Voice For Liberty

Tag: Economics

  • 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.

  • The Austrian Prescription for Today

    Murray N. Rothbard, in his book For a New Liberty: The Libertarian Manifesto, wrote a chapter that is highly relevant to the situation we face today. Unfortunately, if Rothbard’s analysis of the business cycle using Austrian economics is correct — and I believe it is — what’s going on presently in Washington, and what president-elect Barack Obama is planning, will do much more harm than good.

    The chapter’s title is “Inflation and the Business Cycle: The Collapse of the Keynesian Paradigm.” In it, Rothbard explains the flaws in the Keynesian theory of the business cycle. This theory — in spite of its defects — is pretty much what our present and future administrations are following as they attempt to manage our economy. In fact, Steven Pearlstein’s column in yesterday’s Washington Post is titled Keynes on Steroids, and it contains this whopper: “Nixon’s Keynesian conversion, however, looks positively quaint compared with the fiscal and monetary stimulus that is about to be brought to bear on the U.S. and global economy. I doubt even Keynes himself could have imagined the scale and scope of what’s ahead.”

    The Austrian school of economics has a different theory of the business cycle, and a different prescription for what government should do to get the country out of recession. It’s not a prescription that our leaders are likely to follow. In fact, everything they are doing, and are preparing to do, directly contravenes the Austrian prescription. Here’s what Rothbard wrote near the end of chapter 9 of For a New Liberty: The Libertarian Manifesto (I’ve added some emphasis):

    What then are the policy conclusions that arise rapidly and easily from the Austrian analysis of the business cycle? They are the precise opposite from those of the Keynesian establishment. For, since the virus of distortion of production and prices stems from inflationary bank credit expansion, the Austrian prescription for the business cycle will be: First, if we are in a boom period, the government and its banks must cease inflating immediately. It is true that this cessation of artificial stimulant will inevitably bring the inflationary boom to an end, and will inaugurate the inevitable recession or depression. But the longer the government delays this process, the harsher the necessary readjustments will have to be. For the sooner the depression readjustment is gotten over with, the better. This also means that the government must never try to delay the depression process; the depression must be allowed to work itself out as quickly as possible, so that real recovery can begin. This means, too, that the government must particularly avoid any of the interventions so dear to Keynesian hearts. It must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. For doing so will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices, especially in the capital goods industries; doing so will prolong and delay indefinitely the completion of the depression adjustment process. It will also cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again in order to get out of the depression. For even if this reinflation succeeds (which is by no means assured), it will only sow greater trouble and more prolonged and renewed depression later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio—when the only thing that could speed up the adjustment process is to lower the consumption/savings ratio so that more of the currently unsound investments will become validated and become economic. The only way the government can aid in this process is to lower its own budget, which will increase the ratio of investment to consumption in the economy (since government spending may be regarded as consumption spending for bureaucrats and politicians).

    Thus, what the government should do, according to the Austrian analysis of the depression and the business cycle, is absolutely nothing. It should stop its own inflating, and then it should maintain a strict hands-off, laissez-faire policy. Anything it does will delay and obstruct the adjustment processes of the market; the less it does, the more rapidly will the market adjustment process do its work and sound economic recovery ensue.

    Will our government follow Rothbard’s recommendation to do “absolutely nothing”? Absolutely not.

  • Introducing Economics in One Lesson

    In This Book is So Me, Walter Block introduces a book that I’ve quoted from and used extensively: Economics in One Lesson by Henry Hazlitt.

    Every widespread economic fallacy embraced by pundits, politicians, editorialists, clergy, academics is given the back of the hand they so richly deserve by this author: that public works promote economic welfare, that unions and union-inspired minimum-wage laws actually raise wages, that free trade creates unemployment, that rent control helps house the poor, that saving hurts the economy, that profits exploit the poverty stricken; the list goes on and on. Exhilarating.

    No one who digests this book will ever be the same when it comes to public-policy analysis.

    This book is available online at the Foundation for Economic Education, and portions are available in audio format at Economics in One Lesson (Audio) Part 1 and Economics in One Lesson (Audio) Part 2.

  • Bryan Derreberry and the Chamber’s goals for Wichita

    When the head of a chamber of commerce speaks or writes, it pays to listen or read carefully. While chambers are nominally pro-business, that’s a long way from saying they’re pro-liberty. Instead, they increasingly exist to serve a narrow interest. Using words and language like “pride,” “community,” “investment,” and “economic development” — all words that people can agree with, their flowery messages hide their real agenda.

    Here’s an example. In the Wichita Eagle on May 12, 2006, president and CEO of the Wichita Metro Chamber of Commerce Bryan Derreberry wrote as follows:

    If we are serious about advancing our community, then we have to invest in it and take pride in who we are. The Sedgwick County arena can boost excitement and economic development in Wichita, Sedgwick County and the region.

    The arena initiative was a broad-based decision-making effort that offered everyone an opportunity to weigh in with a vote. Sedgwick County is now carrying out what the voters approved with an open and thoughtful process, allowing much input along the way.

    There will always be those who resist change and look for ways to impede progress. But we have an obligation to take care of the community we live in today and make it better for those who come after us.

    First, Mr. Derreberry is confused about the meaning of the word “investment.” In a recent article, Chris Brown tells us the true meaning of investment: “Investment signifies an accumulation of savings through lower present consumption, which will then be used to achieve (potential) profitable returns in the future.” None of this applies to the downtown Wichita arena. It was funded by transferring money from taxpayers to the government. Then, government has no ability to measure profitability, as it is not subject to the profit and loss system that private business must live by. Besides, how does government generate revenue? Through taxation, of course.

    Then, the “broad-based decision-making effort” is certainly a misnomer. The arena passed with 52% of the vote. That’s hardly a mandate. Many people, seeing how the process has been handled since the election, have said they’d change their “yes” vote to “no.”

    Finally, Mr. Derreberry slams those who say “no” to what he wants. That’s a mistake arising from the arrogance of those who believe that they know best how people should spend their money. By saying “no” to these government projects we are saying “yes” to entrepreneurship, limited government, and liberty. These goals, evidently, are not valued by Mr. Derreberry and his organization.

  • Wichita Chamber of Commerce values

    Here’s a message that Bryan Derreberry, president of the Wichita Metro Chamber of Commerce, sent to Chamber members. Note that this message doesn’t mention the role its political action committee played in the third Sedgwick County Commission district. In that race, the PAC spent some $19,000 of its $48,000 in an effort to elect Goddard mayor Marcey Gregory. Her opponent, longtime taxpayer advocate Karl Peterjohn, is just the type of candidate you’d expect chambers of commerce to support.

    But that’s changed. Stephen Moore in the article “Tax Chambers” published in The Wall Street Journal on February 10, 2007 wrote this: “In as many as half the states, state taxpayer organizations, free market think tanks and small business leaders now complain bitterly that, on a wide range of issues, chambers of commerce deploy their financial resources and lobbying clout to expand the taxing, spending and regulatory authorities of government. This behavior, they note, erodes the very pro-growth climate necessary for businesses — at least those not connected at the hip with government — to prosper.”

    Mr. Derreberry’s letter mentions “pro-business values.” At one time this meant something approaching free-market values. But now, Ronald Reagan’s prediction is being fulfilled here in Wichita: “What is euphemistically called government-corporate ‘partnership’ is just government coercion, political favoritism, collectivist industrial policy, and old-fashioned federal boondoggles nicely wrapped up in a bright-colored ribbon. It doesn’t work.”

    November 18, 2008
    Dear Chamber Members:

    This election cycle was a resounding success for the candidates supported by the Wichita Area Business Political Action Committee (WABPAC) as we raised more than $48,000 to support pro-business state and local candidates. The Chamber’s political action committee identified and supported 39 state legislative candidates and three Sedgwick County Commissioner candidates winning 36 of the 39 races in which WABPAC was involved (93% elected).

    The litmus test for the PAC’s engagement and support was whether a candidate had demonstrated an ability to listen and work with the business community to assure that your company, or organization, had the most competitive environment possible in which to excel. WABPAC’s Board of Trustees wants to thank every Chamber member who reviewed the PAC’s support recommendations and voted accordingly. The reason behind this appreciation is that the Chamber’s collective voice has its greatest impact when business members engage themselves in the election process and elect candidates who embrace pro-business values and understand the challenges you face daily.

    A strong, collective pro-business vote is also an outstanding way to support incumbent state legislators and local elected officials who have successfully advanced our region’s top priorities. Bottom line – we need to effectively support the business-attuned elected officials who support us. Our South Central Kansas state legislative delegation has been an adept and courageous partner in advancing our metro area’s top policy and program goals. Your combined voice, in supporting the PAC and re-electing a majority of this delegation, assures the return of legislators to Topeka willing to champion our most important business priorities.

    Respectfully,
    Bryan Derreberry

  • Pragmatism must recognize reality

    Any editorial that starts with “Karl Marx was right about at least one thing …” deserves close examination, especially when it appears in Kansas’ largest newspaper and is written by that newspaper’s former editor. The thrust of Davis Merritt’s article is that the theory of free markets hasn’t worked: “We’re painfully experiencing right now the unraveling of neat free-market theory.” (Pragmatism needs to trump ideology, November 18, 2008 Wichita Eagle)

    Here’s the first problem with Mr. Merritt’s argument: what we live in is anything but a free market society. George Reisman details just how far removed we are from anything resembling free markets in The Myth that Laissez Faire Is Responsible for Our Present Crisis.

    Then, Mr. Merritt warns that free market theory is doomed to fail because “perfect theories require perfect people.” I don’t know precisely who he refers to as not perfect, but judging from the tone of the article, I think he’s condemning greedy businesspeople who are the cause of the present financial crisis. In particular, investment bankers. Demonizing these people on general grounds doesn’t help. Instead: Did they steal from their shareholders? Did they commit fraud when they issued sub-prime loans? These acts are illegal, and to the extent they were committed, let’s prosecute them.

    Greed — human self-interest — is a constant factor. It’s what drives people to expend tremendous effort to accomplish great things for the betterment of mankind. It can also drive people to accept a sub-prime mortgage loan that they can’t repay in order to buy a house they can’t afford — but, greedily, want nonetheless. It works both ways. So we need good rules that prevent people from using theft, force, and fraud to unjustly enrich themselves. These good rules are easier to create and enforce, and more reliable, than a false hope the people will start behaving “good.”

    Besides, couldn’t we also say that good government requires good politicians, bureaucrats, and administrators? I’m surprised that an editor of a newspaper — someone who must have experienced the political process close-up — would have such confidence in government instead of people.

    Mr. Merritt cites the “hands-off, no-regulation attitude of the current administration” as bad for people and economic welfare. If we had been experiencing a period of reductions in regulation, we might have evidence for this claim. The Heritage Foundation report Red Tape Rising: Regulatory Trends in the Bush Years debunks the myth that regulation has decreased during the presidency of George W. Bush: “Far from shrinking to dangerously low levels, regulation has actually grown substantially during the Bush years. By almost every measure, regulatory burdens are up.”

    Mr. Merritt’s editorial, if its advice is taken, will lead us towards more regulation and reliance on government. That’s not what we need.

  • Joe Scarborough: Please Stop Saying Laissez-faire

    I’m listening to Joe Scarborough on MSNBC, and he says: “Laissez-faire capitalism is a wonderful thing except in this case …”

    I’ve heard stuff like this over and over the past few months: A politician says “I’m a big free-market guy, but …”

    What’s sad to realize is that these people think that what we have in American is free markets and laissez-faire capitalism. We don’t have these. See my post The Myth that Laissez Faire Is Responsible for Our Present Crisis.

    The sooner that we understand that it is largely government that is the cause of the present crisis, we can realize that relying on government for a cure is dangerous and predetermined to fail.

    Resources: The Bailout Reader at the Ludwig von Mises Institute and Global Financial Crisis at the Cato Institute.

  • The Fallacy of “Green Jobs”

    Does climate change offer an opportunity to spend ourselves out of a possible recession? John Stossel doesn’t think so, and in his piece The Fallacy of “Green Jobs” he lays out the case.

    Key points:

    “The fallacy is the same in every case: Even if the program creates jobs building bridges or windmills, it necessarily prevents other jobs from being created. This is because government spending merely diverts money from private projects to government projects.” Stossel relies on Frederic Bastiat and his explanation of the broken window fallacy for support. This fallacy is expertfully explained by Henry Hazlitt, and I quote him extensively in my post Henry Hazlitt Explains Frederic Bastiat, or, A Broken Window Really Hurts No Matter What the New York Times Says. Hazlitt also has much to say about the folly of creating jobs through public works projects.

    “Governments create no wealth. They only move it around while taking a cut for their trouble. So any jobs created over here come at the expense of jobs that would have been created over there.” Advocates of government allocation of jobs usually claim that this control is necessary because of market failure. In other words, left to their own, investors can’t figure out where investment is most valued. Government “wisdom” is required.

    “Politicians have a lousy record trying to make ‘strategic investments.’ President Jimmy Carter’s Synthetic Fuels Corporation cost taxpayers at least $19 billion but failed to give us alternative fuels.”

    And this very important point:

    One reason decentralized markets are preferable to government central planning is that human beings are fallible. Mistakes are inevitable. Some investments will be errors. Mistakes in the market tend to be on a comparatively small scale. If one company invests in plug-in hybrids and it goes bust, only a relatively few people suffer. The assets of the bankrupt firm pass into more capable hands.

    But decisions by government, especially the federal government, affect all of us. When government makes a mistake, the bureaucracy can’t go bankrupt. Instead, it will use its failure to justify increased appropriations in the next budget.

    This is perhaps the most important insight in this article. Government programs tend to be monolithic, and once started are difficult to modify in light of changing conditions or things learned. We need entrepreneurs with their dynamic discovery process rather than government bureaucrats and politicians to guide this process.