The Yellow Fever Economy
by Gary North: Rothbard's
The Mystery of Banking
columnists of the sky-is-sagging perspective have searched for an
accurate metaphor to describe the current economy. We have all failed.
train wreck" doesn't work, because train wrecks as bad as what we
are facing are high-speed.
is the "car without brakes." But at least the driver can take his
foot off the gas pedal. Congress is accelerating.
I have promoted
"the burning trestle." But, again, the engineer could put on the
brakes. No such luck. Congress is accelerating.
How about "the
Titanic"? That's closer to it. But there was a specific timetable
available. The ship's designer knew how long the ship had. There
were some lifeboats. "Women and children first!" (Actually, the
boats were not all filled. If a person had leaped off the deck,
he might have swum to a half-filled boat. A few did.) The male passengers
knew they were doomed. They adjusted mentally to reality. There
was no yelling and screaming. There was no blame-shifting, since
the captain planned to go down with his ship. There was a dull acceptance
of reality. That's surely not Congress.
So, I have
tried once more. I have dug into American history to come up with
something plausible. I fear that it is too plausible.
In early summer,
1878, telegraph reports announced that yellow fever had broken out
in the Caribbean. On July 27, it reached New Orleans.
was a dreaded disease. When it struck a city, many thousands of
residents came down with it, and thousands died. It had hit Philadelphia
in 1793, with devastating effects. There is a book about this: Bring
Out Your Dead.
knew in 1878 the disease's symptoms and deadly effects. They just
did not know what transmitted the disease. A Cuban physician, Carlos
Finley, theorized in 1881 that a variety of mosquito was to blame,
but this was not proven until Walter Reed's team conducted research
two decades later in the aftermath of the Spanish-American War in
In 1878, experts
knew that it was a summer disease. It always ceased when cold weather
hit. They knew that it was deadly. In the 1850s, New Orleans was
hit four times. About 20,000 people died. In 1873, a quarter of
the residents of Shreveport, Louisiana died from it.
They also knew
that it was relentless. It would spread up the Mississippi River,
day by day. There was no stopping it. It had done so three times
before in Memphis: in 1855, 1867, and 1873, when 2,000 people died,
a fearful 40% of those who came down with it.
What were the
results in 1878? When the disease hit, 25,000 people fled the city.
About 17,000 people did not. Of these, 80% came down with the disease.
About 5,000 died. About 80% of these were whites. This was normal.
In Africa, the disease had always killed a far higher percentage
of whites than Africans.
The city collapsed
economically. It lost its charter in 1879. The state took over the
city's finances. It took 20 years for the city to recover.
But this is
not the heart of the Memphis story. The heart of the story is this:
the population sat, nearly immobile, as word reached it, day by
day, that the plague was on its way north.
We know the
phrase, "a deer in the headlights." For a few seconds, a deer is
immobilized. But then it runs. People don't. You have heard that
a frog will not jump out of a pot of water if the water warms slowly
to boiling temperature. It's not true. But people will stick with
hopeless projects and dreams for years, only to lose everything.
Few events confirm this better than Memphis in the summer of 1878.
In a fine article,
published in 1984 in American Heritage, the author described
the two weeks leading up to the plague.
alone at midnight hearing approaching footfalls on the stairway,
Memphis waited while the disease came nearer. On August 9 word
came of yellow fever in Grenada, Mississippi, only a hundred miles
to the south. But boosterism whistled brightly. "Keep cool!" said
the Memphis Daily Appeal four days later. "Avoid patent medicines
and bad whiskey! Go about your business as usual; be cheerful,
and laugh as much as possible."
has stuck in my mind for over 20 years. I have watched the debt
of the United States government ratchet upward relentlessly, just
as yellow fever moved up the Mississippi in 1878. The boosters
on Tout TV, The Wall Street Journal, The New York Times,
and virtually all academic economists except for the Austrian School
have assured us that deficits don't matter. They have also
warned us not to take patent medicine, such as a the twin ideas
of a Federal budget surplus and a gold coin standard.
"Laugh as much
as possible," they have assured us. "Don't worry. Be happy." Economic
growth will let the government meet its obligations. No, it will
not pay off the debt. The Federal debt is said to be eternal. But
the Treasury will make the interest payments, keeping investors
happy rich investors.
every dollar invested in government debt, the private sector is
not funded. Capital flows to Washington and out again to the welfare-warfare
state's constituencies. The government's percentage of invested
funds keeps growing. But, the boosters assure us, "There is no such
thing as crowding out." This is a corollary of their fundamental
axiom: "There are government-supplied free lunches."
Back to Memphis.
On August 13, the first yellow fever death was reported. The boosters
stopped boosting. They ran. So did 25,000 others.
The word "ran"
is a euphemism. They could not run. They could barely walk out.
The roads were clogged with refugees.
any road leading out of Memphis," one survivor recalled, "could
be seen a procession of wagons, piled high with beds, trunks, and
small furniture, carrying, also, the women and children." The male
refugees walked alongside, either despondent or excitedly shouting
to each other. Boats and trains were jammed. People forced open
windows and doors and fought their way aboard. "The ordinary courtesies
of life were ignored," recalled John M. Keating, editor of the Daily
Appeal and one of several who would write books about that appalling
summer and autumn. "There was only one thought uppermost … an inexpressible
ten days, some 25,000 people poured out of the city anyone
who had kinfolk or could afford to rent accommodations in places
as far off as St. Louis, Louisville, and Cincinnati. Passage was
neither easy nor unobstructed. Nearby towns set up quarantines,
backed by gun-toting enforcement committees. Many who fled were
turned back or forced to camp in the woods. A few unlucky steamboat
passengers spent the whole epidemic trapped on board, refused
permission to land anywhere.
This has played
out in crises as far back as there are records of social crises.
People sit calmly, self-assured. Then a great fear grips them at
the same time. They try to get away. But the cost of getting away
is high. Not everyone can escape.
So it was in
Memphis. About 11,000 blacks stayed behind. Of these, fewer than
a thousand died. "Virtually every one of the 6,000 white men and
women still in the city fell sick, and there were 4,024 deaths
almost a 70 percent mortality rate. The number of deaths rose in
September to nearly 200 per day."
goes on to describe hellish scenes. I shall mercifully skip over
them. But this description is memorable.
what left the strongest impression on some was not these grisly
sights but the overpowering emptiness. Keating recalled that "an
appalling gloom hung over the doomed city. At night it was silent
as the grave, by day it seemed desolate as the desert. There were
hours . . . as if the day of judgment was about to dawn. Not a sound
was to be heard; the silence was painfully profound. Death prevailed
everywhere. . . . Even the animals felt the oppression and fled
from the city. Rats, cats, or dogs were not to be seen."
stories of heroism, of physicians and nurses and nuns who stayed
behind to nurse the ill and dying, and who died for having stayed.
Some 54 physicians came down with the disease about half
of those who stayed behind and of these, 33 died. There were
also stories of cowardice, drunkenness, and theft. In other words,
in the crisis, people's character became clear to others. This is
There was even
a "prostitute with a heart of gold" story. One local madame sent
her staff away and turned her house into a hospital. She served
as a nurse. She died. The upper class citizens, on their return,
buried her in Elmwood Cemetery, where members of the upper class
were buried and still are, a walled-in garden spot in the
midst of a very poor neighborhood. (It was within walking distance
of the church I attended.)
You can read
the entire article. I
recommend that you do.
RIVER IT COMES
the U.S. government came to a last-minute agreement to increase
the debt ceiling by at least $2.1 trillion. That is supposed to
tide the government over until January 2013.
this. The Federal government plans to spend at least $2.1 trillion
more than it takes in over the next 17 months. This is no secret.
It was the basis of the deal.
committee will be set up that will identify spending cuts ("no"
will vote the Democrats) and tax increases ("no" will vote the Republicans).
If the committee
fails to propose solutions if! there will be automatic
cuts by the President in January 2013. Note: even if a new President
is elected in 2012, Obama will preside over these allocated spending
cuts. He will still be in office for three weeks.
a new Congress and maybe a new President, the Federal government
will have to eat the famous S-sandwich or else borrow more.
The debt ceiling debate will come to the forefront again.
We can see
where this is headed. Think of New Orleans in late July of 1878.
The plague has hit. The deficit will eat into the debt ceiling,
month by month. Up the mighty Mississippi of government spending
will come the plague, city by city.
to get this issue out of the campaign in 2012. Maybe the boosters
will be successful again. After all, they were successful until
August 13, 1878 in Memphis.
Maybe we are
farther up the banks of river than we think. (I know we are up the
creek without a paddle, but that is a different metaphor.) Maybe
the Federal Reserve System can keep the party going beyond 2013.
But there is no early winter in this scenario. There is no day of
deliverance. It's summer from now until the plague hits.
About 17 years
ago, Agora Publishing invented a new advertising tool, the bookalogue.
It replaced the then-fading magalogue. A bookalogue was a cheaply
printed paperback book that was mass-mailed to mailing lists. It
sold newsletter subscriptions.
bookalogue was modeled after the highly successful paperback book
by Rear Admiral Jeremiah Denton, When
Hell Was in Session (1976). That was the autobiography of
Denton's years in a North Vietnamese prison. It was mass-mailed
as a fund-raiser. It got him elected U.S. Senator from Alabama in
Plague of the Black Debt (1994). It sold a lot of newsletter
subscriptions. It also informed millions of people who read at least
part of it. It was the right title. But it was premature. Here we
are, 17 years later, still watching the Federal debt climb like
a rocket a booster rocket yet with the 90-day T-bill
interest rate at six-one-hundredths of a percent. That was not conceivable
take comfort from the fact that national government debt is still
being funded at low rates, at least outside of Greece, Portugal,
and Spain. They proclaim that, in theory and in all likelihood,
it will always be funded at low rates.
everywhere. They have dominated the media throughout my lifetime.
Boosterism became the favored outlook after 1945. It was appropriate
back then. Social Security was not yet a source of red ink. Red
ink arrived in 1977. Carter hiked FICA rates and promised that this
would last until the year 2000, but the program was busted again
in 1983, when Reagan and Congress raised the tax again. It is now
in red-ink mode again. More money is flowing out than is flowing
in. The Trust Fund is selling its IOUs back to the Treasury, and
the Treasury is using money from the general fund to make up the
in 1965. It will bankrupt the government if it is not changed. So,
it will be changed. We know when: in the midst of a monumental crisis,
called "The Can Is Too Big To Kick."
If "kick the
can" is not the phrase
of the year for 2011, there is no justice.
know the can is growing. But, for as long as Congress can keep kicking
it, they will continue to boost.
This is merely
the Federal government's debt burden. There are state and local
burdens. Then there is the massive debt burden of consumer debt,
which must be rolled over. It is never paid off, any more than government
boosters scream for more government spending whenever consumers
slow their spending. That is the Keynesian mantra. They are dominant
in the media. "Consumers must spend!" This requires more debt. The
boosters recommend more consumer debt.
willing, but their budgets are tight.
Banks are not
lending. They are sitting on top of $1.2 trillion of excess reserves
at the Federal Reserve.
are not borrowing, either. Same reasons as the bankers: fear of
is visibly failing. But Keynesianism's 75 years of unpaid bills
have not come due yet. They will.
ink will produce yellow fever. We can see it coming up the river
of Federal spending.
pays attention can see this. The vast majority ignore it. They do
what 25,000 residents of Memphis did until August 13. They sit tight.
They hope for the best.
In panic, they
will run for the exits. There will be few, and they will be a lot
more expensive than they are today.
Agora in 1994
called this the plague of the black debt. I call it the yellow fever
economy. It is the same economic problem: massive debt.
The U.S. government
is a sub-prime borrower. The major credit-ratings agencies do not
admit this, any more than they admitted it with respect to low-income
real estate borrowers in 2007.
boosters in 2007. Angelo Mozilo of Countrywide Financial was a booster.
Chuck Prince of Citicorp was a booster. Stanley O'Neal of Merrill
Lynch was a booster. They are all gone now very rich, but
will be other boosters who will be long gone after this strain of
yellow fever has killed off the dreams of hundreds of millions of
people worldwide. These boosters will not be buried in the equivalent
of Elmwood Cemetery after the plague has departed. I am working
on my list. You should work on yours. One name is sure: Ben Bernanke.
The news reports
are clear. The yellow fever economy is coming. But most people sit
tight. They listen to the boosters. "Keep cool! Avoid patent medicines
and bad whiskey! Go about your business as usual; be cheerful, and
laugh as much as possible."
North [send him mail]
is the author of Mises
on Money. Visit http://www.garynorth.com.
He is also the author of a free 20-volume series, An
Economic Commentary on the Bible.
2011 Gary North
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