Reason Magazine asks free-market economists their opinion of the proposed bailout plan, and collects their results. Click here to read this excellent article.
Category: Economics
The Bailout Reader
The Ludwig von Mises Institute has compiled The Bailout Reader, a collection of articles relevant to the current situation.
Not all these articles are from the past few weeks, as Austrian economists have long understood the dangers of government interventionism, the fruits of which we see today.
The events taking place in the financial market offer an illustration of the soundness of the Austrian theory of money, banking, and credit cycles, and Mises.org is your source not only for analysis of these events but also the economic theory that helps explain what is happening and what to do about it.
Click here to access The Bailout Reader.
Lure of Earmarks Impossible to Resist, Even in Crisis
Bill Smith of ARRA News Service reports on earmarks worming their way in the agreement to end the current financial crisis. This agreement may have imploded on itself, but the lesson is clear. See the post Major “Earmark” in Democrat Bailout Agreement .
Ron Paul’s Wisdom on the Current Financial Crisis
Ron Paul writes My Answer to the President, noting that the “financial meltdown the economists of the Austrian School predicted has arrived.” He introduces a quotation from Hayek this way:
F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day — and which are being proposed, just as destructively, in our own.
In my opinion, a great danger we face is that just as the Great Depression lead to Roosevelt’s huge expansion of government, so too this current situation will lead to similar expansion of government power. This has already happened with the Federal Reserve system.
I urge you to read My Answer to the President by Ron Paul.
Laissez faire in Washington? On what planet?
Sheldon Richman of the Foundation for Economic Education contributes analysis of the current economic situation in the article Government Failure. A few quotes:
Laissez faire in Washington? On what planet? Governments at all levels have regulated the financial industry from the time of the founding. …
At the Division of Labour blog, economist Lawrence H. White asks: “What deregulation have we had in the last decade? Please tell me.” …
What about greed? Here White also has something important to say: “If an unusually large number of airplanes crash during a given week, do you blame gravity? No. Greed, like gravity, is a constant. It can’t explain why the number of crashes is higher than usual.” Likewise, greed (however you define this essentially useless concept) can’t explain the current economic troubles. Why didn’t these troubles occur earlier? Were people less greedy then? …
What about irresponsibility? Now we are getting to the crux of the matter. There was irresponsibility — but only because the government for decades has pursued a policy of relieving big companies of the responsibility that otherwise would have been imposed by market discipline and competition. …
Good intentions count for nothing in this context. The laws of human action (praxeology) can’t be repealed or got around.
Praxeology. Ludwig von Mises has an explanation for everything, it seems.
Drug Runaround: Solved by Universal Health Care?
A letter writer in the July 12, 2008 Wichita Eagle has issues with his health insurance coverage, and wants us to discard our present system in favor of universal health care coverage.
Mr. Ronald Voth of Halstead (a candidate for the Democratic party nomination for the U.S. House of Representatives for the fourth district of Kansas in 2006) criticizes the health insurance company he uses. He doesn’t say how he obtained this coverage, but if he’s like most Americans that don’t receive their health care from the government, he and his family probably have an insurance policy selected and paid for by his employer. While many employers let their employees choose from a few variations of coverage, for most employees, they have to take what their employer is willing to provide. There isn’t much of a market for individual health insurance policies in America.
If there were a large market for private health insurance, customers would have the benefit of companies competing for your business in free markets. This means that if Mr. Voth doesn’t like the coverage he’s getting from his current provider, he can change. But for most people whose policies are provided and largely paid for by their employers, switching insurance carriers is not a realistic option. This employer-provided coverage, a relic from the circumvention of World War II price controls, results in less competition for customers.
With market-based competition comes innovation. With universal health care provided by government comes the opposite. I wonder if Mr. Voth knows that Canadians come to places like Wichita to get the health care they can’t get under their universal system? See Wichita’s Galichia Provides What Government Health Care Doesn’t.
Mr. Voth claims that universal care systems in other countries are cheaper than ours, and that’s true. But we should ask why. The article referenced below states: “… because the U.S. is so much wealthier than other countries, it isn’t unreasonable for it to spend more on health care. Take America’s high spending on research and development. M. D. Anderson in Texas, a prominent cancer center, spends more on research than Canada does.”
(By the way, the high cost of health care can’t be blamed on high-paid CEO’s. If the CEO of a large insurance company that has 10 million customers is paid, say, $100 million a year, that’s only $10 per customer per year.)
For more information about universal health care in other countries, the article The Ugly Truth About Canadian Health Care provides balanced criticism of the Canadian health care system.
Where’s Leadership on Oil Speculation?
In the July 12, 2008 Wichita Eagle, Kenneth James Crist of Wichita blames oil speculators for ruining the U.S. Economy, writing that politicians should “do something positive to halt the rampant speculation in the stock market and oil futures that is really driving these runaway prices. All it really amounts to is tremendous greed on the part of a few, at the expense of the many.”
I wish that Mr. Crist had read Futures Markets by the economist Walter E. Williams before writing this letter. In this article we learn this:
The futures market, which takes into account both the present and the future availability of goods, is a vital part of a smoothly functioning economy. Unfortunately, that fact provides little comfort to people frustrated over the high prices of food and fuel. As such, it provides fodder for political demagogues, charlatans and quacks who rush in with blame and prepare “solutions” for the problems they themselves have created — the high prices for food and fuel are directly linked to the policies of the White House and Congress.
That’s right. Futures markets — that’s where speculators buy and sell — provide a valuable service by assuming risk that others are not willing to take on, and by smoothing the price of commodities over time. Speculators assume risk. That is their essence. They may make huge profits in their leveraged trades, but they also bear the risk of, and the actual realization of, equally huge losses when their guesses are wrong.
That illustrates an often overlooked property of futures markets. For one person — the “evil” speculator — to bet on the price of oil going up, someone has to take the opposite position, betting that the price will fall. Both can’t be right. One wins and the other loses. Is there sympathy for these speculators that lose in these trades?
The action of a speculator taking a “long” position in markets is to buy low and sell high. This benefits consumers in the long run. By buying when prices are low, the speculator does cause prices to rise and be higher that they would be without the speculator’s buying. Then, selling when the price is higher, the speculator causes the prices to be lower than it would be if not for his selling. This is how the speculator smooths prices and assumes risk.
Speculators can’t wait too long, either. From Greedy Speculators? published at the Cato Institute:
The current political charge is, “the speculators are driving up the price of oil.” But think about it for a moment. If the price of oil is being driven above the market clearing price where supply equals demand, demand will fall and the speculators will be stuck holding huge, unintended stocks of oil. Holding oil in tanks and ships is costly, and speculators will not incur these costs for long, so the price will drop.
We need to recognize the valuable role that speculators play in our economy. By focusing on an easy target, we fail to look elsewhere to find the true causes of our problems.
For more information on the valuable role that speculators play in the economy, see chapter 22 of Walter Block’s book Defending the Undefendable.
Price Controls Will Harm Iowa
In the article Price Controls Create Man-Made Disasters we learn that although the Iowa attorney general has imposed Iowa’s anti-price-gouging rule (Price-gougers beware, Attorney General says), the likely effect will be “shortages of needed supplies, long lines, delayed repairs, and, perhaps, increased incivility.”
The price system is very good at allocating scarce resources. That’s certainly the case after natural disasters, where things as necessary as drinking water may be in short supply. Allowing the price of even essential items rise to high levels means that hoarding is discouraged, leading to more widespread availability of goods as necessary as drinking water.
Officials appear humanitarian when they impose anti-price-gouging measures, but this is just another example of the actual effect of something being very different from the intended effect.
Wichita’s Galichia provides what government health care doesn’t
A recent editorial in The Wichita Eagle (Dr. Bill Roy: Universal care is most economic, efficient) contains several mistaken impressions. One may be disproved by recent developments in Wichita.
The writer states “It has never been a secret that a single-payer system is the most economic, efficient and fair way of providing universal care.” Here’s something interesting that I’m sure the author of this opinion piece knows, but somehow disregards. In Canada, home to the type of health care system the writer favors, many people come to the United States for care. In fact, Wichita is now providing service to Canadians who, for one reason or another, are not satisfied with their own government-provided free care. “[Wichita’s] Galichia Heart Hospital treated its first out-of-country patient last month, a Canadian who needed a hip replacement and was willing to pay cash instead of waiting months — or even years — for what is considered elective surgery in Canada.” (Some U.S. hospitals try to draw foreigners with flat-rate care, May 29, 2008 Wichita Eagle.)
Someone needing a hip replacement in the United States probably doesn’t consider their need for surgery to be “elective.”
While we in the United States may complain about high drug costs and drug advertisements on television and in print, at least we have new drugs. We may complain about waiting a few weeks to see a specialist, but we usually get to see one. And some people complain that expensive advanced medical equipment has been installed in two of Wichita’s hospitals, when one should be sufficient. But we have these things. Countries with government health care often don’t: “All provinces continue to use rationing in an effort to contain the growth in government health spending. Governments ration health care with policies that reduce the effective supply of health professionals, reduce the availability of advanced medical equipment, and restrict the scope of coverage for new medicines under public drug insurance plans. Such rationing drives up waits for specialist medical care and inhibits access to new drugs.”
This passage is from a report titled Paying More, Getting Less 2007 from Canada’s Fraser Institute. The report makes this conclusion: “Based on the data and analysis in this report, we conclude that public health insurance, as it is currently structured in Canada, tends to produce rates of growth in government spending on health care that are not financially sustainable through public means alone. This is occurring while governments are restricting and reducing the scope of benefits covered under publicly funded health insurance.”