) who make-believe that more government spending and taxing (almost without limit) will improve the lives of most people. They make believe that the empirical evidence to the contrary does not exist (e.g., Florida spends and taxes about half as much per capita as does New York, yet the public service level is higher in Florida, in part, demonstrated by the flight of New Yorkers to Florida).
Children need to play “make-believe.” Adults, particularly public officials, who engage in make-believe put everyone in peril.
• Richard W. Rahn is chair of the Institute for Global Economic Growth and MCon LLC.