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It’s Not Nice to Fool the Free Market

The economic woes of California are in the news yet again. This time it’s high gas prices. Of course, the Golden State usually has the highest prices in the country, but recently prices at the pump have skyrocketed, increasing on average by 50 cents in the last week and reaching almost $6 a gallon in some areas of the state.

The senior senator from the state, Dianne Feinstein, has predictably called on the Federal Trade Commission to investigate the possibility of price gouging. She, like all statist politicians, doesn’t understand the workings of the free market. When their statist schemes backfire, they immediately blame the usual faceless enemies: unscrupulous suppliers, manipulators, and speculators. Once again, the public is being subjected to this tirade when, as always, the fault lies with Feinstein and her ilk.

You see, California, as this commentator has written before, has a crippling regulatory environment. The environmental fringe has hijacked state government and squashed all reason and economic sense. Gasoline suppliers outside the state are unable to ease the burden of short supplies in the state because they are not equipped to produce the cleaner-burning gasoline required by bureaucrats in Sacramento.

And there is a shortage of gasoline right now in California, because, due to stiff environmental regulations, the state has barely enough refining capacity to fill its demand . When Exxon Mobil’s refinery near Los Angeles experienced a power failure which cut production and Chevron’s plant near San Francisco suffered a crude-processing unit shut down due to fire, supply was curtailed and prices rose drastically.

Thus, Feinstein’s faceless, nameless perpetrators of higher gasoline prices are nonexistent. The cause of higher gas prices in California is a lack of supply produced by the policies of statist politicians like her.

In fact, to increase supply, the first thing Governor Jerry Brown did was order regulators to relax smog controls and allow refiners to begin, earlier than usual, producing cheaper winter-blend gasoline. His actions are an acknowledgement of where the real problem lies: with government policy, not fictitious bogey men.

The free market, like nature, is an all-powerful force. Human manipulation of either spells trouble. Politicians will always blame someone else when their manipulations go astray. Whether it is higher gas prices, housing market busts, or a drop in the value of the dollar, they point the finger at unscrupulous suppliers, manipulators, and speculators. Instead they should look in a mirror and then point their fingers.

About Kenn Jacobine

  • Glenn Contrarian

    Yeah, speculators – those paragons of the Most Holy Free Market – never have anything to do with gas prices, just like they didn’t have anything to do with the nationwide gas price spikes we had under both Bush and Obama.

  • Kenn Jacobine

    Do you have proof, Glenn?

  • Kenn Jacobine

    Whether you have proof or not is not important, the fact is that speculators provide an invaluable service in the free market. They read the future based on economic trends and help the market set future prices. These future prices when set high can alleviate shortages, when set low can lessen surpluses. It is all about equilibrium and that is what the market craves. This is what politicians do not understand. It is called the free market.

  • Reggie Beauchamps

    Fruit loop lefties like to tell us how pro business they and their policies are yet the vast majority of business owners, large and small, and organizations designed to facilitate the growth of business such as the Chamber of Commerce are dominated by Republicans, not fruit loops and Democrats.

    I wonder why that is.

  • Reggie Beauchamps

    Kenn while I’m no fan Glenn’s fruit loop lefty arguments and I generally support the theory of the free market and individual rights but I sincerely hope you don’t believe that we actually have a free and natural market in this country.

    What we have is corporatism whereby only those in the private sector can afford to bend the ears of the corrupt politicians in both political parties.

    Too big to fail, bailouts, kickbacks, bribes, corrupt CEOs and politicians, the FED artificially manipulating currency and rates, one hand washing the other…..that’s pretty much the name of the game in the good ole USA today.

    It’s one big country club and Joe Q middle class generally doesn’t have a snowball’s chance in hell of peeking at the green much less shooting a round of 18.

    That being said I still believe in free enterprise and minimal governance. In every ism there will be a few bad actors and I’m not buying into the left’s current argument that or current state of affairs would naturally make one inclined to desire a more socialist European style state.

    The only solution is for the American people to simultaneously hold both the corrupt politicians and corrupt so called captains of industry who are in bed together, at the same time.

  • Reggie Beauchamps

    Kenn, I’m no of fan Glenn’s fruit loop lefty arguments and I generally support the theory of the free market and individual rights but I sincerely hope you don’t believe that we actually have a free and natural market in this country.

    What we have is corporatism whereby only those in the private sector who can afford to bend the ears of the corrupt politicians in both political parties get to have influence.

    Too big to fail, bailouts, kickbacks, bribes, corrupt CEOs and politicians, the FED artificially manipulating currency and rates, one hand washing the other…..that’s pretty much the name of the game in the good ole USA today.

    It’s one big country club and Joe Q middle class generally doesn’t have a snowball’s chance in hell of peeking at the green much less shooting a round of 18.

    That being said I still believe in free enterprise and minimal governance. In every ism there will be a few bad actors and I’m not buying into the left’s argument that our current state of affairs would naturally make one inclined to desire a more socialist European style state.

    The only solution is for the American people to simultaneously hold accountable both the corrupt politicians and corrupt so called captains of industry who are in bed together.

    PS: is there no option to delete one’s own posts on this site?

  • Glenn Contrarian

    Kenn –

    You want proof? Here, from the Federal Reserve Bank of St. Louis:

    Historically, the primary driver of oil prices has been global demand. An expanding global economy demands more raw inputs, including oil, and this increased demand pushes up prices.
    However, the past decade has seen a surge in the financialization of commodities – that is, the creation and trading of financial instruments indexed to commodity prices. According to estimates (Masters, 2008), assets allocated to commodity index trading rose from $13 billion in 2004 to $260 billion in March 2008. Many policymakers and economists have observed that this rapid and unprecedented growth in commodity index trading coincided with a boom in commodity prices; some have extended that observation into a conclusion that speculation by financial traders – and not supply and demand – drove the recent bubble in commodities.
    This kind of argument is perhaps strongest in oil markets, where large investment banks, hedge funds, and other investment funds have invested billions of dollars in oil futures contracts over the past decade. We investigate these allegations by identifying four components that contribute to the price of oil and assessing each of them individually. Disentangling the true drivers of oil prices over the past decade is a critical first step for allocating resources efficiently and designing good policy.
    (boldface mine)

    The four main drivers of oil prices listed by the study are: global supply (and NOT domestic supply, since oil is a fungible product), global demand (think China and India), domestic demand, and speculation. Regulation doesn’t even enter into the mix…and remember, America is now a net oil exporter – which means that “getting out of the way of production” does NOT equal lower oil prices.

    There’s another reason why your “regulation is evil” article is logically faulty – it’s cherry-picking. You’re taking regulations in ONE state and trying to make your point apply to regulation of the free market as a whole. I could just as easily point out how BP’s $20B+ Gulf oil spill could have been prevented by a $500,000 blowout preventer that they were required to have anyway, and use that to try to claim that more regulation is needed. But that claim would be just as logically faulty as your own.

    Here’s another, perhaps more understandable example from this past February on the effect of oil speculation:

    According to the Energy Information Administration, the supply of oil and gasoline is higher today than it was three years ago, when the national average for a gallon of gasoline was just $1.90. Meanwhile, the demand for oil in the U.S. is at its lowest level since April of 1997.

    A decade ago, speculators controlled only about 30% of the oil futures market. Today, Wall Street speculators control nearly 80% of this market. Many of those people buying and selling oil in the commodity markets will never use a drop of this oil. They are not airlines or trucking companies who will use the fuel in the future. The only function of the speculators in this process is to make as much money as they can, as quickly as they can.
    I’ve seen the raw documents that prove the role of speculators. Commodity Futures Trading Commission records showed that in the summer of 2008, when gas prices spiked to more than $4 a gallon, speculators overwhelmingly controlled the crude oil futures market. The commission, which supposedly represents the interests of the American people, had kept the information hidden from the public for nearly three years. That alone is an outrage. The American people had a right to know exactly who caused gas prices to skyrocket in 2008 and who is causing them to spike today.
    (boldface mine)

    Of course I’m not going to pretend that this will change your mind – you’re so hidebound to your gospel of the Holy Free Market that you cannot believe otherwise. You’ll read the articles above, understand everything that is pointed out, and still you will claim that speculation has little or nothing to do with it, that the main culprit is that evil government regulation. How do I know this? Because of this ONE sentence in the second article:

    the supply of oil and gasoline is higher today than it was three years ago, when the national average for a gallon of gasoline was just $1.90. Meanwhile, the demand for oil in the U.S. is at its lowest level since April of 1997.

    Add that to the fact that neither California (which was under a Republican governor for most of the past decade) nor America as a whole (which was under Republican leadership for 8 of the past 12 years) have adopted sweeping new oil production or refinement regulations…and thus we know that regulation cannot have been the primary driver of oil prices.

    Besides, if regulations were SO terrible as you claim, Kenn, then would Big Oil still be making hundreds of billions of dollars in sheer profit each and every year???? Do you really? The simple fact that Big Oil is making more money than the dreams of Midas should in and of itself tell you that government regulation is NOT driving oil prices!!!!

  • Glenn Contrarian

    Reggie –

    I’m going to ask you a series of questions that not a single BC conservative has touched in the two years I’ve been asking it. With the exception of certain OPEC nations (one of which is where Kenn is working, and good on him), every single one of the first-world nations are socialized democracies.

    If having a socialized democracy is SUCH a bad idea, then why is the standard of living in the non-OPEC first-world nations so much higher than the rest of the planet? If socialized democracy is SUCH a bad idea, then why aren’t the non-OPEC first-world nations – every one of which is a socialized democracy – filled with poverty and hardship?

    What’s more, look at the third-world nations – most of them have small, weak governments. If having small, weak governments with little regulation of free enterprise were really the path to national prosperity, then surely at least ONE of the 100+ nations with small, weak governments should have reached first-world status by now, don’t you think?

    However good the pro-small-government rhetoric may sound to your ears, what are the RESULTS that we have seen around the world? Having a socialized democracy is certainly not a guarantee of national prosperity…BUT unless one is sitting on many gigatons of oil, the simple fact that every one of the non-OPEC first-world nations IS a socialized democracy should tell you that there’s something wrong with small-government prosperity theory.

    Oh, and one more thing, concerning all the economic troubles in Western Europe – when they’re over (and they will be over sooner or later), do you really think they’ll have devolved to third-world standards of living? Do you really? Not likely, if their growth after the utter devastation of WWII is any indication.

    And btw – I used to be a strong Republican until the early nineties. I once bought into much the same rhetoric…but then I started using my eyes to look around at the results…and I’ve yet to see ANY indication anywhere on the planet that the small-government gospel is as good as the conservative elite would have us believe.

  • Kenn Jacobine

    Reggie,

    Just read my other blogs on this site – you will see I agree wholeheartedly with your description of the current economy in the U.S.

    Glenn,

    The oil business is a capital intensive industry. Stockholders deserve handsome profits given the risk and capital they put up. Now having said that, if profits are too high for even the market to bare, then there is a problem with competition. And chances are good that government is mixed up in it somewhere – like a special regulation to benefit current players and keep competition out. Say forbidding coastal drilling making it harder for new, less capitalized firms to enter the industry.

    BTW – what do you expect the Fed to blame for high fuel costs? Itself? Given Bernanke throwing the 2 percent inflation number around, anything coming out of that institution needs to be taken with a grain of salt.

  • Glenn Contrarian

    Um, Kenn –

    The Fed doesn’t work for Obama. They might work with him just as they did with the other presidents, but the Fed doesn’t work for the Democrats. But I forget – because they’re not saying exactly what you think they oughta be saying, well, THAT means they must be lying.

    That, and apparently you didn’t read what I posted from the second reference:

    the supply of oil and gasoline is higher today than it was three years ago, when the national average for a gallon of gasoline was just $1.90. Meanwhile, the demand for oil in the U.S. is at its lowest level since April of 1997.

    A decade ago, speculators controlled only about 30% of the oil futures market. Today, Wall Street speculators control nearly 80% of this market.

    Supply is HIGH, demand is relatively LOW, regulation has NOT changed appreciably in the past decade. What is the ONLY thing that’s changed a great deal? The level of speculation, from controlling 30% of the oil futures market to controlling 80% of the oil futures market.

    But of course if government would only get out of the way and let the Holy Free Market sprinkle magic fairy dust on the fungible oil market (over which the non-OPEC governments of the world have very little control anyway), the near-tripling of speculation in the oil futures market in the midst of multiple wars in the Middle East (including two started by Bush) shouldn’t make any difference at all!

    See? All fixed! All we need is Free Market Magic Fairy Dust, all at the low low price of whatever cable television costs, as long as it’s tuned only to Fox News! But wait – there’s more….

  • http://cinemasentries.com/ El Bicho

    Who told Reggie “fruit loop lefty” was clever? Honestly, it’s hard to take the guy seriously due to his lack of self awareness

  • Reggie Beauchamps

    Glenn, I’m sure the Japanese would be pretty surprised to find out that they’re living in a “socialized democracy.”

    Oh and I find it hard to believe that Somalia’s only issue is that they don’t have enough socilism. There are a myriad of factors that affect the welfare and prosperity of a nation. Your socialism vs capitalism paradigm is rather simplistic and boring. But if your so down on the evils of American capitalism and so fond of socialism what are you still doing here? Why not emigrate to Greece? Maybe Spain? Italy? You know one of those superior “socialized democracies.”

    Oh and El Bicho, you’re breaking my heart. When I got out of bed this morning I was giddy at the thought of being able to impress you with my cleverness but your cruel, cruel words have left me downtrodden and despondent. Whatever will I do?

  • Kenn Jacobine

    Glenn,

    You still have a reading comprehension problem. Of course the Fed will blame speculators over its own inflationary policies. The gist of my article was that politicians caused the mess in CA but will blame every bogey man alive. The Fed is the same. Must I reinterpret every one of my blogs for you?

    Speculators are a benefit to the market. They bid up prices ahead of time to lessen demand when something negative is going to happen to supply – like a hurricane for instance. That is why you hear people complain about high prices before the storm has hit. This lessened demand allows supply to last beyond the storm. There is nothing magical about it. If you and your politician cohorts would stop manipulating the economy we could start an economic recovery already. But of course, many jobs have left the country because of your manipulations as well.

  • Glenn Contrarian

    Reggie –

    Glenn, I’m sure the Japanese would be pretty surprised to find out that they’re living in a “socialized democracy.”

    Especially since the Japanese see their single-payer health care as ‘normal’ instead of ‘socialist tyranny’, huh?

  • Glenn Contrarian

    Clavos –

    AGAIN: oil supply is UP, demand is DOWN, America is now a net oil exporter, and there have been no major regulatory changes in at least a decade across the nation. The ONLY major change has been the increase of control of the oil futures market by speculators from 30% to 80%.

    Ah, but I forget – since the Fed is saying something you don’t want to believe, despite all evidence that points to oil speculators you will hide your head in the free-market sand and tell yourself “the government says it’s the speculators and therefore it must NOT be the speculators!”

    Which is also why you are able to ignore all the solid evidence by all the world’s most respected scientific institutions that AGW is real and affecting us TODAY. That’s the conservative mindset, Clav – if they say something you don’t like, just reject it no matter how much evidence they bring to the table.

    As an atheist, you should comprehend that problem instinctively since most of your conservative compatriots belong to the party that literally does think it has a God-given destiny to defeat the godless liberals that infest America. You see the outright silliness of most religion (you’d say ALL religion, actually), yet the reason you stay strongly on their side because their basic personalities match your own much more closely than you realize.

  • Kenn Jacobine

    Glenn,

    Have you flipped? Clavos is not on this thread?

  • Glenn Contrarian

    Kenn –

    Sorry – brain flatulence on my part. Thanks for pointing it out. It’s not the first time I’ve done it and it won’t be the last. Please consider that comment as addressed to you.

  • Igor

    Excellent comments, Glenn. I went thru the same research concerning oil prices, supply and demand, using different sources (like API) and found almost exactly the same facts.

  • Kenn Jacobine

    And you guys don’t believe that Fed money printing is at all responsible for higher oil proces?

  • Alexander J Smith III

    Interesting piece, though it seems that you position is that California should roll back regulations regarding the activities of the energy companies operating in the state. If this is an accurate portrayal, I have the following question.

    Your construction of how “free markets” operate aside, California has tried a deregulated energy market before. In 2000-2001 energy companies were allowed to determine market value for energy, but what resulted was the overt manipulation supply to increase demand. Most of this we know from evidence uncovered from the collapse of Enron Corporation and Enron Energy Services who were key players in the California Energy Crisis. So having had this experience before, on what basis would the State Government have for creating conditions where said manipulation could occur again?

  • Kenn Jacobine

    If an energy company commits fraud or damages the environment they should pay. California, unlike all other states in the Union has a ridiculously tight regulatory framework and that is why prices are higher there than anywhere else in the country. If companies are able to collude to fix prices or manipulate supply to drive prices up then there is a competition issue. Chances are very good that regulations are hindering more players from entering the market and allowing the collusion to continue.

  • Dr Dreadful

    There are only a certain number of oil companies and AFAIK almost all of them do gasoline retail business in California. So unless I’m missing something, I’m not sure how “regulations are hindering more players from entering the market”.

  • Glenn Contrarian

    Kenn –

    And you guys don’t believe that Fed money printing is at all responsible for higher oil proces?

    If that were the case, then ALL prices – and not just those of gasoline – would have risen by at least the same degree. But last time I went to the supermarket, they haven’t. But you haven’t been to the supermarket or to Wal-Mart in America in quite a while, and so you wouldn’t know that.

    A side note that has nothing at all to do with the subject – when I was in the UAE, it was funny to see “Safest Way” instead of “Safeway”, but with the same logo…and I spent a solid two hours inside looking at the ingredients to see if anything at all contained pork or pork products – and of course they didn’t.

    Then again, my youngest son told me a story a couple days ago about how he was sharing a beer with a Muslim in the Philippines. He said to the Muslim, “you’re not supposed to be drinking alcohol, right?” to which the Muslim replied, “You’re not supposed to have pre-marital sex, right?”

    Which explains why I had seen a Muslim – robes and all – in a bar sharing drinks with Americans in the UAE.

  • Kenn Jacobine

    The UAE is very progressive. I have seen men in thobes in the airport drinking beer.

    I was in the supermarket this summer in North Carolina. Things were pretty expensive. Because the dollar is the world’s reserve currency, oil is priced in dollars. I remember back in the 1980s when oil was around $25 a barrel. Today it is $90. The difference is not increased global demand because there are not shortages. The difference is the enormous devaluing of the dollar done by the Fed through inflating the money supply since then. Look the dollar has lost so much value that some countries are negotiating other mediums of exchange to pay for oil.

  • Glenn Contrarian

    Kenn –

    While America does not have greatly increased demand, China, India, and several other third-world nations certainly DO have greatly increased demand. Look at Shanghai – it went from zero skyscrapers thirty years ago to twice as many as NYC today. And then there was the epic NINE-day traffic jam in Beijing in 2010 (and I remember reading about a similar one last November).

    And Kenn, you can’t use ONE visit to a supermarket as a benchmark – you should know better than that. It takes years of observation. A better way to see how our prices have been inflated is by looking at our historical annual rates of inflation.

    Since 1991, the highest annual rate of inflation was at 3.85% in 2008…and in thirteen of the years since 1991, the rate was below 3 percent!

    So how can you continue to maintain that our gas prices are being greatly inflated by the Fed’s actions when our overall inflation is so LOW?

    Kenn,
    (1) supply is up (we’re now a net oil exporter),
    (2) domestic demand is relatively low,
    (3) there have been no additional regulations of significance since before Dubya took office, and
    (4) overall inflation has been LOW since 1991.

    Again, the ONLY significant change has been the near-tripling of the control of the oil futures market by speculators. When are you going to realize that an unregulated free market ain’t so free? All it does is to enable base greed for quick bucks and market share to trump all other considerations…which is how we get mega-corporations that are too big to fail.

  • Kenn Jacobine

    We just disagree.

  • Igor

    @20-Alexander: Yes, Enron used a phony Free Market (and I maintain that ALL “Free Markets” are phony, i.e., fixed, and I think that even Greenspan realized that finally, contrary to his teacher: Freidman) to bilk Californians out of billions of dollars.

    Freidman maintained that fraud was impossible in a Free Market, but it appears to be inevitable.

  • Igor

    @19-Kenn: the Fed does NOT print money. The US Dept. Of Engraving actually prints any money (greenbacks, coins) required for circulation and replacement. That depends on replacement rates , alternate cash-like vehicles like Credit Cards, etc.

    I don’t know why people go on and on about “printing money”, it just doesn’t happen that way. It’s just ignorance.

  • Igor

    @24-Kenn: you’re wrong. Increased gas prices are the result of greatly increased global consumption. Go look at the histoory of prices at the Energy Information Administration. Prices correlate with international demand.

    Not that the Fed is a blameless institution. They have allowed themselves to become the tool of successive US Administrations, Republican and Democrat. Their charter is quite simple: to arbitrate (discount) shortterm interest rates in response to large shifts in fiscal events. Like war spending. But they have succumbed to two very bad imperatives: fight inflation, and solve the administrations PR problems.

    Our fiscal problems are great, no matter whether Republicans or Democrats are in office we spend too much and (usually) tax too little. That produces inflation (yes, cutting taxes increases inflation, it is just like spending). When the politicians become alarmed, instead of manning up and cutting spending or increasing taxes they command the Fed to balance things Somehow, and they find a way.

    Now intrinsically the Fed is weak compared to the Budget Office, because the BO controls the large mass of federal money and the Fed just controls the small (hopefully) interest. But as we all know, the fed has considerable LEVERAGE (just like home mortgage rates and Bond interest rates leverage against principle). And the Fed has a secret weapon: constantly increasing demand for cash, from increased productivity and immigration (yes, immigrants, even illegal ones, benefit the economy by increasing the cash at the disposal of the Fed).

    But we never talk about these things. At least not in front of the children (i.e., citizens) because it upsets our pitch (lies) that our actions proceed from high moral principle. We are obsessed with maintaining the illusion of morality.

    We would rather crash the economy and destroy the country than admit to the facts.

    We can’t stand the truth.

  • Kenn Jacobine

    Increasing the money supply without a direct correlation to productivity increaees inflation – lowering taxes has nothing to do with it. Global demand has some bearing on price, but if oil companies are so greedy why don’t they just drill more oil? Because in large measure regulations prevent them from doing so – especially in the U.S. That was the jist of my article. And oil is priced in dollars; the dollar has lost its value because the Fed continues to “print” more than we need so therefore it takes more dollars to buy the same things as before.

    Igor, we just disagree about how the economy works. Your way has produced the decline that America is in. My way helped make America an economic powerhouse.

  • Igor

    @30-Kenn: two errors in the first sentence: we actually increase the money supply at a rate below productivity increase, thus giving us some slack to work into. Productivity should be balanced by increased worker pay (since each worker produces more goods and services) OR by decreased work hours (since the same goods can be produced by fewer hours). The second choice is best in the current scenario and would reduce or eliminate unemployment. But business leaders see a chance to skim the benefits of increased productivity off the top for themselves, without sharing, and since they substantially control politics that’s what happens.

    Lowering taxes is exactly the same as increasing spending. Tax cuts, after all, are just a hidden subsidy, and not very well hidden, at that.

  • Glenn Contrarian

    Kenn –

    Igor, we just disagree about how the economy works. Your way has produced the decline that America is in. My way helped make America an economic powerhouse.

    Really? Would you like to go back to a discussion of the Keynesian economics that pervaded the American economy from FDR through Carter? Or was it some other time that America became an ‘economic powerhouse’?

  • Kenn Jacobine

    America grew significantly, economically in the 19th Century. The Fed caused the Great Depression and Keynesianism prolonged it. After WW 2 federal spending was cut by I believe around 50 percent and the economy took off. We also still had a partial Gold Standard which kept deficits under control and regulation was a lot less. It wasn’t a libertarian utopia, but a lot closer than we are today. Since the 70s and the rebirth of 20th Century liberalism, Washington has slowly set up barriers to economic growth through monetary policy, regulations, and the welfare/warfare state. At about the same time is when in my opinion the decline started. So yes, Glenn, your and Igor’s way of thinking politically/economically is destroying the economic dominance of America.

    There is a bright side though – the collapse of our economy will prevent the U.S. from continuing to bomb people of color in such places as Pakistan, Yemen, Libys, etc…

  • Igor

    @33-Kenn: as usual, you are wrong. The collapse of the economy will NOT prevent us from continuing to bomb people. We will put every last cent into our bombing campaigns until we are so far beyond broke that someone will invade us just to end the misery.

  • Glenn Contrarian

    Kenn –

    Again and again and again I have pointed out that in economic terms, WWII was the greatest economic stimulus in history and it worked wonders by enabling our non-war-ravaged nation build an infrastructure that allowed us to have the greatest economy in human history.

    The 50% cut in federal spending was due to the end of the war and the spending it required, and we went into a post-war recession not long after with the massive drop in federal spending combined with all the newly unemployed (also called war veterans). It wasn’t until the tax rate and the federal spending was jacked up once more that our economy took back off in the early 1950′s.

    Kenn, if Keynesian economics were SO bad, not only would our economy have tanked in the 1950′s with the highest marginal tax rates in American history, but Western Germany and Japan (both incredibly devastated by the war) would never have returned to their places as first-world nations if not for the Marshall Plan…and what was the Marshall Plan but another massive economic stimulus?

    And let’s not forget – AGAIN! – that every single non-OPEC first-world nation on the planet is a socialized democracy that utilizes Keynesian economics at least to some extent.

    It’s all so obvious, yet instead of allowing history to inform your decisions, you insist that your libertarian theories are correct and search for anything you can find to support your preconceived notions. That’s not an academically sound approach.

  • Kenn Jacobine

    Glenn,

    The 1945 recession fits right in with tha Austrian Business Cycle Theory. That is that government (the Fed) manipulation of the money supply causes wide swings, booms and busts, in the economy. Yes, there was a recession in 1945 because government cut spending and all the malinvestment that government spending caused in the preceding period was liquidated. Than the economy took off. There was not high unemployment during th at recession with the troops coming home like the Keynesians predicted. And the recession was over in 8 months because the government did not employ massive stimulus like it is doing today. You need to stop invoking your public school history lessons and the teachings of Paul Krugman.

    Bottom line is because of government monetary and fiscal policy we are currently reliving the 1930s. The evidence is indisputable.