In his recent Forbes Magazine, Peter Robinson delivers three quotes from some great Americans: Milton Friedman, Ronald Reagan, and William F. Buckley Jr. Two of the quotes made it to the “Featured thoughts” section of this blog. Robinson delivers some good analysis of the current economic situation, too. Click on In a time of crisis, don’t forget what they had to say.
Tag: Economics
Who is Responsible for Inflation?
Walter Williams explains the difference between counterfeiting and monetary policy. He explains that “inflation results from an increase in the supply of money relative to the demand for money.” He asks who, then, is responsible for inflation? In the United states, who is able to create money? The answer, of course, is the Federal Reserve System, and they’re creating it by the bucketful. Williams asks whether we really need our central bank, and answers his question with a history lesson. He makes a recommendation how to get ouy of the trouble we’re in.
Read this fine article in the Washington Times at Counterfeiting vs. monetary policy.
Applying For Food Stamps: American Duty?
A television news story from yesterday in Wichita went like this:
Television news anchor: “Some may think that using food stamps is a drain on the economy, but the truth is that’s really not right. Local organizers say using food assistance can help boost the economy during these tough times. One dollar of food assistance relief equals about three dollars. Kansas is only using about half of the money assigned to it by the federal government. Using this money helps to pay everyone: from truckers and farmers, to workers in the grocery stores.”
Dr. Anita Raghavan, Campaign to End Childhood Hunger: “It’s kind of saying ‘Hey, do your American duty. Apply for food stamps.’”
The notion that government spending can stimulate the economy is erroneous and dangerous. Here’s what the economist Walter E. Williams had to say earlier this year in his article Stimulus Package Nonsense:
There are three ways government can get the money for a stimulus package. It can tax, borrow or inflate the currency by printing money. If government taxes to hand out money, one person is stimulated at the expense of another who pays the tax, who is unstimulated and has less money to spend. If government borrows the money, it’s the same story. This time the unstimulated person is the lender who has less money to spend. If government prints money, creditors, and then everyone else, are unstimulated. As my colleague Russell Roberts said in a NPR broadcast, “It’s like taking a bucket of water from the deep end of a pool and dumping it into the shallow end. Funny thing — the water in the shallow end doesn’t get any deeper.”
If people are hungry — and no doubt many families are — there are better ways than government welfare to help them. There are many private charities that are much more efficient than government in helping people. Plus, since people donate to these charities voluntarily, it’s an example of free people cooperating voluntarily in free markets. That’s how wealth is created.
It turns out that this is how happiness is created, too. Arthur C. Brooks has done research into economics and happiness. I quote him in my post How Government Makes Us Unhappy: “Givers of charity earn substantial mental and physical health rewards, even more than do the recipients of charity — empirical evidence that it is indeed more blessed to give than to receive.”
The New Deal in Retrospect
Many people refer to incoming president Barack Obama as the next FDR. The myth of Franklin Roosevelt — primarily that he cured the Great Depression through his extreme interventionism — is starting to be exposed. In this review (The Disaster Called the New Deal) of Burton Folsom’s book New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America, David Gordon of the Ludwig von Mises Institute shows us the good and bad.
Did the New Deal cure unemployment? “In May 1939, Treasury Secretary Henry J. Morgenthau Jr., one of Franklin Roosevelt’s best friends, testified before the House Ways and Means Committee: ‘I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot.’”
Some today say that Roosevelt didn’t spend enough, that the stimulus was not powerful enough. Folsom refers to Henry Hazlitt: “Every dollar of government spending must be raised through a dollar of taxation,” Hazlitt emphasized. If the WPA builds a $10 million dollar bridge, for example, ‘the bridge has to be paid out of taxes… Therefore,’ Hazlitt observed, “for every public job created by the bridge project a private job has been destroyed somewhere else… All that has happened, at best, is that there has been a diversion of jobs because of the project.”
Reviewer Gordon has a problem with this book in that Folsom ignores Austrian economic theory, including its theory of the business cycle. Still, I believe Gordon thinks this is a book worth reading.
Ron Paul says “The Austrians were right”
In a statement Ron Paul delivered to the United States House of Representatives on November 20, 2008, he made these points:
- Our government is “totally influenced by Keynesian economics.”
- “At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve. It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form. ”
- The Federal Reserve created this problem. Why do we rely on it to fix the mess it created?
- “… the stage is now set for massive nationalization of the financial system and quite likely the means of production.”
- “Raising taxes would reveal the true cost of big government, and the people would revolt.”
- So the government creates money from thin air to pay for all this.
Read the entire statement at The Austrians Were Right.
New Deal Shouldn’t Be Our Template for Recovery
Can huge government spending programs rescue our economy? Amity Shlaes doesn’t think so:
The New Deal is Mr. Obama’s context for the giant infrastructure plan his new team is developing. If he proposes FDR-style recovery programs, then it is useful to establish whether those original programs actually brought recovery. The answer is, they didn’t. New Deal spending provided jobs but did not get the country back to where it was before.
(The Krugman Recipe for Depression , November 29, 2008 Wall Street Journal.)
The present danger is that influential economists like Paul Krugman of the New York Times argue that during the New Deal, government spending wasn’t high enough, and that’s why the Great Depression lasted so long.
Walter Block on Economics in One Lesson
Walter Block talks about Economics in One Lesson, perhaps the most approachable book about economics. And, it’s a free-market, liberty-friendly, Austrian approach. What could be better?
In this video, Professor Block is interviewed by Jeffrey Tucker at the Ludwig von Mises Institute.
Pat Buchanan Tallies the Total
The news from Washington over the past few months — $25 billion here, $700 billion there — is hard to keep track of. The amounts themselves are huge, but when added together, the sum is beyond comprehension. Pat Buchanan, in his column Socialist Republic, adds it up:
Thus, we have the $700 billion Bush bank bailout, the $700 billion “stimulus package” Obama wants by inauguration to “jolt this economy back into shape” and the $800 billion fund Hank Paulson created to get consumers borrowing and buying again.
These come on top of Bush $455 billion deficit, the $29 billion bailout of Bear Stearns, the $105 billion in pork to grease the $700 billion bailout, the $100 billion to $200 billion to keep Fannie and Freddie afloat, the $140-billion-and-counting for AIG, the $25 billion for the greening of GM, Ford and Chrysler, the $25 billion more to save the Big Three and the $20 billion for CitiGroup.
Now much of this overlaps, and some will be retrieved. But we are still staring at a deficit that could approach $2 trillion.
Can we sustain this level of spending and borrowing? Of course, not, says Buchanan. The result?
We are headed either for default on our debts and bankruptcy as a nation, or something less honorable: a quiet cheapening of the debts we have incurred by inflating and destroying the dollar, robbing our creditors of what we owe them and robbing our own people of the value of what they have earned. And so it has come to this.
New York Times: 10 Weeks of Financial Turmoil
The New York Times has a nicely-done interactive timeline of the events since September 7, 2008, when the government took over Fannie Mae and Freddie Mac. It holds video and links to news stories.
It’s more than a little unsettling to replay these events. Click here to see the bad news.