IN A NUTSHELL... WHY THE ECONOMICS OF THE WASHINGTON PARTY IS COUNTERPRODUCTIVE...
Government borrowing does not inject money into the economy. It was already there. But it can and does reduce the amount of capital available for private investment. To the extent the government borrows, the economy serves politicians not consumers.
Up a great deal. More than at any time since World War II. How much is a great deal? Probably far more than you expect. Read on...
These price increases are not going to be immediate. There are lags. There is no smooth or mechanical relation between today’s money growth and today’s consumer prices. These things take time. General price level increases depend on both the growth in money supply in past years and on whether that growth is sustained over many years. The Obama administration and the Fed have both told us that they intend to sustain their stimulus for years to come. Add that to the fact that the existing rate of growth of the monetary base already is at a rate that is typical of a banana or coconut republic. Similar results are highly likely. Michael Rozeff, Lew Rockwell.com
The debate over inflation versus deflation has been going on in hard money circles since about 1973. The debate has gone on within academic circles for well over a century. The economists are as confused as the general public, but they are confused in a far more sophisticated way. They turn confusion into a science.
I follow the Austrian School of economics on monetary theory. The most important study of the theory of money within the Austrian School camp was published in 1912, The Theory of Money and Credit, written by Ludwig von Mises. You can download it for free here.
I have also written a short book on the topic, Mises on Money. Download it here.
Finally, there is my more detailed book, Honest Money.
Austrian School economists define inflation as follows: "an increase in the money supply." All other schools of thought define inflation as follows: "an increase in our favorite price index."
Austrian School economists define deflation as follows: "a decrease in the money supply." All other schools of thought and define deflation as follows: "a decrease in our favorite price index." Gary North
I’ve never been prouder to call myself a conservative as I was after Rush Limbaugh penned a January 29 column for the Wall Street Journal. In that column, Rush proved he was the authentic voice of Republican conservatism in the post-Bush era:
"Fifty-three percent of American voters voted for Barack Obama; 46% voted for John McCain, and 1% voted for wackos. Give that 1% to President Obama. Let's say the vote was 54% to 46%. As a way to bring the country together and at the same time determine the most effective way to deal with recessions, under the Obama-Limbaugh Stimulus Plan of 2009: 54% of the $900 billion – $486 billion – will be spent on infrastructure and pork as defined by Mr. Obama and the Democrats; 46% – $414 billion – will be directed toward tax cuts, as determined by me."
If deciding to spend more money and cut taxes solely upon polling numbers isn’t a clear statement of conservative principles, I don’t know what is. Mega-dittos Rush! That man really knows how to outline principles that define his core. Now I know why the mainstream media is crowning him as the de facto head of the Republican Party. LewRockwell.com
The world Economic Forum is reporting Global Crisis "has destroyed 40 percent of world wealth."
The past five quarters have seen 40pc of the world's wealth destroyed and business leaders expect the global economic crisis can only get worse.
Steve Schwarzman, chairman of private equity giant Blackstone, said an "almost incomprehensible" amount of cash had evaporated since the financial crisis took hold.
The Ever Rising Cost Of The Bailout
Does anyone remember when the cost of the bailout was supposed to be $500 billion? Then $1 trillion? Then $2 trillion, then a whopping leap to $3.6 trillion. It's time top up the taxpayer ante once again.
No, not another government subsidy, but the cutting of the single largest federal expenditure down to a manageable size: the U.S. military budget.
Larger than all the other "defense" budgets in the world combined, this unimaginable sum is not even known, for sure, but of one thing we can be certain: the hidden costs are much more than anyone suspects. Covert "black operations" are run on an off-the-books budget that we peons are not entitled to see.
Consuming nearly half of all government spending, the military budget maintains an overseas empire unrivaled in the history of the world. The U.S. operates a network of bases in dozens of countries, on every continent. The Pentagon is the biggest landowner on earth. This is not only tremendously expensive, but also completely unnecessary and even harmful to our national interests.
Why, for example, do we need bases in Germany, of all places? They are there on account of a war fought a generation ago, and they stayed because of a perceived threat from the Soviets that vanished into history along with Stalin's ghost.
the major causes of the crisis, which he put down to “inappropriate macroeconomic policies of some economies and their unsustainable model of development, characterised by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit; lack of self-discipline among financial institutions and ratings agencies and ensuing distortion of risk information and asset pricing; and the failure of financial supervision and regulation to keep up with financial innovations, which allowed the risks of financial derivatives to build and spread”.
In contrast, Mr Wen said Chinese banks were well run and had maintained capital reserves above internationally mandated requirements.
His comments served as a reply to controversial claims by the newly appointed US Treasury Secretary, Timothy Geithner, that China was “manipulating” its currency by artificially holding down its value against the US dollar and supposedly swelling the US trade deficit.
Mr Geithner’s call for China to appreciate its currency was savaged by the chairman of Morgan Stanley in Asia, Stephen Roach, who described it as “horrible advice given to the Chinese”.
Treasury Secretary Timothy Geithner said Wednesday that he wants to avoid nationalizing banks if possible. "We'd like to do our best to preserve that system," Mr. Geithner said. But given the weakened state of the banking industry, with bank share prices low and their capital needs high, economists say the government probably can't avoid owning at least some banks for a temporary period.
Mish's Translation:
"Geithner is doing his best to wreck what little semblance of capitalism we have left. Geithner is the worst of Obama's picks."
29 January 2009 Editor, The New York Times 229 West 43rd St. New York, NY 10036
To the Editor:
Your headline reports that "Obama Calls Wall Street Bonuses 'Shameful'" (January 29). True enough. But equally shameful is Mr. Obama's detachment from reality.
Why would he suppose that greedy bankers, when given access to money forcibly extracted for them from taxpayers through a program that Mr. Obama himself champions, would cease to be greedy bankers? And, more fundamentally, is it not also shameful for government to compel citizens as taxpayers to patronize banks and auto producers that these same citizens as private consumers choose not to patronize?
Sincerely, Donald J. Boudreaux Chairman, Department of Economics George Mason University Fairfax, VA 22030
PAUL CRAIG ROBERTS ASKS: "IS IT TIME TO BAIL OUT OF AMERICA?"
The financial damage inflicted on Americans by their own government is as great as would be expected from foreign conquest. While Washington “protected” us from terrorists by fighting pointless wars abroad, the US economy collapsed.
How can President Obama even think about fighting wars half way around the world while California cannot pay its bills, while Americans are being turned out of their homes, while, as Business Week reports, retirees will work throughout their retirement (which assumes that there will be jobs), while careers are being destroyed and stores and factories shuttered.
Americans are facing tremendous unemployment and hardship. Obama doesn’t have another dollar to spend on Bush’s wars.
Taxpayers are busted. They cannot stand another day of being milked by the military-security complex. The US government is paying private mercenaries more by the day than the monthly checks it is providing to Social Security retirees.
... a forthcoming PBS documentary asks whether the NSA could have prevented 9/11 if it had been more willing to share its data with other agencies.
Author James Bamford looked into the performance of the NSA in his 2008 book, The Shadow Factory, and found that it had been closely monitoring the 9/11 hijackers as they moved freely around the United States and communicated with Osama bin Laden's operations center in Yemen. The NSA had even tapped bin Laden's satellite phone, starting in 1996.
"The NSA never alerted any other agency that the terrorists were in the United States and moving across the country towards Washington," Bamford told PBS.
PBS also found that "the 9/11 Commission never looked closely into NSA's role in the broad intelligence breakdown behind the World Trade Center and Pentagon attacks.
Former CIA analyst Michael Scheuer told PBS, "None of this information that we're speaking about this evening's in the 9/11 Commission report. They simply ignored all of it."
Not only was then-Director Michael Hayden never held accountable for the NSA's alleged failure, but he went on to oversee the Bush administration's vast expansion of domestic surveillance. In 2006, he was appointed as director of the CIA.
“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Fed said Wednesday in its statement.
Perhaps no American president has praised freedom as often as George W. Bush. From his declarations that the United States was attacked because of freedom, to the names “Operation Enduring Freedom” and “Operation Iraqi Freedom,” to his proclamations of a “calling” from history to defend freedom, freedom quickly became the cloak draping all of Bush’s actions after 9/11....
This is from a president whose foreign and military aid have bankrolled many of the world’s worst tyrannies — including Uzbekistan, where dissidents have been boiled alive....
He declared, “We’ve seen that free societies don’t harbor terrorists, or launch unprovoked attacks on their neighbors.”
Since Iraq is not a neighbor, Bush’s unprovoked invasion of that nation does not count. But no matter how many foreign nations he attacked without reasonable provocations, he could repeat such claptrap and still be cheered by certain crowds in Washington.
"THE FED IS DOING EVERYTHING POSSIBLE TO MAKE MATTERS WORSE!"
"THE HOMEOWNERSHIP PRESERVATION POLICY"
The Federal Reserve will ease terms on residential mortgages acquired in the rescues of Bear Stearns Cos. and American International Group Inc., seeking to stem foreclosures.
The Fed policy is targeting borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans. The program uses the Fed’s authority in the $700 billion Troubled Asset Relief Program and was released today by the House Financial Services Committee.
The Fed's "Homeownership Preservation Policy" will not preserve many homes, but it will encourage homeowners to get 60 days late. For now, the policy only pertains to AIG and Bear Stearns loans, a very small subset of loans. When the policy fails, as it will, expect the Fed to expand it to other areas. Every failed policy to date has been expanded. This one will be no different.
Kristol is canned, but Dennis Prager persists, insisting that .... well, let him say it:
"I could largely assent to the proposition that terror is the new communism. Communism was an enslaving and murderous threat in its time and the Jihadism is such a threat in our lifetime."
Well, sometimes smart people do give the impression duty requires them to condescend to the intellectual level of the dumb public, but Prager just never seems capable of rising above it.
Lenin (Note to Prager: a communist) said that "the purpose of terror is to terrorize." It is a tactic. It can serve the lust for power or get you a radio show or clear a bar full of hoods. Terror can serve the ideologue, but it is not the ideology. The communist ideology is a roadmap for the acquisition, maintaining, and maximizing of power, pure and simple. Terror plays only a part. Just ask George Orwell.
Saddam used terror to rule Iraq. He did not threaten the United States. Osama does not want to occupy the United States. He wants to ruin us so we can no longer afford to occupy the Middle East. He designed 9-11 to bankrupt us. He spent $500,000. We spent trillions, and we are bankrupt.
Prager's problem is fear -- his own: he and his neocon allies don't have the courage to say that Islam or Arabs or Persians or Pashtuns are the enemy of the West. Those assertions can be discussed, debated, and, very possibly, refuted. No, it's "Jihadism," or "Islamicism," or "Islamofascism," or (GWB) simply "extremism."
This vocabulary is inadequate. It is always undefined, because it is undefinable. The label is intentionally left empty, so the propagandist can fill it up with whatever fear tactic (yes, that door swings both ways) will work today. It is the neocon's version of Lenin's dialectic. But to what end do they wield it?
The neocons want "terror" to be the "new communism" because, fifty years ago, America, including both major political parties, was by and large united behind the battle against the menace of "godless communism." Since 2001, neocons have longed for that unity (and for power over it, of course) so they can rule. Instead, they have left our country in ruins and they are sitting by the side of the road. They have brought not Islam, or Arabs, or Persians, or Pashtuns, but America to its knees.
Heckuva job, Pragie!
Here are the relevant cites:
For us there do not, and cannot, exist the old systems of morality and 'humanity' invented by the bourgeoisie for the purpose of exploiting and oppressing the 'lower classes'. Our morality is new, for it rests on the bright idea of destroying all oppression and coercion. To us, everything is permitted, for we are the first in the world to raise the sword in the name of freeing everybody from bondage. Blood? Let there be blood if it alone will save us from the return of the old jackals.
(From an article by Lenin in The Red Sword, a weekly magazine of the Cheka (secret police), 1919)
“It means neither more nor less than unlimited power, resting directly on force, not limited by anything. Nothing else but that.”
(From "A Contribution to the History of the Question of the Dictatorship")
The Party seeks power entirely for its own sake. We are not interested in the good of others; we are interested solely in power. Not wealth or luxury or long life or happiness: only power, pure power....Power is not a means, it is an end.
(O’Brien, in Room 101 of the Ministry of Love: George Orwell, 1984, Book III, Chapter 3) LewRockwell's blog
RON PAUL PATIENTLY EXPLAINS IT ALL - AND THE MEDIA PEOPLE STILL DON'T GET IT!
THERE IS NO SANTA CLAUS AND BEN BERNANCKE IS NOT THE TOOTH FAIRY. BUT, LIKE LITTLE CHILDREN, THE MEDIA TYPES WANT SOME MAGIC OR SLEIGHT OF HAND.
IF ONLY THE GREAT A POWERFUL OZ WOULD COME TO OUR RESCUE!
1. The bad debt needs to be liquidated. Sticking our head in the sand and pretending that a bubble didn't burst only prolongs our misery;
2. Interest rates need to be set by the market - by supply and demand - not by the Fed. A credit crisis needs to be answered by the formation of capital, and interest rates contrived by the Fed frustrate that remedy;
3. Money needs to be seperated from the manipulation of the political classes.
American foreign policy is moving from the absurd to the ludicrous.
Back in 2002, President George Bush and Vice President Dick Cheney managed to snooker the people of the United States, or at least a large number of us, into believing that Iraq, a pathetic Third World country ruled by a corrupt tin-pot dictator, was a grave danger to America, akin to Hitler and Nazi Germany in 1940. We learned how absurd that claim was when two hundred thousand American troops backed by the mightiest air force the world has ever seen, slammed into the country in March, 2003, and the Iraqi military simply folded up, and the Saddam regime along with it.
Now, President Obama appears ready to make an even more absurd claim, namely that the gravest threat facing this nation is posed by the country of Afghanistan. Now I’ll grant that Afghanistan, with a population of 33 million, is at third bigger than Iraq, which had a population of 24 million, at least until the US invasion and occupation led to the death of over a million of Iraqis. But aside from that, Afghanistan, a land-locked nation that lies between Iran and Pakistan, is far weaker and more primitive even than Iraq.
By any measure except population, Afghanistan suffers in comparison to Iraq. It has no air force at all. It barely has an army. Most of its people are illiterate and live in rural areas. Its people are extremely poor—among the poorest in the world. In many ways, Afghanistan is actually less a country than a region populated by a variety of feuding tribes—tribes that have different languages and cultures and even different racial backgrounds.
Do we really believe that this desperately poor and war-torn nation poses an existential threat—or any threat at all—to the US?
While you wave goodbye to your money, you can track the performance of those lucky companies that have gotten more than a billion dollars of taxpayer bailout money!
From the NASDAQ news release:
The index enables investors to track the performance of U.S.-listed securities that are participating in U.S. government sponsored relief programs such as the Troubled Asset Relief Program (TARP) or other direct government investments.
The NASDAQ OMX Government Relief Index consists of companies across multiple industry groups that have received a direct investment from the U.S. Government greater than $1 billion. The Index is the first of the Government Relief Index Series that NASDAQ OMX will be launching in the coming weeks.
THESE ARE REAL PEOPLE AND REAL LIVES BEING SHATTERED! SPECIFIC POLITICIANS AND POLICIES ARE RESPONSIBLE FOR THIS ECONOMIC DEBACLE...
... AND THEY NEED TO BE CLEARLY IDENTIFIED WITH THE DESTRUCTION THEY HAVE AUTHORED!
United Airline cutting 1,000 jobs GM cutting 2,000 jobs Microsoft cutting 5,000 jobs Intel cutting up to 6,000 jobs Home Depot cutting 7,000 jobs Pfizer cutting 8,000 jobs Sprint Nextel cutting 8,000 jobs Caterpiller cutting 20,000 jobs
(Fortune Magazine) -- A couple of years ago, when Peter Schiff first began appearing regularly on TV to warn of an impending real estate collapse that would crash the U.S. economy and stock market, he was surprised and disappointed to find that he was rarely, if ever, approached by strangers in restaurants.
"I'd walk down the streets of New York and figure, 'Gee, you know, I'm on CNBC, CNN,'" says the brash 45-year-old president of brokerage Euro Pacific Capital. "But nobody ever recognized me."
Those days, as Schiff will triumphantly tell you, are over. Perhaps no market soothsayer has had his profile raised higher over the past six months. As one of the few talking heads who loudly, relentlessly, and more or less accurately sounded the alarm about the mortgage bubble and its consequences - in the process becoming the latest bearish commentator to earn the moniker "Dr. Doom" - Schiff has suddenly emerged as a cult hero and something of a minor celebrity. Fortune Magazine
The Republican Revolution has been gasping for breath since the Democratic Party won the congressional midterm elections in 2006. After the Republicans were soundly defeated in the 2008 elections, the Revolution was in its death throes until noon on January 20 when George Bush’s second term as president ceased and the Republican Revolution officially came to an end...
As I pointed out the following in my article on how bogus the Republican Revolution was, one statistic is all it takes to see that there has been no limit to the growth of government under the Republican Party – the national debt. Consider the following:
On the eve of the new Republican-controlled Congress in 1995, the national debt was just under $5 trillion.
At the time of Bush’s first inauguration in 2001, the national debt stood at $5,727,776,738,304.64.
At the time of Bush’s second inauguration in 2005, the national debt stood at $7,613,772,338,689.34.
On the day of the 2006 midterm elections, the national debt stood at $8,592,561,542,263.30.
On the last day of Bush’s second term, the national debt stood at $10,626,877,048,913.08.
It’s not hard to understand why so many people drop economics after taking an introductory mainstream course in the subject. The theory and the practice just don’t fit. It doesn’t make any sense. They think it’s their fault – that they’re not clever enough to understand it. So they abandon it and take their talents elsewhere.
Had they taken an introductory course based on Austrian economics I daresay the outcome for most would have been different. What the Austrians say, in a nutshell is, cut intervention to a minimum and then just leave the thing alone.
Unfortunately, government intervention in free markets leads to unseen problems down the line which leads to more intervention, more unseen problems, more intervention and so on. Most of the difficulties and complications in economics arise from trying to explain just why intervention in free markets makes things worse.
What has become clear to me is that at the heart of Austrian economics lies the Austrian Business Cycle Theory (ABCT).
When I first came across it I encountered the same problem which many find with mainstream economics – reconciling the theory and the practice. In particular, Bryan Caplan gave me something to think about when he said that ABCT …
" … requires bizarre assumptions about entrepreneurial stupidity in order to work: in particular, it must assume that businesspeople blindly use current interest rates to make investment decisions."
I struggled here. A great deal of reading followed until I came across this article by Bob Murphy. Then I understood the problem. The reason I was having trouble was because I didn’t really understand ABCT. I didn’t understand ABCT because I didn’t understand Austrian Capital Theory (ACT). This article saved me so much time – not just because of the article itself but in particular because of the references he provided. I read all of them and more. By the end of it the conundrum posed by Bryan Caplan and much else besides was resolved.
Investment decisions are made by people running real businesses in the real world, not academics. Because of government intervention no one knows what the "true" rate of interest should be. Even if a business knows that rates have been artificially lowered by government are they likely to do nothing as competitors grab this cheap money and put it to work on interest-sensitive investments? Hardly, they fear that they’ll be running the risk of being put out of business – so they pile in too.
The point is made here in a quote I lifted from this gem of an article by Gottfried Haberler:
"May I be allowed to quote an example given by Mr. Keynes in a lecture before the Harris Foundation Institute last year. ‘No one believes that it will pay to electrify the railway system of Great Britain on the basis of borrowing at 5 percent. . . . At 3 1/2 percent it is impossible to dispute that it will be worthwhile. So it must be with endless other technical projects.’"(Emphasis added).
The real benefit of all this reading was to bring home the utter complexity of the production process and the time elements involved. Also, understanding the sheer folly of government intervention and the short-term benefits it yields.
In retrospect, the most useful reading for me was firstly, "Money and the Business Cycle" by Gottfried Haberler – this is where all the pieces came together. Secondly, this PowerPoint presentation by Roger Garrison – in a word – excellent! And thirdly, Murray Rothbard’s "Economic Depressions: Their Cause and Cure" – this pulled everything together by putting the whole thing in a historical perspective.
The reading was hard work and took time but was necessary in order to understand what is going on right now. Governments are busy trying to re-inflate their economies. They appear to want to avoid deflation at all costs.
But we’ve been here before. The problems we are facing are not new. The solutions which are being tried are not new. That these solutions will not work is not new. So why on earth are governments doing something which they know will only make things worse later on?
The only sense to be made of it is that it has little to do with economics and everything to do with governments staying in power.
Deflation is visible and it’s horrible – businesses fail, people lose their jobs, relationships come under pressure, marriages break, crime rates rise and so on – it also leads to governments being kicked out of office!
Inflation is different – it’s not as easy to see or understand and the blame can be shifted away from governments:
"Define inflation as rising prices and … you’ll think that oil sheiks, credit cards and private businesses are the culprits … Define inflation in the classic fashion as an increase in the supply of money and credit, with rising prices as a consequence, and you then have to ask the revealing question ‘Who increases the money supply?’ " – Lawrence W. Reed
"If the monetary system is not working as well as it should; if there's no likelihood of huge inflation in the next period of time; if you are not crowding-out private investment then government must play its role."
The wrongness of what is being said here is now clear – in fact, it can be seen visually thanks to Roger Garrison’s PowerPoint presentation. I’ll leave it to others better qualified than I to explain what is wrong about this and other such statements. Just in the last few weeks alone this has been done by Frank Shostak, Thorsten Polleit, George Reisman, Ed Bugos and, almost inevitably, Bob Murphy, here and here. Of course, I must not forget Gary North – his writing is so even and so clear – his latest article here is a very good example of what I mean.
As long as writing of the above calibre continues the message will get across – carried by all the people who increasingly read it on the internet. Maybe the process has already started. In this reference, following the recent G-20 summit, there is one recommendation which could easily be missed. Under the section "Tasking of Ministers and Experts" there appears the following – it refers to governments …
"[m]itigating against pro-cyclicality in regulatory policy."
Pity they couldn’t say it in plain English. But, if I understand it correctly, is this an admission by government officials that booms and slumps are in fact caused, or made worse, by government intervention? LewRockwell.com
The cause of the economic crisis was not the collapse of the secondary mortgage market, policies aimed at increasing home ownership or the rise of exotic financial instruments. These factors affected the nature of the crisis, but the ultimate cause was the bursting of a real estate bubble made possible by excessive money growth.
Abundant money and lower interest rates spur buying, pushing up prices. Since the supply of housing is relatively inflexible, housing prices rise quickly. Beginning in 2001, rising house prices and a rallying stock market increased homeowners' perceived net worth. People believed they didn't have to save as much for retirement or for their children's college education. And they could borrow more against their increased home equity, allowing them to buy more goods, services, stocks and real estate. Credit-fueled spending reinforced the rising prices of everything, but especially real estate and stocks.
But the increase in real estate prices and the increased spending it supported were a fantasy. The economy's ability to produce real goods and services is determined by the amount of plant and equipment, the number of workers, the supply of raw materials, and so on. We inevitably moved into a period of general inflation, so the Fed eventually had to reign in its easy money policy. Borrowing became more expensive, so people scaled back their spending or began selling assets to sustain it. Either response puts downward pressure on the prices of real estate and stocks, so prices that everyone counted on to rise forever began falling. The bear stampede was on.
In 2001, the Federal Reserve began expanding the money supply. Year-over-year growth rose briefly above 10 percent and remained above 8 percent into the second half of 2003. The effect on interest rates was immediate; the Fed funds rate that began 2001 at 6.25 percent ended that same year at 1.75 percent. It fell further in 2002 and 2003, reaching a record low of 1 percent in mid-2003. But if the Fed hadn't increased the money supply from 2002 to 2006, increased demand for credit resulting from deficit spending and the increased demand for real estate would have pushed up interest rates. This would have discouraged borrowing. Rising interest rates would have thwarted the process by which an increase in borrowing by the government and by the public artificially inflates asset prices, begetting even more borrowing. Most economists, government officials and politicians continue to believe the standard Keynesian explanation for recessions: Recessions are caused by consumers and firms becoming "spooked" for no meaningful reason, so consumption and investment spending falls below normal levels. This reduces demand for goods and services, which reduces employment, which reduces spending even further, and so on. Since the level of spending before the "spooking" was presumed to be sustainable, the solution to the problem is simple: Increase spending to where it had been during the boom.
In reality, excessive money growth drove asset prices up and drove interest rates down, making people feel richer than they really were and lowering the cost of borrowing money to facilitate more spending. Since the level of spending before the period of excessive money growth was just sustainable, the resulting level of consumption and business investment spending was unsustainable. The solution is to allow asset prices to fall to levels that accurately reflect what our economy can produce. This will make it clear to people that they are not as rich as they thought two years ago and thereby return spending to sustainable levels.
Still, virtually everyone agrees that we need to further stimulate the economy even though current attempts to solve our crisis by increasing spending is exactly the wrong thing to do. No one wants to bear the political cost for appearing to be uncaring by favoring a policy of "doing nothing." Out of political cowardice, the federal government is attempting to produce a solution that is penny-wise and pound foolish. You can't solve an excessive spending problem by spending more. We are making the crisis worse.
We have been down this road before. Most recessions start with the bursting of bubbles that grew large because of excessive money growth. But again and again, we presume a Keynesian cause and a Keynesian cure.
Our recent stock market and housing market crashes can prove to be the start of a sound and rapid recovery — if we will have the courage to let it be so. Rose and White
Neither White-washing the Reality of Inflation Nor Peering at It Through Rose-colored Glasses
Don Boudreaux
Economists David Rose and Larry White make a compelling case, in this op-ed, that the root cause of today's economic turmoil is excessive growth in the money supply between 2001 and 2006. Here are two key paragraphs:
In reality, excessive money growth drove asset prices up and drove interest rates down, making people feel richer than they really were and lowering the cost of borrowing money to facilitate more spending. Since the level of spending before the period of excessive money growth was just sustainable, the resulting level of consumption and business investment spending was unsustainable. The solution is to allow asset prices to fall to levels that accurately reflect what our economy can produce. This will make it clear to people that they are not as rich as they thought two years ago and thereby return spending to sustainable levels.
Still, virtually everyone agrees that we need to further stimulate the economy even though current attempts to solve our crisis by increasing spending is exactly the wrong thing to do. No one wants to bear the political cost for appearing to be uncaring by favoring a policy of "doing nothing." Out of political cowardice, the federal government is attempting to produce a solution that is penny-wise and pound foolish. You can't solve an excessive spending problem by spending more. We are making the crisis worse. Cafe Hayek
NSA WHISTLEBLOWER RUSSEL TICE: "THEY WERE SPYING ON EVERYBODY!"
Tice told MSNBC's Keith Olbermann on Wednesday that the programs that spied on Americans were not only much broader than previously acknowledged but specifically targeted journalists.
"The National Security Agency had access to all Americans' communications -- faxes, phone calls, and their computer communications," Tice claimed. "It didn't matter whether you were in Kansas, in the middle of the country, and you never made foreign communications at all. They monitored all communications."
"In one of the operations that I was in, we looked at organizations, just supposedly so that we would not target them," Tice told Olbermann. "What I was finding out, though, is that the collection on those organizations was 24/7 and 365 days a year -- and it made no sense. ... I started to investigate that. That's about the time when they came after me to fire me."
When Olbermann pressed him for specifics, Tice offered, "An organization that was collected on were US news organizations and reporters and journalists."
From 2000 to 2005, the productivity of American workers increased by 16 percent, yet they witnessed their average income decline by 2.9 percent.
A man in his 30’s in 2004 made12 percent less doing the same job than he would have in 1974.
In 2007, chief executives of the 500 biggest companies in the U.S. made an average of $12.8 million apiece. That put their daily salary of $51,200 ahead of the typical workers’ annual salary.
THE UNEXAMINED QUESTION IS: WHO IS GOING TO FINANCE THE NEXT WAVE OF DEBT?
The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.
The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.
Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit. Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.
The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.
The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse.
The unexamined question is: Who is going to finance the next wave of debt?
SO THE REAL WELFARE BUMS WERE THE UPPER CLASSES...
Merrill Lynch took $10 billion from the TARP, allegedly to fill holes in its balance sheet. But instead of using that to repair its financial health, it simply put the money into the pockets of its employees. There is no way to defend this disgusting payout.
But that won’t stop Bank of America, which now owns Merrill, from defending the bonuses. And across Wall Street there are lots of people who actually believe that Merrill did the right thing. How can so many smart people be so dumb?
Easily. There is a sick psychology of entitlement on Wall Street that was created during the bubble years.
Fed Chairman Ben S. Bernanke reiterated Jan. 13 that he’s considering buying long-term Treasuries as a way to bring down borrowing rates and unfreeze private credit markets as U.S. economic data and government reports continue to show the recession is deepening. We all know that the credible threat of directly monetizing Treasuries is part of the program; how soon will the credit markets call Ben’s bluff?
Former St. Louis Fed President Bill Poole had this to say in a recent Bloomberg interview: "I think the Fed is making a mistake quite frankly in not viewing its policy through some sort of constraint on the liquidity side of its balance sheet. It cannot continue with a printing press to finance all of its credit extensions, however worthy they might be one at a time, without producing a large, long run problem. I know of no example in history where resort to unbridled use of the printing press turns out well and happily."
WOULD YOU LIKE TO KNOW WHERE YOUR BAILOUT MONEY HAS GONE?
75 PERCENT OF LATEST BANK OF AMERICA BAILOUT IS USED TO PAY MERRILL LYNCH BONUSES
BOFA will say that the cash used to pay the bonuses was not the actual cash received from taxpayers. Please. Cash is cash. What BOFA and Merrill are already saying in their defense is that the bonuses were accrued (and mostly paid) all year and that Merrill just shelled out the last $4 billion in December...a month before the latest bailout funds arrived.
But that's ridiculous.By the time it paid its bonuses, Merrill knew about the $21 billion of operating losses for the quarter and Ken Lewis and BOFA knew they would need more capital. Bonuses are supposed to be based on the full year's performance, so the Q4 losses should have reset the bonus pool for the whole year.
As a new administration takes power in Washington and the promise of "change" is in the air, we have to ask ourselves: when-oh-when is it coming? When will the dam break on the sclerotic foreign policy thinking of the past eight – heck, the past 50 – years?
The first place to begin is, of course, the Middle East, scene of our latest – and worst – transgressions, starting with but hardly limited to the invasion and occupation of Iraq. What is the likelihood of change in this area?
The ongoing occupation of Iraq is a costly operation, in more ways than just financially. It imposes on us the responsibility for maintaining order in a country that is always, seemingly, on the brink of civil war, as well as laying on our buckling shoulders the burden of supporting a government we are increasingly at cross-purposes with. The Bush administration's attempt to implant a colonial-style Iraqi protectorate is just not sustainable, and Barack Obama came into office largely on the strength of his promise to end this misconceived adventure in "liberation." The problem is that he has no intention of keeping his campaign promise, as the New York Times reported shortly after the election:
"On the campaign trail, Senator Barack Obama offered a pledge that electrified and motivated his liberal base, vowing to 'end the war' in Iraq.But as he moves closer to the White House, President-elect Obama is making clearer than ever that tens of thousands of American troops will be left behind in Iraq, even if he can make good on his campaign promise to pull all combat forces out within 16 months."
David Axelrod to the contrary, the idea that Obama is going to get us out of Iraq at all, never mind in 16 months, is going to die a hard death, but die it will – unless, of course, the antiwar movement, so-called, gets up off its fat ass and starts making demands of the candidate so many of them supported. Raimondo
A new libertarian journal—a new type of libertarian journal—is born today. Libertarian Papers is an exclusively online peer-reviewed journal. Its home is this elegant, fast, easy-to-use website. Please feel free to browse around.
Publishing online has allowed us to break free of many of the constraints faced by paper-based journals. Scholars working in the libertarian tradition will find dealing with us to be a refreshing change. For instance, we publish articles consecutively, online, as soon as they are peer-reviewed and a final copy is submitted. No waiting for the next issue or printing delays. We have also done away with arbitrary space limits. And we don’t care what citation style you use, as long as it is consistent, professional, and enables the reader to find the work referenced...
That brings us to our first issue—or non-issue, rather. We’re very proud of our first set of published articles—the seven articles that are being published today, immediately after this post is published (and then rolling them out about one hour apart, consecutively, throughout the day). These pieces include articles by two eminent libertarian thinkers, Jan Narveson (writing on Nozick, justice, and restitution) and Robert Higgs (on depressions and war). Also being published today is a previously unpublished memo from Ludwig von Mises to F.A. Hayek, relaying Mises’s concerns and advice about the then-nascent Mont Pèlerin Society, followed by a previously unpublished memo from Murray Rothbard to the Volker Fund, about libertarian tactics and strategy. The last three articles to be published today—about four hours from now—are a fascinating three-part exchange between Nicolás Maloberti and Joshua Katz about libertarianism, positive rights, and “Possibility of the Legitimate State.”
Several more articles are in the works. We expect to publish throughout the year—and beyond. Stay tuned. Libertarian Papers
In chapter 9 of my book, Money, Bank Credit, and Economic Cycles (pp. 789–803), I design a process of transition toward the only world financial order that, being fully compatible with the free-enterprise system, can eliminate the financial crises and economic recessions that cyclically affect the world's economies. Such a proposal for international financial reform is, of course, extremely relevant at this time, since the disconcerted governments of Europe and America are planning a world conference to reform the international monetary system in order to avoid future financial and banking crises such as the one that currently grips the entire Western world. As I explain in detail over the nine chapters of my book, any future reform will fail as miserably as past reforms unless it strikes at the very root of the present problems and rests on the following principles:
the reestablishment of a 100% reserve requirement on all bank demand deposits and equivalents;
the elimination of central banks as lenders of last resort (which will be unnecessary if the first principle is applied, and harmful if they continue to act as financial central-planning agencies); and
the privatization of the current, monopolistic, and fiduciary state-issued money and its replacement with a classic gold standard.
This radical, definitive reform would essentially mark the culmination of the 1989 fall of the Berlin Wall and real socialism, since it would mean the application of the same principles of liberalization and private property to the only sphere — finance and banking — that has until now remained mired in central planning (by "central" banks), extreme interventionism (the fixing of interest rates, the tangled web of government regulations), and state monopoly (legal-tender laws, which require the acceptance of the current, state-issued fiduciary money) — circumstances with disastrous consequences, as we have seen. Jesus Huerta de Soto
When Thomas Jefferson was inaugurated, he sought to dismantle the evolving Federalist tradition of pomp and circumstance. In a ceremonial sense, royalism seemed to have been restored, or so it appeared to him. As this blogger put it, "Dressed in simple attire, Jefferson walked over to the Capitol with a phalanx of riflemen, friends, and fellow citizens from his home state of Virginia."
In these last days of the American Empire, such austere republicanism would be considered impossibly quaint. Having long ago morphed into Jefferson's worst nightmare, the closer we get to the end, the more glamorous our inaugurals become. The poorer we are, the more millions we'll throw at a ceremony that is really the crowning of a monarch – and not just any old king, but an emperor bestriding the globe.
Appearances must be kept up. Like a bankrupt living on a palatial estate – one step away from foreclosure – we bask in imperial splendor even as the repo man comes knocking at the door.
At a time such as ours, the spectacle of jeweled and gowned courtiers feasting on inaugural canapés is beyond tacky. The Bourbons partied, too, right up to the eve of the French Revolution. Amid all the sounding of trumpets and the hailing of the chief, however, there is something hollow about all this unseemly extravagance. Raimondo
Ah, how shall I do it? Oh, I know. I’ll turn him into a flea, a harmless, little flea, and then I’ll put that flea in a box, and then I’ll put that box inside of another box, and then I’ll mail that box to myself, and when it arrives… [insert demonic laughter here] …I’ll smash it with a hammer!
It’s brilliant, brilliant, brilliant, I tell you! Genius, I say!
Yzma, of course, is working on a plan to dispose of Kuzco, but it kind of sounds like the general strategy for getting “toxic assets” off of the balance sheets of financial institutions. Knowledgeproblem.com
I thought this whole story about the FISA "vindication" of Bush's wiretapping program sounded fishy. The way the WSJ editorialized about it, FISA basically said, "Yep, the president of the US has never needed to clear wiretaps with us, if he thinks national security is at stake." On the face of it, this is odd; why didn't FISA speak up 20 years ago and say it had been given unconstitutional power?
Anyway, Glenn Greenwald has cleared up my confusion:
[T]he court's ruling had nothing whatsoever to do with whether Bush acted legally or properly when he ordered warrantless eavesdropping on Americans from 2001-2006, when warrantless eavesdropping was a felony under FISA. To the contrary...the FISA court was addressing a totally different and much narrower question: namely, whether the warrantless eavesdropping which Congress authorized in the 2007 Protect America Act was prohibited by the Fourth Amendment's warrant requirement.
Ah, doesn't that ring much truer? And with something that subtle, you can see how Bush fans would claim vindication. Greenwald has some strong words on this aspect too:
[The lazy and ignorant media] report what "both sides" are saying, or -- as will be the case here, I predict -- the immediate storyline that "the FISA court vindicated Bush's spying and ruled it legal" immediately settles in (it has the advantages of simplicity and power-worshipping, an irresistable one-two punch for Beltway media stars), and then, no matter how many facts are marshalled or energy is expended to uproot it, it stays entrenched forever, rotting away and further infecting our discourse and distorting our collective actions with regard to our government's chronic lawbreaking. Today's orgy of ignorance is a nice little case study of the last eight years.
In closing, I should note that the WSJ discussion appeals to a different FISA ruling in 2002 that supports their broad interpretation. But I think it's possible GG and the WSJ are both right: The WSJ could still claim that President Bush acted within his constiutional powers (and cite rulings XYZ on the point), while GG is merely saying that the recent FISA ruling has nothing to do with that issue, and so Bush supporters should stop claiming vindication because of it. Bob Murphy
I am reading George Soros's The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means (New York: Public Affairs, 2008). Soros begins the book by explaining both how he sees the current crisis, why we are in a crisis, and why his theory of reflexivity does a better job than the neoclassical model of perfect knowledge and perfect competition. All would be good, except that somehow laissez faire is both used to describe the model of perfect knowledge/perfect competition (and equilibrium always), and used to describe the policy reality of the past quarter center of credit expansion and lax regulation of the financial markets world-wide.
But I wonder why this sort of contradiction persists in the literature. Soros correctly states that: "We are in the midst of the worst financial crisis since the 1930s. In some ways it resembles other crises that have occurred in the last twenty-five years, but this is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process; the current crisis is the culmination of a super-boom that has lasted for more than twenty-five years."
The super-boom resulted because of "credit expansion, and a prevailing misconception, market fundamentalism (aka laissez faire in the nineteenth century) which holds that markets should be given free rein."
First, explain to me how anyone as well-read and thoughtful as Soros could equate credit expansion and laissez faire? Isn't the very admission of massive credit expansion also an admission that we deviated from laissez faire.
Second, why do we need a new paradigm if the main problems we are identifying in the crisis are (a) the credit expansion, (b) a conflict between expectations in actors as they strive both to understand the situation and also act to change the situation (Soros's theory of reflexivity), and (c) a boom-bust cycle? Why doesn't Hayek's work just fit what is needed in Soros's mind?
Is it the case that the answer to my first question explains the answer to the second? And if so, what can be done to fix the confusions? Peter Boettke
For a man who spent years living in caves, Osama bin Laden sure knows his Sun Tzu and the basics of jujitsu. Sun Tzu's famous dictum was "know yourself" and "know your enemy." Jujitsu is based upon using your enemy's strength against him, e.g., like Jack in "Jack and the Beanstalk," who used the giant's own size and anger to get him to crash from his own weight. Bin Laden understood that the way to beat America was to turn its power back upon itself. His early stated aim was to bankrupt America. He knew his own weaknesses, and he profoundly
understood America's, how its pride and fears could trigger irrational, self-destructive reactions. The genius of bin Laden's pinprick attacks, costing a few hundred thousand dollars, has left America reeling with two unending multi-trillion-dollar wars it doesn't know how to get out of.
Editor, The New York Times 229 West 43rd St. New York, NY 10036
To the Editor:
You suggest that it might have been "a coincidence" that U.S. Airways stock price shot up by 13 percent immediately after Cap't. Chesley Sullenberger completed a remarkable emergency landing in the Hudson River ("In a Split Second, a Pilot Becomes a Hero Years in the Making," January 17). Do you think that it was also a coincidence that Cap't. Sullenberger received telephone calls afterward from both President Bush and President-elect Obama?
In fact, both set of events were perfectly predictable. Evidence of a company's ability to provide excellent service to customers inevitably and properly raises that company's market value. And just as inevitably, politicians - who have absolutely nothing to do with the commendable actions in question - horn in on the glory, smarmily trying to perfume their own malodorous profession with the scent of genuine heroism and decency.
Sincerely, Donald J. Boudreaux Chairman, Department of Economics George Mason University Fairfax, VA 22030
Nearly everyone carries a cell phone and it’s hard to find one without that camera feature. It’s convenient when you want to take that impromptu photo, but a Tri-Cities area man ended up behind bars after snapping a shot of a Johnson County sheriff’s deputy during a traffic stop.
The cell phone photographer says the arrest was intimidation, but the deputy says he feared for his life.
“Here’s a guy who takes me out of the car and arrests me in front of my kids. For what? To take a picture of a police officer?“ said Scott Conover.
A Johnson County sheriff’s deputy arrested Scott Conover for unlawful photography.
“He says you took a picture of me. It’s illegal to take a picture of a law enforcement officer,“ said Conover.
Conover took a picture of a sheriff’s deputy on the side of the road on a traffic stop. Conover was stunned by the charge.
Johannes Mehserle, the former BART officer who fatally shot 22-year-old Oscar Grant in the back while other officers kneeled on him, has been arrested on a fugitive warrant in connection with the shooting.
Given the general difficulty of holdinggovernment policeaccountable for abusive actions, it shouldn't be considered too much of a leap to assume Mehserle was arrested only because his conduct was caught on video by concerned citizens and thus elicited public outrage.
And considering the cops are already known to hassle people who take photos on public property and even arrest us for taking pictures of them, I fully expect to see new laws arise prohibiting photography of our valiant "protectors" -- even though this case is a perfect example of why such methods of accountability should forever remain legal.
If you really believe government police have the best interests of the citizenry at heart, ask yourself how this whole situation would have played out had Mehserle not been nabbed by the candid camera. Who's Your Nanny
Patrick Joseph McGoohan (March 19, 1928 – January 13, 2009)[1] was a two-time Emmy winning Irish Americanactor, raised in Ireland and England, with an extensive stage career, who rose to fame in the British film and TV industry by starring in the 1960s television series Danger Man (renamed Secret Agent when exported to the US), cult classic The Prisoner and Mel Gibson's Oscar winning epic Braveheart as Edward Longshanks. McGoohan wrote and directed several episodes of The Prisoner himself, occasionally using the pseudonyms Joseph Serf and Paddy Fitz. Wikpedia
TIME TO INSIST ON CONCEPTUAL CLARITY AND HISTORICAL TRUTH
Lets be clear about something. We did not just live through a 30 year period of laissez faire that has come to an end. Government got neither smaller in scale or scope. At best the growth of government slowed, but it was never reversed.
Fiscal policy has been irresponsible for at least two generations, monetary policy has been loose in an effort to minimize the short term pain of adjustment. WE ARE CURRENTLY SUFFERING THE CONSEQUENCES OF THE VERY SAME POLICIES WE ARE NOW ADVOCATING TO FIX OUR PROBLEMS. We didn't have an era of complete deregulation and free trade, we had partial deregulations (and attenuated property rights) and managed trade agreements. We have international agencies that promote administrative command/managed capitalism overseas and call it "free market", we have politicians at home that engage in discretionary spending unheard of before who claim to be "fiscal conservatives".
It is also the case that this is not a new argument by me or anyone else. Lawrence Kontlikoff has been sounding a warning bell on the fiscal side for my entire professional life. And thinkers such as Axel Leijonhufvud have been discussing the dire costs of inflation in terms of coordination failures since the 1960s. And it is not like the names Buchanan and Hayek are unknown to those in the economics profession since both won the Nobel Prize, and Buchanan explained in detail the consequences of the breakdown in the old time fiscal religion and the Legacy of Lord Keynes, and Hayek explained clearly the consequences of engaging in the Keynesian dance of holding the "tiger by its tail" with respect to inflationary monetary policy.
So how can it be that we get articles such as these --- Jeffrey Sachs making the case for Big Government in Time, and Yves Smith arguing that current crisis undermines the idea of economics as a science. The "analysis" of Sachs and Smith needs to be read, but also understood to be full of conceptual confusion and historical inaccuracy.
The sad reality is that since the 1940s, economic policy world-wide has been dominated by Keynesian ideas. Research in economics has been dominated by Keynesianism even when it supposedly had thrown off those intellectual ideas. Keynesian ideas led to Keynesian models, which in turn led to the development of Keynesian data that was then used to test Keynesian models with the purpose of exploring the efficacy of Keynesian policies. All that oscilated was whether we should be "liberal" or "conservative", but everyone in power was fundamentally Keynesian. After the 1987 crash, for example, Reagan was asked whether this meant the rehabilitation of Keynesian economics, he responded by telling the audience that Mr. Keynes didn't even have a degree in economics. That was his rhetoric, but the diagnosis of why the 1987 crash was one of aggregate demand failure, and the policy response was attempts to stimulate consumption. "Buy, Buy, Buy" Reagan told his audience within in 2 minutes after telling us that Keynes didn't have a degree in economics.
The very same economic framework that was unable to see the looming problems of fiscal irresponsibility and loose monetary policy, also couldn't see the difficulties of state socialism in the former Soviet Bloc and the problems of 3rd world poverty. But each of these economic policy failures are at root problems with statism, not problems with the market economy. Keynesianism is the prefered economic policy of statism (as Keynes himself pointed out when he argued that the policy experiments in Germany and Russia might be the more natural home for his ideas).
The "Washington Consensus" and the so-called era of laissez faire following the Reagan revolution are in fact, lets face it, much closer in reality to the policy prescription of John Kenneth Galbraith than Milton Friedman.Friedman's rhetoric was employed to pursue Galbraithian policies. Galbraith argued for Keynesian activism via a weird mix of Marx, Veblen and Keynes --- but the basic prespection was of government involvement both as referee and active player in the economic game. This is what we have had since the 1940s. Friedman argued against these positions via the logic of economic theory and the empirical examination of the consequences of government activism. Friedman won the intellectual debate among his peers, but lost the war of policy implementation in Washington and throughout the world.He pointed this out himself --- classical liberals he said have won the battle of rhetoric, but lost the battle of implementation. But Friedman's argument hasn't impacted the conceptual confusion and historical inaccuracy that blames our current crisis on the era of small government and laissez faire policy. So now we read about how Friedmanesque ideas (let alone Hayekian) are refuted by the current situation. Even President-elect Obama referred the other day to the "failed ideology" of the past, and the need for a new era of regulation of the economy fit for the 21st century.
Ironcially, one of the major sources for the confusion is found in Friedman's framework himself. When it came to macroeconomics, Friedman was fundamentally a Keynesian. What was needed was a complete rejection of the entire methodological and analytical framework of Keynesianism. Friedman was the first "conservative" Keyensian arguing against the "liberal" Keynesianism of the time. So his intellectual victory did not translate into a fundamental change in the structure of public policy either in the US or abroad.
Free market public policy had absolutely NOTHING to do with our current financial crisis, just as the current policy response has absoultely NOTHING to do with free market public policy. In fact, we are responding with public policies that are exactly what caused the problems in the first place. Give me Hayek and Buchanan, and perhaps if we followed their methodological, analytical, and policy prescription the perhaps economics could be revitalized as a scientific discipline and our economy could recover from the current malaise which statism has entrapped us. Peter Boettke
...But rather than an adjustment, what capitalism needs is a vigorous defense. This is true now more than at any other time since the Great Depression because all the Depression-era economic fallacies are being resurrected to try to combat the current crisis.
Fortunately, I do not need to write a defense of capitalism: that has already been done — twice —and by men more qualified than I. These defenses of capitalism are not only vigorous; they are uncompromising, up to date, understandable, and eminently readable. And neither one is a textbook on economics...
In his defense of capitalism, Murphy discusses every conceivable topic: supply and demand, price controls, profits, taxes, labor laws, antidiscrimination laws, environmental issues, workplace safety, money, banking, monopolies, trade, trade deficits, outsourcing, depressions, business cycles, and interest. Along the way he defends robber barons, middlemen, speculators, CEOs, Big Oil, and other "capitalist pigs," while skewering unions, environmentalists, and government bureaucrats, programs, businesses, deficits, and market interventions. After the introduction, each myth-exploding chapter can be read independently. An added bonus is the procapitalist books we are "not supposed to read" that are mentioned throughout each chapter. No anticapitalist myth is too sacrosanct for his sharp and witty pen... Read more... Mises.org
It is a great irony that prosperity affords posterity the luxury of forgetting its origins. Though not a hard-and-fast rule of societal evolution, generations who grow up wealthy often lack respect for or understanding of the values and ideas that generated the very wealth from which they benefit.
There is an honesty, realism, and practical virtue often accompanying generations that have to endure difficult labor that is sometimes lost on later generations that inherit a comfortable material life. This is not a new phenomenon but is present throughout history. Compare, for example, the life and work of the ancient Greek poet Hesiod with that of the great philosopher Aristotle some 300 years later. Read the rest... Mises.org
“Statists say that if not for the state, man would be unable to produce. That's like saying that the tick created the dog! Production predates government predation. Government doesn't produce wealth—it only consumes it.”—ILANA MERCER (Sixteen, the Number of the Beast, in Broad Sides, 2004)
This lecture looks at a recession as an information problem. It is a synthesis of a number of the ideas mentioned in previous lectures.
The market solves a complex information problem. The economist who emphasizes this the most is Hayek. He (and Mises) made the point that no central planner can acquire the information needed to adjust resources to meet economic needs.
The information problem includes making sure that your grocery store has enough milk but not too much. However, it also includes allocating long-term investment between, say, pharmaceutical research and new microbreweries.
As a follower of Hayek, I believe that government will do a poor job at solving this information problem. However, that does not mean that I think that markets will do a perfect job of solving this information problem. A tiresome rhetorical tactic of anti-free-market economists is to say that when markets fail to solve information problems this discredits markets.
Remember the credit crunch? Of course you do. We'd never seen anything like it, or so the highest financial authorities and their lapdogs in the news media told us — not in a cool, calm, and collected way, either, but in a breathless delivery that suggested imminent economic doom unless the government immediately undertook to "do something." Which it did, of course, on a scale never before witnessed in US history.
So, looking back, as people are prone to do at this time of year, we can clearly see the telltale signs of the financial disaster that struck the financial markets last autumn: the terrible credit crunch, the "frozen" credit that portended a complete economic "meltdown" unless the government took drastic measures to head it off. (The government's spokespersons and the media's talking heads never got straight whether the thing was very cold or very hot, as they reached for horrifying metaphors in all directions at once.) Robert Higgs
Wily competitors have known for ages that if you can't win the game, you can simply change the rules. Now, during normal economic times, if somebody recommended that the government borrow a trillion dollars and spend it on anything that moves, most economists (as well as common sense) would say, "That's nuts." So one would think that especially in the middle of a severe recession, in which the American public has to recover from misguided overconsumption (fueled by Fed policies), such massive deficit spending would be all the more ludicrous.
Ah, enter the wily academics. According to our most recent Nobel laureate, Paul Krugman, we are now in a period of "depression economics," where the standard rules don't apply. In particular, the argument goes, when there are idle resources lying around, the traditional economic problem of scarcity disappears. The government can prime the pump by throwing borrowed money around, and this can only boost total output, because employed workers produce more than unemployed workers. Bob MurphyMises.org
Merrill Lynch has revealed that some of its richest clients are so alarmed by the state of the financial system and signs of political instability around the world that they are now insisting on the purchase of gold bars, shunning derivatives or "paper" proxies.
Gary Dugan, the chief investment officer for the US bank, said there has been a remarkable change in sentiment. "People are genuinely worried about what the world is going to look like in 2009. It is amazing how many clients want physical gold, not ETFs," he said, referring to exchange trade funds listed in London, New York, and other bourses. Read the rest...Telegraph.co.uk
According to Pravda, the earth is heading for a long cooling trend. Forget global warming; we are headed for another ice age. No doubt, the following words will make Al Gore angry:
The earth is now on the brink of entering another Ice Age, according to a large and compelling body of evidence from within the field of climate science. Many sources of data which provide our knowledge base of long-term climate change indicate that the warm, twelve thousand year-long Holocene period will rather soon be coming to an end, and then the earth will return to Ice Age conditions for the next 100,000 years.
It used to be (supposedly) that the "free" press of the USA stood for truth, while Pravda (which means "truth" in Russian and was the official paper of the Communist Party) was a nest of lies. My, how things have changed! I will take Pravda over the New York Times any day! Rockwell's blog
HARARE, Zimbabwe (CNN) -- Zimbabwe's central bank will introduce a $50 billion note -- enough to buy just two loaves of bread -- as a way of fighting cash shortages amid spiraling inflation.
Zimbabwe's dollar is virtually worthless, with foreign currency now being used to purchase basic items.
The country's acting finance minister, Patrick Chinamasa, made the announcement in a government gazette released Saturday.
Although Chinamasa did not give the date on which the $50 billion and new $20 billion notes would come into circulation, an official at the Reserve Bank of Zimbabwe said the notes would be distributed to all banks by the end of Monday.
Zimbabwe is grappling with hyperinflation now officially estimated at 231 million percent, and its currency is fast losing its value. As of Friday, one U.S. dollar was trading at around ZW$25 billion.
When the government issued a $10 billion note just three weeks ago, it bought 20 loaves of bread. That note now can purchase less than half of one loaf.
WHAT'S NEXT? WILL SOME IDIOT COME UP SOME REALLY STUPID IDEA ABOUT BIG FINES FOR LICENSE PLATE FRAMES?
STATE USES TRAFFIC FINES (TRAFFIC FINES!) TO COMPENSATE FOR ITS INEPT FISCAL MANAGEMENT!
TALLAHASSEE -- Caught running a red light? You'll pay $208.
Speeding 25 mph over the limit? Get ready to cough up $258.
If you pay a fine late: Tack on an extra $16.
Although they are desperate for cash, Florida legislators have vowed in their special budget-cutting session not to impose new taxes on working people. Instead, they are relying more than ever on lawbreaking motorists.
Lawmakers will impose a new charge of $10 on all traffic infractions ranging from driving with an expired tag to running a stop sign. The state also is eliminating an 18 percent discount available to violators who go to traffic school, and taking away the right of judges to waive fines, regardless of whether the judge makes a finding of guilt.
In some areas, fines and fees will be even higher because counties and cities have the option of imposing additional charges.
Daily Article by N. Joseph Potts | Posted on 3/2/2005 12:00:00 AM
Enron: $1 billion writedown of retained earnings, followed by $618 million quarterly loss. 21,000 put out of work in ensuing bankruptcy. CFO Andrew Fastow sentenced to ten years in prison. Jeff Skilling and Kenneth Lay arrested and charged with federal crimes.
Worldcom: $10 billion inflation of profits through failure to record expenses. CFO Scott Sullivan reduces prison term through plea bargain in which he cooperates with prosecution of former CEO Bernie Ebbers, now on trial.
Arthur Andersen: auditor of Enron and Worldcom loses accounting license in consequence of these and other scandals and is liquidated, putting 65,000 employees worldwide out of work. Sarbanes and Oxley launch Congressional initiative resulting in the eponymous act of Congress to curb future abuses of corporate trust.
United Nations Intergovernmental Panel on Climate Control (IPCC) sponsors adoption of the Kyoto Protocol by most industrialized nations around the world, with estimated costs of legally binding compliance estimated at over $150 billion per year. The chief promotional artifact in the proceedings, the "hockey stick" historical temperature chart of IPCC Third Scientific Assessment Chapter Lead Author Michael Mann , is shown to be based on a computer program that produces hockey sticks from over 99 percent of ten thousand samples of random noise fed to it. Stephen McIntyre, retired Canadian minerals consultant, demonstrates numerous other defects and distortions in both the data and statistical methodology, ultimately the subject of a front-page article in the Wall Street Journal of February 14 and a follow-up editorial on February 18.
Anyone sent to jail on that last one? That biggest one, by far? No.
Any charges? No, and none anticipated.
Lawsuits? None yet (possible reason: too many plaintiffs).
Any bankruptcies? Certainly not of the IPCC, nor of the tax-funded agencies that paid for the research that culminated in the hockey stick.
What about the auditor? There is no auditor. No audits? No, except for the self-funded undertaking of McIntyre and partner Ross McKitrick, and Dr. Mann has cut them and apparently everyone else off from further information on the mysterious process that "proved" an episode of global warming in the Twentieth Century and pointed to human activity as the guilty party.
Congressional action? Well, the US Senate has declined to ratify the Kyoto Protocol, but that’s about it.
Government investigation? Despite the fact that the US government funded eleven out of the twelve "Funded Proposals" cited in Dr. Mann’s curriculum vitae , it neither conducts audits of the results reported nor requires that information be made available to others for conducting audits at their own expense and initiative.
But the Kyoto Protocol remains in force and legally binding.
Government and science have found each other, and the spawn of this marriage look set to destroy global wealth on a scale that will render the greatest of history’s wars trivial by comparison. The ultimate outrage of all this is that the people who are subjected to the ravages of the wrong-headed policies promoted by these self-seekers are taxed to pay for the production of this junk science to begin with.
Scientists, like the rest of us, have among their number many members of a certain very dangerous group: those who would govern. And like the governing class everywhere, they seek to govern without the encumbrance of having to tolerate dissent from those who pay their salaries and experience the consequences of the policies they emplace.
Indeed, they resist inquiries from the unannointed into the bases of their pronouncements and, while feeding on the tithes exacted from the unwashed, insist on handing their pronouncements down as dicta that may not be questioned. The flavor of this may be discerned palpably in a visit to realclimate.org, a Web site launched early this year by climatologists and other "scientists" (today’s codeword for priest).
This Web site expresses the "frustration" felt by real scientists who have to contend with the inquiries and ignorance of non-scientists who are inflamed by their petty suspicions that they are being oppressed in the name of bogus theories. As well, it provides an eight-point set of standards for article comments (which are required to be "constructive" among other things). In "language your parents could understand," the Web site provides a "Dummies’ Guides" to its subject, and the impression that they truly regard their audience (and parents) as dummies is irresistible... Read the rest... Mises.org
I'm wondering if the major media outlets reported on the following item. Maybe I just happened to miss it, but I have my doubts.
The June issue of Scientific American highlighted some research results out of Columbia University. Recently, Professor Richard Wilson published a peer-reviewed article in the journal Geophysical Research Letters where he reported the results of his studies on the amount of solar energy that our sun has been producing over the last 24 years. During this time period, the amount of energy the sun is producing has increased by 0.05% every 10 years.
Now that may not sound like much to anyone, but, as Prof. Wilson points out in his article, the cumulative effects of this trend could be significant. For example, if this trend had begun even earlier, say as little as about 100 years ago, it would account for a significant amount of the global warming that has become so important to both climatologists and environmentalists.
Prof. Wilson acknowledged that the whole story is not yet known, but his discoveries have shown that the mantra that has been chanted over and over in the media about how human activities are causing global warming needs to be re-evaluated.
It appears that the issue of global warming is a bit more complicated than those in the major media outlets and the environmentalist organizations would want us to believe. It also appears that our "fragile ecosystem" is a bit more robust than they would have us believe.
But I wouldn't count on hearing a report on this during the evening news. And I also wouldn't count on hearing any apologies from environmental groups such as the Sierra Club for their statements in the past ridiculing President Bush's decision to pull out of the Kyoto Protocol. And I haven't heard of any new statements from them welcoming more research into this interesting topic.
Maybe I just haven't looked hard enough, but again, I have my doubts. People in these organizations are rarely concerned with scientific integrity if it doesn't happen to favor their own agenda, and the data of Prof. Wilson are precisely what these groups do not want to even consider. Their raison d'être will disappear if it is shown that global warming is caused, not by a lack of nurture, but by the laws of physics that are embedded within the "genetics" of Mother Nature.
The lesson for us here is that we need to be very careful when we hear so-called experts from lobbying groups pontificate about "scientific facts." Sure, university professors are not completely impartial, but in the realm of the natural sciences, hard data cannot be disputed, and the peer review system is one of the best detectors of phony science.
The Bush administration should be commended for not making rash environmental and economic policy decisions before both sides of the story have been heard. Who will be the first to voice that "blasphemous" idea over the airwaves? Kevin Van Cott Mises.org From 2003
Global warming: the Left's last best chance to gain a stranglehold on our political system and economy
For decades, environmentalism has been the Left's best excuse for increasing government control over our actions in ways both large and small. It's for Mother Earth! It's for the children! It's for the whales! But until now, the doomsday-scenario environmental scares they've trumped up haven't been large enough to justify the lifestyle restrictions they want to impose. With global warming, however, greenhouse gasbags can argue that auto emissions in Ohio threaten people in Paris, and that only "global governance" (Jacques Chirac's words) can tackle such problems.
Now, in The Politically Incorrect Guide(tm) to Global Warming and Environmentalism, Christopher C. Horner tears the cover off the Left's manipulation of environmental issues for political purposes--and lays out incontrovertible evidence for the fact that catastrophic man-made global warming is just more Chicken-Little hysteria, not actual science. He explains why, although Al Gore and his cronies among the media elites and UN globalists endlessly bleat that "global warming" is an unprecedented global crisis, they really think of it as a dream come true. It's the ideal scare campaign for those who hate capitalism and love big government. For, as Horner explains, if global warming really were as bad as the Leftist doomsayers insist it is, then no policy imaginable could "solve" it. According to the logic of the greens' own numbers, no matter how much we sacrifice there would still be more to do. That makes global warming the bottomless well of excuses for the relentless growth of big government.
Horner (an attorney and senior fellow at the Competitive Enterprise Institute) reveals the full anti-American, anti-capitalist, and anti-human agenda of today's environmentalists, dubbing them "green on the outside, red to the core." He details how they use strong-arm legal tactics--and worse--against those who dare to point out the weakness of their arguments for global warming. Along the way, he explodes ten top global warming myths, carefully examining the evidence to determine how much warming there really is and what is actually causing it. He exposes the lies that the environmental lobby routinely tells to make its case; the ways in which it is trying to impose initiatives such as the Kyoto Protocol on an unwilling American public; and much more--including the green lobby's favorite politicians (John Kerry, John McCain, Joe Lieberman, and others).
It's time to stand up to the environmentalist industry and insist: human beings are not the enemy. In breezy, light-hearted, and always entertaining fashion, The Politically Incorrect Guide(tm) to Global Warming and Environmentalism gives you the facts you need to do so. Buy the book
GLOBAL WARMING AND THE 'BODYGUARD OF LIES' THAT ATTEND IT
Those of us who refuse to accept calls from proponents of global warming for drastic restrictions on production often confront objections like this:
You skeptics, blinded by fanatical devotion to the free market, ignore evidence. True enough, you can trot out a few scientists who agree with you. But the overwhelming majority of climate scientists view man-made global warming as a great threat to the world. The course of inaction you urge on us threatens the earth with disaster.
Christopher Horner's excellent book provides a convincing response to this all-too-frequent complaint.
But how can it do so? Will not an "anti-global-warming" book of necessity consist of an account of scientists who dissent from the consensus? If so, will it not fall victim to the difficulty raised in our imagined objection? The book will pick a few favored experts to back up a preconceived political agenda.
Horner strikes at the root of this objection: it rests on a false premise. Contrary to what our objection assumes, there is in fact no consensus of scientists behind global-warming alarmism:
Professor Dennis Bray of Germany and Hans von Storch polled climate scientists to rate the statement, "To what extent do you agree or disagree that climate change is mostly the result of anthropogenic causes?" … They received responses from 530 climate scientists in 27 countries, of whom 44 percent were either neutral or disagreed with the statement… Science magazine helpfully refused to publish the findings, by the way. (p. 157)
But do not the most prestigious bodies of scientists, such as the National Academy of Science and the Intergovernmental Panel on Climate Change, claim that man-made global warming is indeed a danger? Horner shows that matters are not what they appear. Environmentalists insinuated their way into the National Academy through "a special Temporary Nominating Committee for the Global Environment, bypassing normal election procedures" (p. 91). Once ensconced, these partisan figures used their position to elect more of their ilk and to block skeptics. The environmentalist members include Paul Ehrlich, who predicted in The Population Bomb (1968) that by the 1970s and '80s hundreds of millions of people would die from starvation. His manifest failure as a prognosticator has not deterred him from touting new and improved ways to cripple capitalism. Read the rest... David Gordon
As we all know President-Elect Obama spoke at GMU yesterday to lay out his plan for the economy. Alex actually got to go and was pleasantly surprised. Russ wonders about the long line of politicians with their hands out for funds that was on display.
Alex has argued that relative to the New Deal, Obama seemed sensible. I respect Alex tremendously and consider him one of the bright spots not only on our faculty, but in the world of economics. But I am not so sure that we were listening to the same speech.
I didn't attend, but instead sat at home and watched every word. I was struck by how in the name of pragmaticism, our President-Elect is going to engage in a wreckless fiscal policy and a renewed regulatory regime. Alex argued that there is no regime uncertainty looming with Obama, I agree only to the extent that uncertainty is eliminated because the regime we are headed toward without doubt is wreckless statism at unheard of levels. Obama was explicit about this.
1. The era of wait for market correction is OVER. 2. Supposedly we have already seen the failure of a wait and see approach. 3. While he will welcome open debate, we need to move swiftly to pursue his plan. 4. He will spend more federal money in the first 100 days of his administration than we have ever seen. 5. But somehow all this federal spending will be consistent with signaling to the world that we have gotten our fiscal house in order. 6. We need new regulations for the 21st century economy (against the old dogma of market self-correction must be rejected) 7. We need to make government better, not smaller. 8. We will spend all this money on worthy projects (namely public projects) that we (meaning me and my team) deem worthy --- education is one of those; infrastructure is another; health is another. (Please note the relevance of Russ's interpretation here) 9. Throwing money at the problem isn't the answer, investing is (but what the difference is, is not clear) 10. Finally, I am DEADLY serious about this and unless you listen to me and throw off the "old dogma" that got us here in the first place (by which he means the free market ideology that supposedly has dominated Washington for the past 8 years) our economy will sink into a crisis we will never be able to escape from. Every moment we wait, individuals are losing their jobs.
The speech was important for Obama because he is setting expectations. Don't blame his administration for the economic situation and don't even blame his administration for the economic situation 3 years from now because the situation is that dire caused by the "do nothingism" philosophy of old ideas on the economy and government. Government must be an active player in the economy, and seen as the corrective to our social ills. We have sunk into such a deep hole, in fact, that ONLY government can get us out. If our economic situation is anything other than grave in the coming years it will be because of the bold and pro-active steps his administration will have taken. All praise go to the articulate and intelligent leader. Who, let me remind you, is pragmatic and open to discussion, but you better get onboard quickly with these policy initiatives or we are going to be in a living hell.
I really don't see how as an economist in the tradition of Adam Smith, JB Say, L. Mises, F.A. Hayek, Milton Friedman, and James Buchanan can see ANYTHING positive in Obama's speech. That it was delivered at GMU is as ironic as it is disturbing.
But rather than wallow in despair, as economic educators lets take this as inspiration that our work is cut out for us. First, we have to remember what Knight argued --- "To say a situation is hopeless, is to say it is ideal." We are far from the ideal, so it is not hopeless. We can through our efforts as educators (to our students, to our peers, and to the general public) provide a different way of thinking about these issues yet again. We have to speak eloquently, write effectively, and be relentless in our pursuit of truth. If we do that, and do that everyday, we will be fighting the good fight against popular economic fallacies. These are dark days for economists, but certainly no darker than the times faced in the 1930s-1940s. Time to really go to work. Second, lets not be bashful in our perspective, but we have to avoid being silly with it. For the scholar/teacher, now is not the time to scream and stomp your feet. Instead, now is the time to produce even more logically rigorous and careful empirical argument to challenge each of the 10 points listed above. We have to be more sophisticated in our argument, not less. More dedicated as teachers of the economc way of thinking than we have been. Bastiat once said something along the lines of "Never fear a harsh critique, but always fear a weak defense of your position." The stakes are very high, and the urge is to scream and yell at the collective insanity. Resist this temptation for quick satisfaction and instead take a longer term perspective. Use Mises's critique of socialism in the 1920s as your inspiration. Mises didn't scoff at, nor did he scream at, the socialist policy proposals that were being debated around him not only among academics, but in practical public policy after WWI in Red Vienna. Instead, he analyzed them logically and dispassionately and demonstrated their fatal flaw. Or look at Hayek's The Road to Serfdom as the exemplarly work for dire times for the economist.* Hayek as the "endogenous public choice theorist" changed the course of human history in the second half of the 20th century. Ideas do have consequences, and economic scholar/teachers can, and do, make a difference.
Time to roll up the sleeves and get to work.
----------------------------- *BTW, economics means something other than what economists do. As Lord Acton once put it, it is those who sit in the seat of Adam Smith that deserve our attention. Boettke's blog
As Barack Obama prepares to take the inaugural oath, it almost seems otiose to note that his victory represents a sweeping repudiation of the neoconservative movement. Though neocons such as Randy Scheunemann formed a kind of Praetorian Guard around John McCain during his presidential campaign, their truculent approach to foreign affairs sabotaged rather than strengthened McCain’s electoral appeal. The best that Sarah Palin, a foreign-policy neocon on training wheels, could do was to offer platitudes about standing by Israel. It seems safe to say, then, that the neocon credo is ready to be put out to pasture.
Or is it? One problem with this line of argument is that it’s been heard before—sometimes from the neoconservatives themselves. In 1988, after George H.W. Bush replaced Ronald Reagan, neocon lioness Midge Decter fretted, “are we a long, sour marriage held together for the kids and now facing an empty nest?” Then in the late 1990s, Norman Podhoretz delivered a valedictory for neoconservatism at the American Enterprise Institute. Neoconservatism, he announced, was a victim of its success. It no longer represented anything unique because the GOP had so thoroughly assimilated its doctrines. In 2004, a variety of commentators scrambled to pronounce a fresh obituary for neoconservatism. The disastrous course of the Iraq War, Foreign Policy editor Moisés Naím said, showed that the neoconservative dream had expired in the sands of Araby.
Yet the neocons show few signs of going away. The Iraq surge was devised by Frederick Kagan of the American Enterprise Institute and spearheaded by William Luti, a protégé of Newt Gingrich and Dick Cheney who is currently at the National Security Council. Its success has prompted some neocons to claim vindication for the Iraq War overall. Nor has the network of institutions that the neocons rely upon melted away, from the Hudson Institute, where Scooter Libby and Douglas J. Feith are now ensconced, to the Weekly Standard and Fox News. The American Conservative
The military judge overseeing proceedings against five of the men accused of planning the Sept. 11, 2001, attacks signed an order designed to protect classified information that is so broad it could prevent public scrutiny of the most important trial at Guantanamo Bay, Cuba, according to lawyers and human rights groups.
The protective order, which was signed on Dec. 18 by Judge Stephen R. Henley, an Army colonel, not only protects documents and information that have been classified by intelligence agencies, it also presumptively classifies any information "referring" to a host of agencies, including the CIA, the FBI and the State Department. The order also allows the court in certain circumstances to classify information already in the public domain and presumptively classifies "any statements made by the accused." WaPo
Writing in the Wall Street Journal on December 24, 2008, Martin Feldstein gives us an article entitled “Defense Spending Would Be Great Stimulus.” The title tells you everything you need to know: military Keynesianism is the medicine being prescribed by a leading figure of the politico-economic Establishment—a Harvard professor, former chairman of the Council of Economic Advisers, former president of the American Economic Association, president emeritus of the National Bureau of Economic Research, and member of the President’s Foreign Intelligence Advisory Board. That a man so drenched in professional honors and attainments would be peddling such long-discredited claptrap speaks volumes about the state of mainstream economics. When you think it can’t sink any lower, it does...
Feldstein’s article reminds us that the elites who rule this country have a high threshold for embarrassment. They will shamelessly trot out any sorry intellectual apparatus to justify snatching the taxpayers’ money and funneling it to privileged corporate contractors and to the horde of drones on the government’s payroll. However intellectually contemptible military Keynesianism may be, though, it has a proven record of getting the Establishment where it wants to go.
For decades, secretaries of defense helped to justify their gargantuan budget requests by claiming that high levels of military spending would be “good for the economy” and that reduced military spending would cause recession. So common did this argument become that Marxist critics gave it the apt name military Keynesianism. On both the right and the left, people believed that huge military spending propped up an economy that, lacking this support, would collapse into depression. Such thinking played an important part in the political process that directed about $15 trillion (in today’s dollars) into Cold War military spending between 1948 and 1990. Nor did the argument disappear even after the Soviet Union unsportingly left the playing field.
Military Keynesianism has enough surface plausibility that it garnered a substantial following in certain quarters even before Keynes’s General Theory gave it apparent intellectual respectability. In his 1944 book As We Go Marching, John T. Flynn noted as a fact “this devotion of the conservative elements to military might,” and he emphasized that “militarism is the one great glamorous public-works project upon which a variety of elements in the community can be brought into agreement.” He understood, however, that military public-works spending has far graver consequences than ordinary Keynesian pyramid building. “Inevitably, having surrendered to militarism as an economic device, we will do what other countries have done: we will keep alive the fears of our people of the aggressive ambitions of other countries and we will ourselves embark upon imperialistic enterprises of our own.” Flynn deserves high marks as a prophet. Read the rest Robert Higgs
Today's Krugman op-ed blog is a doozy. See if you can spot the intellectual and historical sleight of hand here:
No modern American president would repeat the fiscal mistake of 1932, in which the federal government tried to balance its budget in the face of a severe recession. The Obama administration will put deficit concerns on hold while it fights the economic crisis.
But even as Washington tries to rescue the economy, the nation will be reeling from the actions of 50 Herbert Hoovers — state governors who are slashing spending in a time of recession, often at the expense both of their most vulnerable constituents and of the nation’s economic future.
Can you spot it? He's quite correct that Hoover tried to balance the budget in 1932, and he's also arguably correct that doing so was harmful. But notice what he doesn't actually say and only implies: Hoover tried to balance the budget by cutting spending. He did NOT. In fact, he tried to balance the budget by signing the Revenue Act of 1932, which was a large tax increase, increasing the top marginal rate from the mid-20s to 63 percent. The effects of that tax increase on the deepening of the Great Depression can certainly be debated, but there's no doubt that it made matters worse to some degree or another, and that its relevance for cutting spending right now is questionable. Steve HorwitzBoettke's blog
The following reading list includes about 125 books, useful for understanding liberty and the system of individual enterprise. It emphasizes, with a few exceptions, modern rather than historical works. It makes no claim to be comprehensive and is nothing more than introduction to a vast literature. Only books currently in print have been included. I urge readers to study everything they can get their hands on by Mises and Rothbard. David Gordon Mises.org
IS CONSERVATISM DEAD? HOW THE NEOCONS DESTROYED A PERFECTLY USEFUL POLITICAL BRAND NAME!
IMPORTANT PIECE IN THE NEW AMERICAN BY PATRICK KREY...
"Individuals who consider themselves traditional conservatives should reject the voices of both GOP party leaders and members of the media who promoted Bush's brand of conservatism. Instead they should listen to the voices of constitutional conservatives who stood by principle over party in opposition to Iraq and other unconstitutional actions by the big-government Bush administration. Voices like Ron Paul, Pat Buchanan, Charles Goyette..."
The New York Times earlier this month contributed a memorable anecdote to the lore of this crisis when it reported on the emergency session that took place in the Roosevelt Room of the White House on the day after the credit markets shut down.
It was Thursday, September 18, when Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson explained to President Bush that, in the wake of government’s decision to let Lehman Brothers fail a few days earlier, banks in Europe and the United States had ceased lending to one another, each for fear their counterparty might be in similar jeopardy.
The previous January Bush had pushed through a $150 billion stimulus package designed to stave off recession, delivered mostly in the form of income tax rebates, to no apparent macroeconomic effect. Only two days before, he had agreed to lend $85 billion of taxpayer money to insurance giant American International Group to keep it solvent. Now a commitment to other institutions in the neighborhood of $700 billion would be required if the gridlock were not to continue.
The world economy had, for the moment, come to a halt.
Mr. Bush, according to several people in the room, paused for a single, stunned moment. ”How,” he wondered aloud, “did we get here?” Read the rest... Economic Principles.com
...if you believe that a surge in private spending would raise employment — and even the critics agree on that — it’s very hard to explain why a surge of public spending wouldn’t have the same effect.
But surely we believe that if the U.S. government were to follow the Countrywide plan--to send its representatives out onto the streets to have them walk up to people and say: "Here's $500,000. You can have it if you go buy a house"--then that would drive a recovery, right?
What's interesting about these statements is not so much whether they are right or wrong (let's just say that it depends) but that Krugman and DeLong are so immersed in the Keynesian viewpoint that they cannot even see any other way of looking at the issue. Thus "even the critics" and "but surely we believe," as if no other view were conceivable.
Well if the only frame you can see is the "spending increases employment" frame then whether the spending is private or public may seem like a niggle. But many of the critics of mass fiscal stimulus have an alternative frame in mind, namely, that "employment increases spending."
Frame the issue this way and it becomes clear that the choice between private employment and public employment as a driver of spending is crucial. Moreover, when we remember that employment drives spending we focus attention on the real allocation of labor and capital across sectors of the economy, on internal and external fiscal balance, on investment as well as on consumption and on time paths of development. The "spending drives employment" frame misses all this. Marginal Revolution
Although the financial meltdown is a disaster for the country, Mr. Oros said, “the opportunity going forward is unprecedented. It is fantastic. It is as if I had been training for this for the last 40 years of my career.”
Oros is currently a partner in a private equity firm. The rest of the article, however, is deeply scary. It's about how much lawyers and lobbyists are benefiting from TARP and related measures. Consider this form of optimism:
“It is a good time to be me,” said John L. Douglas, a partner in Atlanta at the law firm Paul Hastings and a former lawyer for bank regulators who helped create the agency that administered the last federal bailout, the Resolution Trust Corporation.
We're in a race to see whether politics will become the dominant means of allocating financial wealth in this country. That could be the single biggest domestic issue today, but too few economists are speaking up about it. Marginal Revolution
The final chapter in the Washington Post's telling of the AIG saga is the most exciting--and the most frustrating. In the end, it is still not clear whether there was anything fundamentally wrong with AIG's portfolio. After all their research, and all of their writing, the reporters have failed to get to the bottom of the story. They end up saying,
It seems that as Financial Products ramped up its credit-default swap business, its leaders assumed that its parent, AIG, would always be as strong as it was the day it backed the firm's first big trade in 1987...they had failed to prepare for the possibility of a downgrade in AIG's credit rating.
If that is the story, then it is possible that the actual losses on the AIG credit default swap portfolio could turn out to be zero. Instead, what did them in was the collateral posting that was required because their credit rating was downgraded. The collateral demands multiplied as their credit default swaps went from being deep out of the money to being slightly out of the money.
If that is the story, then the stern-sheriff metaphor, that I first introduced here and later included in my Congressional testimony, looks really apt. Instead of putting money into AIG, the Treasury and the Fed should have told Goldman Sachs to stop grabbing for collateral. Make Goldman wait for actual losses to occur before they make claims against AIG.
Early in the article, the authors write,
Financial Products made its money by selling credit-default swaps only on the super-senior tier. It seemed a safe bet: Cassano once defined super senior as the portion of the deal that was safe even "under worst-case stresses and worst-case stress" assumptions.
With risk-layered mortgage securities, the super-senior tier is protected from the first X oercent of losses, where I believe that X is usually at least 5 percent, perhaps higher. Part of the reason that it has become difficult to calculate exposure is that when you have a pool of mortgages with, say, 3 percent defaults, you don't know whether what remains in the pool are good loans that have demonstrated an ability to survive or just more bad stuff that has not yet surfaced.
The article says that AIG stopped writing credit default swaps on mortgage-backed securities late in 2005. If so, then: (a) they were certainly a lot wiser than Freddie and Fannie, which plunged in to the subprime market right around that time; and (b) the rate of defaults on the loans in the mortgagte securities ought to be a lot lower than the default rates we are seeing on the 2006 and 2007 books, because the earlier books had less inflated house prices.
But I can only speculate on the extent of actual losses in AIG's credit default swap book. And, in spite of all of their digging, the reporters appear to be in the same position. That makes for a story that is entertaining but not satisfying.
Of course, Roger Lowenstein's entire book on Long Term Capital Management, When Genius Failed, left me feeling the same way. Did LTCM make bad bets, or did they make good bets that just took too long to come in? Maybe I'm just a geek, but that was the main question I was looking for Lowenstein to answer, and he didn't.
Remember that Tyler Cowen thinks that the bailout of LTCM lulled folks into a false sense of security. But it seems to me that at AIG the sense of security came from the fact that the folks there thought they had a safe portfolio. Whether that sense of security was false or not is the question that is still unanswered, in my view. Arnold Kling
NEW BRIGHT LIGHTS IN ECONOMICS AS SEEN BY 'THE ECONOMIST'
TWENTY years ago The Economist wrote about eight young economists who were making a big splash in their discipline and beyond. One of them, Paul Krugman, recently won the Nobel prize for his models of international trade and economic geography. Ten years later we tried to repeat the trick, identifying another eight young stars, many of whom were taking their discipline far off-piste. One has since achieved even greater fame than anticipated. Steven Levitt of the University of Chicago became a household name as co-author of “Freakonomics”, a bestselling book published in 2005.
“Freakonomics” owed its origins to a profile of Mr Levitt in the New York Times magazine in 2003. Its success has won a new readership for economists, beyond the business section and the opinion columns, in the glossier pages of the weekend supplements. The best young economists, as a consequence, have already attracted plenty of attention. That leaves us in a bit of a quandary. We feel like lonely prospectors, who, returning to a favourite stream, find it overtaken by a gold rush. The Economist
NEW YORK UNEMPLOYMENT OFFICE PHONE SYSTEM CRASHES!
State labor department officials say the problem started Monday and caused the phone banks at the state's toll-free claims center to shut down, followed by the online filing system. Leo Rosales, an agency spokesman, says as many as 10,000 people per hour were trying to log into the system.
HAS IT COME TO THIS? IS THE U.S. A "FAILED STATE"?
ONLY IDIOTS WOULD DO TO A COUNTRY WHAT THE R's AND D's HAVE DONE TO US!
ONLY IDIOTS WOULD LET THEM GET AWAY WITH IT!
In the second half of the 20th century, American economic supremacy was a gift of World War II, which destroyed the productive capacity of the rest of the developed world. American economic supremacy also owes much to communism in Russia and China and to socialism in India, which rendered these large countries economically impotent. The United States did not have to compete for its economic hegemony. It simply inherited it from the choices made by the rest of the world....
The United States is walking on quicksand. It is dependent on foreigners for the funding to conduct the day-to-day operations of its government. Its economy is a hollow shell reduced to dependence on a financial sector that is discredited worldwide. America’s government believes that its foreign wars of aggression are more important than any domestic needs, including the health care of its population.
Now that its supply route to feed its war of aggression in Afghanistan is threatened, the American government has the delusion that it will be able to supply its army in Afghanistan through thousands of miles of Eastern Europe, Russia, and Central Asia. Only a government totally oblivious to reality would imagine that Russia’s Putin, whose nose is rubbed in excrement every day by the US government, will permit America to transit Russian territory to resupply US imperial legions in Afghanistan.
What we are witnessing is a once great power engaging in fantasy to disguise from itself that it is a failed state.
Of COURSE it would be more convenient for the Luddites if I were to accept their underlying assumptions and limit myself to “critiquing policy as regards energy & conservation.” Just as, in 1500, it would have been judged MUCH safer to study how best to DISCOVER and DESTROY witches than to challenge whether the old crones had any demonic powers in the first place.
As a matter of fact, challenging the EXISTENCE of the supernatural powers of witches was prima facie proof that the challenger was HIMSELF a witch (“warlock,” whatever), which was likely to get you burned.
Amazingly, under those circumstances, publicly expressed opinion – holding that the demonic powers of witches was real – was NEARLY UNANIMOUS! Surely they couldn’t ALL have been wrong. Ain’t sealed systems grand? Vin Suprynowicz
What would Christmas be without more idiocy from Paul Krugman? My present to Paul is a good fisking. Here is the entirety of Krugman's blog post from today's NYT, with my commentary interspersed in italics:
Just a quick question for those who think that FDR prolonged the Great Depression by preventing a fall in nominal wages: what would be the benefits, right now, if the United States were to implement a Latvian program and cut everyone’s wages by, say, 15 percent?
First of all, it was both HOOVER AND FDR who are to blame in this story. Second, those of us who take this position have not argued for the need for an across the board decline in wages. The argument is that given the decline in prices caused by the Fed allowing the money supply to fall, not allowing wages to adjust in individual labor markets caused both high aggregate levels of unemployment and serious misallocation of labor across labor markets. An across-the-board cut might have helped the first problem somewhat, but possibly worsened the latter.
Why is it that people like Krugman can only think in terms of aggregate "programs" that have to be "implemented" rather than simply allowing markets to work? It doesn't take a "program" to generate the needed declines in nominal wages, it just requires politicians (and expert economists) to stay the hell out.
Seriously, how would it help? The real monetary base would grow — but the Fed is already expanding the monetary base enormously, with little effect because short-term interest rates are essentially zero. (Yes, there would be a real balance effect, but it would be trivial.)
And now the real kicker: no one is arguing for a fall in wages at the moment because we are not in the deflationary spiral that we were in from 1929 to 1933. Geez Louise Krugman, do you actually read the arguments you claim to be responding to? The whole rationale for allowing wages to fall instead of propping them up artificially was that nominal wages needed to fall so that real wages didn't rise and cause really high unemployment rates, like say, oh I don't know, 25%. Somebody hit Krugman over the head with a copy of Friedman and Schwartz, then follow up with a slug of Vedder and Gallaway.
In other words, it won't help right now because we are not where we were in 1929-33, mostly because the Fed has supplied the necessary liquidity (if, perhaps, too much and with no clear way to absorb it back when the demand for money eventually falls).
Meanwhile, a general fall in prices would raise the burden of debt on everyone, almost surely having a contractionary effect on the economy.
So here’s the thing: if lower wages wouldn’t help now, why would they have helped in, say, 1935? Yet if you take away the wage argument, the whole FDR-made-the-Depression-worse thing falls apart.
ARGH! Let's take the last point first: now it's time to hit Krugman over the head with a copy of anything Bob Higgs has ever written on "regime uncertainty." The argument that FDR prolonged the Great Depression hardly rests only on the claim he and Hoover didn't allow nominal wages to fall to adjust to the declining price level. Higgs' work convincingly demonstrates that the bigger problem during FDR's years (including, say, 1935) was the regime uncertainty created by his constant "experimentation" and attacks on private enterprise, leading to very low levels of private investment. So even if Krugman were right about wages, which he's not, the "thing" does not fall apart.
That aside, wages were already coming down by 1935, which is why unemployment rates were down from their worst years in 32-34. Declines in nominal wages might have helped in 1935, although it's not clear how much of the unemployment then was due to wages being too high or private investors scared off by regime uncertainty.
So congratulations Professor Nobel Prize 2008, you have very successfully pushed over a strawman, making it abundantly clear you have no clue what people who you disagree with actually argue, and illustrated the fallacies of thinking in terms of "across-the-board solutions that have to be implemented." And you did it all in one short blog post. That might be a record for idiocy, even for you.
With President-elect Barack Obama and congressional Democrats considering a massive spending package aimed at pulling the nation out of recession, the national debt is projected to jump by as much as $2 trillion this year, an unprecedented increase that could test the world's appetite for financing U.S. government spending.
But about 40 percent of the debt held by private investors will mature in a year or less, according to Treasury officials. When those loans come due, the Treasury will have to borrow more money to repay them, even as it launches perhaps the most aggressive expansion of U.S. debt in modern history.
With the government planning to roll over its short-term loans into more stable, long-term securities, experts say investors are likely to demand a greater return on their money, saddling taxpayers with huge new interest payments for years to come. Some analysts also worry that foreign investors, the largest U.S. creditors, may prove unable to absorb the skyrocketing debt, undermining confidence in the United States as the bedrock of the global financial system.
"There's a time bomb in there somewhere," said Lou Crandall, chief economist at Wrightson ICAP, "but we don't know exactly where on the calendar it's planted."
"PULL OUT ALL THE STOPS! DO SOMETHING! DO EVERYTHING!"
AS PANIC SETS IN AT THE FED, THEY MIGHT WELL ADD: "DESTROY THE DOLLAR!"
Jan. 4 (Bloomberg) -- The U.S. economy faces a “serious risk” of stagnating for an extended period of time and “it’s worth pulling out all the stops” on fiscal stimulus, said Federal Reserve Bank of San Francisco President JanetYellen.
“The current downturn is likely to be far longer and deeper than the ‘garden-variety’ recession,” Yellen said in the text of a speech today in San Francisco. “If ever, in my professional career, there was a time for active, discretionary fiscal stimulus, it is now.”
Yellen’s remarks indicate that support for new stimulus to revive the economy is gaining momentum within the central bank. Chicago Fed Bank President Charles Evans endorsed such policy yesterday, following Fed Chairman Ben S. Bernanke's lead in October.
An e-mail written by a senior FBI agent in Iraq in 2004 specifically stated that President George W. Bush had signed an Executive Order approving the use of military dogs, sleep deprivation and other tactics to intimidate Iraqi detainees.
The FBI e-mail--dated May 22, 2004--followed disclosures about abuse of Iraqi detainees at Abu Ghraib prison and sought guidance on whether FBI agents in Iraq were obligated to report the U.S. military’s harsh interrogation of inmates when that treatment violated FBI standards but fit within the guidelines of a presidential Executive Order.
The FBI e-mail was obtained by the American Civil Liberties Union through a Freedom of Information Act lawsuit. The White House had emphatically denied that any such presidential Executive Order existed, calling the unnamed FBI official who wrote the e-mail “mistaken.”
The ACLU has called on Congress to demand that a special prosecutor be appointed to investigate whether the President and other officials broke federal and international laws, “including the War Crimes Act, the federal Anti-Torture Act, and federal assault laws.”
President Bush and his representatives have denied repeatedly that the administration condones “torture,” although senior administration officials have acknowledged subjecting “high-value” terror suspects to aggressive interrogation techniques, including the “waterboarding” — or simulated drowning — of three al-Qaeda detainees... The Public Record
As 2009 dawns, there is some good news. For example, Bonkers Bolton is no longer, officially, in a position to precipitate an illegal (under international law) attack by the Bush-Cheney Administration on certain Iranian facilities.
Having returned to his civilian perch at the American Enterprise Institute, Bolton is now reduced to attempting, unofficially, to precipitate an illegal (under international law) attack by someone – anyone – on those Iranian IAEA-Safeguarded facilities.
In a lengthy op-ed harangue just published by a complicit Wall Street Journal, Bolton begins by urging President-Elect Obama to put "pressure on China" to clean up the mess on the Korean peninsula.
A mess Bolton largely created, by falsely charging in 2002 that Kim Jong-Il's regime was in flagrant violation of an agreement, concluded in 1994 by the Clinton-Gore administration, and since continuously monitored by the IAEA... Gordon Prather AntiWar.com
Sibel Edmonds and Luke Ryland discuss the LondonTimesseries on her case and the international nuclear black-market network surrounding A.Q. Kahn, the U.S. government’s total clamp-down by gag orders even against Congress, the American foreign policy hypocrisy of demonizing certain nuclear ambitions and supporting others, the military-industrial-congressional complex revolving door, the bipartisan lack of enthusiasm in pursuing whistleblower cases, the movie about Sibel’s case “Kill The Messenger,” and how it only takes one congressman to call her to testify to blow the case wide open.
Department of Justice Inspector General Report here.
Michael Phillips of the Wall Street Journal tells the story of a shack in Arizona owned by a woman who hasn't worked in 13 years that was valued at $130,000 two years ago by a crooked appraiser and mortgaged by a broker who was paid $10,000 in fees and took no loan risk.
Then Phillips tracks the loan through Wells Fargo to HSBC, where it was packed into a mortgage-backed security, rated Triple-A by Moody's and S&P, and sold to, among others, the Oklahoma Teachers pension plan and PIMCO.
Two years later, after the foreclosure, the shack was recently sold for $18,000. The current owners of the loan might get 10 cents on the dollar.
Nearly every day brings new reports of the collapse of a large financial institution or the impending bankruptcy of a major company. Plans for bailouts and government intervention are in the air. Even those who profess devotion to free enterprise have wavered. Are we not faced with an emergency that calls for immediate action to "save" capitalism? Faced with this situation, we need to be more resolute than ever in defense of the free market, with no government restrictions whatever. If we do not defeat these measures, we face grave danger. The record of National Socialist Germany during the 1930s shows how quickly government intervention leads to full-scale socialism. Ludwig von Mises warned of this many years ago...
Other signs pointed to a radical program as well. Ferdinand Zimmerman, who worked as an important economic planner for the Nazis, had been before their rise to power a contributor under the pen name Ferdinand Fried, to the journal Die Tat, edited by Hans Zehrer, and a leading member of a group of nationalist intellectuals known as the Tatkreis. Fried strongly opposed capitalism, analyzing it in almost Marxist terms. In an evaluation of Fried’s book Das Ende des Kapitalismus (The End of Capitalism), for a possible English translation, Isaiah Berlin referred to "an unconditional acceptance of Marxio-Sombartian premisses with regard to the death of individualism, growth of mass production, collectivism, etc., and from these the natural conclusion is drawn that since collectivism is coming anyway, it might as well be dealt with efficiently and fairly by being converted from Trust-collectivism into State-ownership of the means of production. All this of course is the German Social-Democratic Marxism. . ." (Letter from Isaiah Berlin to Geoffrey Faber, January 4, 1932, in Isaiah Berlin, Letters, 1928–1946, Henry Hardy, ed., Cambridge University press, 2004, pp. 638–39.) Wilhelm Roepke wrote a devastating contemporary criticism of Fried, now available in translation in his Against the Tide (Regnery, 1969). One of the best scholarly accounts of Fried’s views, which includes some discussion of his activities under the Nazi regime, is in Walter Struve, Elites Against Democracy: Leadership Ideals in Bourgeois Political Thought in Germany, 1890–1933, Princeton University Press, 1973)...
What, then, would be Hitler’s economic policy? Would he impose the "unalterable" program or would he follow a restrained, pro-business course? In fact, he did neither. His policy was rather one of improvisation in response to the immediate situation. (A. J. P. Taylor controversially argued in The Origins of the Second World War that this was also true of Hitler’s foreign policy.) But in so acting, he illustrated a key point that Mises often stressed: any intervention in the free market necessitates further interventions, because the initial measure will fail to achieve its goals. If the interventions continue, full state control of the market will rapidly ensue. The end result will be not capitalism, but socialism. As Mises put it: "All varieties of interference with the market phenomena not only fail to achieve the ends aimed at by their authors and supporters, but bring about a state of affairs which – from the point of view of their authors’ and advocates’ valuations – is less desirable than the previous state of affairs which they were designed to alter. If one wants to correct their manifest unsuitableness and preposterousness by supplementing the first acts of intervention with more and more of such acts, one must go farther and farther until the market economy has been entirely destroyed and socialism has been substituted for it." (Human Action, Mises Institute, 1998, p. 854.) Exactly this process took place in Germany after 1933. As Adam Tooze has noted, Hitler in 1932 indicated his interest in job creation programs, and this of course required government spending. But once in power, his interest shifted from job creation to rearmament. This required even more government spending; and armaments rapidly increased. "The Nazi party did not adopt work creation as a key part of its programme until the late spring of 1932, and it retained that status for only eighteen months, until December 1933, when civilian work creation spending was formally removed from the priority list of Hitler’s government. . . [Work creation] was in sharp contrast to the three issues that truly united the nationalist right . . . the triple priority of rearmament, repudiating Germany’s foreign debts and saving German agriculture. . . It was Hitler’s action on these three issues not work creation that truly marked the dividing line between the Weimar Republic and the Third Reich." (Adam Tooze, The Wages of Destruction, Viking, 2006, pp. 24–5. Tooze’s book is the most comprehensive recent account of Nazi economic policy.) The Chicago School economist Burton Klein, in Germany’s Economic Preparations for War (Harvard University Press, 1959), long ago pointed out that Germany in 1939 did not have enough arms to launch a world war: German armaments were sufficient only for smaller conflicts...
I quote a Wall Street Journal article dated November 11, 2008, "The U.S. government unveiled a plan Monday to scrap its $123 billion bailout of American International Group Inc. and replace it with a new package valued at about $150 billion."
A single company is getting $150 billion in funds from the government (including the Fed). One source puts the government’s annual subsidies to all of agriculture at $35 billion or so. The space program costs $20 billion a year. Medicaid is one of the largest government programs. It runs about $339 billion a year (slated to rise to $674 billion in 8 years). The size, suddenness, and manner of the government’s loan to AIG are all extraordinary.
Why did the Fed intervene? What is the nature of this intervention? Why did AIG agree to this? Why did it not seek protection under the bankruptcy code? How did the eventual course of action come about? Whom is the Fed helping? Whom is it harming? What has the Fed revealed about all of this? What has AIG revealed about this? What can we learn from press reports and leaks?
The entire matter is quite complex. One short article only begins to answer these questions, but it is important to address them so that we can understand the full meaning and implications of the Fed’s intervention. The Fed’s loan and equity stake are so large that they affect the risk of the Fed and thus the dollar. They place the taxpayers at risk. They shift wealth. They alter the incentives under which financial companies operate. The same can be said of the government’s TARP program of $700 billion and the absorption of Fannie Mae and Freddie Mac that raised the national debt by an order of magnitude. These events transform the Fed, the government, and the relations of the government to all of us. They are not business as usual. Michael Rozeff LewRockwell.com
With no one denying anymore the obvious fact that America is in a deep slump, the discussion has instead shifted to why it happened. The Austrians (including me) who predicted these problems based on Greenspan's low-interest-rate policy know of course that the main cause was that low-interest-rate policy, with his numerous bailouts of failed financial institutions also creating a moral hazard that encouraged risky behavior.
But non-Austrians who for various reasons seem determined to exonerate the central bank have instead offered various other explanations. I will not here answer them all here. Instead, I will simply comment on the most common alternative explanations and the various arguments used for the explicit purpose of exonerating Greenspan. Stefan Karlsson
Prof. Panarin.... a former KGB analyst, he is dean of the Russian Foreign Ministry's academy for future diplomats. He is invited to Kremlin receptions, lectures students, publishes books, and appears in the media as an expert on U.S.-Russia relations.
He predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.
California will form the nucleus of what he calls "The Californian Republic," and will be part of China or under Chinese influence. Texas will be the heart of "The Texas Republic," a cluster of states that will go to Mexico or fall under Mexican influence. Washington, D.C., and New York will be part of an "Atlantic America" that may join the European Union. Canada will grab a group of Northern states Prof. Panarin calls "The Central North American Republic." Hawaii, he suggests, will be a protectorate of Japan or China, and Alaska will be subsumed into Russia.
Americans hope President-elect Barack Obama "can work miracles," he wrote. "But when spring comes, it will be clear that there are no miracles."
winning 
Enron: $1 billion writedown of retained earnings, followed by $618 million quarterly loss. 21,000 put out of work in ensuing bankruptcy. CFO Andrew Fastow sentenced to ten years in prison. Jeff Skilling and Kenneth Lay arrested and charged with federal crimes.
