25 Will Get You 35

"Only one deception is possible in the infinite sense, self-deception."
- Søren Kierkegaard

"That ain't working, that's the way you do it
Money for nothing and your chicks for free"
- Mark Knopfler, from "Money for Nothing"

Way back in the 1970's, there was an odd coin operated device advertised in a mail order catalog (I think it was Spencer gifts). When you put a quarter into this device, it would return a quarter and a dime. How can 25 cents get you 35 cents? Simple, you have to load the machine with dimes ahead of time for this machine to work. The idea is to use the device to cheer yourself up: when you've had a bad day where nothing is going right, you can depend on your trusty coin machine to give back a little more than you put in.

When I first saw this device advertised, I could not understand how it could possibly work. Of course I understood how it could spit out a quarter and a previously loaded dime; what I didn't understanding is how it could cheer someone up. Is this device anything more than just a way to scam yourself? And given your active participation in setting this device up, isn't the scam a bit too transparent to be effective? I mean, can melancholy really be cured by playing Lou Costello to a sock puppet Bud Abbott?

Well, that was what I thought when I was a naive young lad. Since then I've seen this coin operated device work quite effectively in many different guises. Take, for example, the euphoria earlier this week over the latest Gross Domestic Product figures. The Bureau of Labor Statistics announced that the GDP grew 3.5% in the third quarter. Wall Street responded with a big jump in the Dow Jones Average. Isn't this proof that all that stimulus spending is finally having the desired effect of reviving the economy?

Not quite, and to understand why, you have to look at how the Bureau of Labor Statistics computes the GDP. The Bureau includes government spending in the GDP, and does so with the rather optimistic assumption that every dollar spent by the government creates one dollar of economic value. So if the government spends 1.5 billion dollars on a bridge to nowhere that will be used by virtually no one, the BLS would count the building of that bridge as adding 1.5 billion to the GDP. So a lot the 3.5% increase in GDP is simply the tremendous boom in government deficit spending, including those hideously expensive bailouts and stimulus programs. The GDP figures are the Spencer gift coin device all over again: we are cheered by seeing dimes mixed in with the quarters, temporarily forgetting that all those dimes came from us. Or I should say those dimes will come from us, since the stimulus program was financed by borrowing.

Check out this candid, illusion-busting analysis of the latest GDP figures by French economist Veronique de Rugy here.

Well, the euphoria over the GDP turned out to be short lived. The stock market gave up those impressive gains today. The reality of our current economic environment interfered with our dreams of spending ourselves rich. This crisis crisis will eventually pass, but not until we abandon the deceptions and work on creating real wealth.