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Washington Should Follow Laissez-Faire

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Things are really a mess economically in the United States and it isn’t really an exaggeration to say it is all Washington’s fault. I mean through the easy money policies of the Federal Reserve, as well as the legislative and monetary support of Congress and the previous administration, many Americans who couldn’t otherwise afford to buy a house bought one. This, coupled with reckless lending policies on the part of primary lenders due to explicit and implicit government loan guarantees, set the economy up for a massive failure. Then, when their low teaser rates readjusted upward, and many could not afford their new higher payments, the housing bubble burst. And what was Washington’s response? It was to provide trillions more in easy money and a policy of encouraging Americans to borrow and spend it to “stimulate” the economy.

Now that that policy hasn’t worked, we are facing a massive debt crisis with real unemployment north of 16 percent, and price inflation eating away at the standard of living in America. If that were not bad enough, last week it was reported that bailout beneficiaries and mortgage guarantors Freddie Mac and Fannie Mae asked the federal government for more bailout funds. Freddie asked for $6 billion more, bringing that GSE’s total bailout figure to $72.2 billion. Fannie asked for $7.8 billion more bringing its total Treasury draw to over $120 billion.

The main reason why Freddie and Fannie are still losing money and require more federal largess is because of the policies coming out of Washington. Freddie reported $4.8 billion in derivative losses alone due to declining interest rates. Fannie’s president and CEO, Michael Williams, claims his firm’s woes are due to homeowners paying less interest on loans refinanced at historically low mortgage rates. So while Washington brought on the original crisis that forced Freddie and Fannie into U.S. conservatorship, its response to that crisis has only made the financial conditions of those entities worse.

At the end of the day, Henry Hazlitt’s words from his famous book, Economics in One Lesson, ring prophetic: “The art of economics consists in looking not merely at the immediate, but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group, but for all groups.”

In both instances, Washington’s policies leading to the financial crisis of 2008, and its policies since, have helped some groups ( i.e. bankers) and hurt others (Fannie, Freddie, and consequently taxpayers). Since no mortal man can determine with precision how a given economic policy of government or a central bank will affect every group in a society, it is best for government and central bankers to abstain from imposing their will on the economy. Certainly we would be much better off now because our economy wouldn’t be in the mess that it is in.

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About Kenn Jacobine

  • http://oneamericansrant.blogspot.com/ One American’s Rant

    I’m no longer buying the story about saving these big financial concerns being the key to the economy. This is a shameful but not new problem.

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

    — Thomas Jefferson

  • Glenn Contrarian

    OA –

    That’s why for about 60 years there was such a thing as the Glass-Steagal Act for regulation of the banks, to not allow them to have an absolutely free hand to do what they wanted with their depositors’ money.

    Unfortunately, the conservative line is that banks must not be regulated, and so Glass-Steagal was repealed in the late part of the second Clinton administration. The repeal bill was passed with a veto-proof Republican majority, but because Clinton signed it, Clinton owns it. He has since said he regretted signing that bill, but he still owns it.

    Now think about it – in the 60 or so years that Glass-Steagal was in force, did we have ANY real problem with the banks? I mean, we had recessions and we had the S&L/thrift problem in the late 1980’s, but did we have anything to compare with what happened after Glass-Steagal was repealed?

    No.

    Too much regulation is bad. Too little regulation is every bit as bad, and maybe worse.

  • http://www.foxnews.com/on-air/oreilly/transcript/are-us-troops-already-ground-libya Kenn Jacobine

    Glass-Steagal had nothing to do with the financial crisis because institutions like Lehman, Bear, AIG were not under its jurisdiction anyway. BTW, if you go on YouTube there is a video of Clinton saying essentially the same thing.

    The problem is with the Fed and its easy money policies. It exists for the banks and is the number one reason why the middle class is shrinking. Glenn, this is not a partisan issue – both Dems and Repubs support the Fed because it allows them to buy votes through big spending and therefore maintain their high reelection rate. Of course, Ron Paul is the only candidate that would clean up the mess the Fed has caused.

  • joshuagrays

    One reason existing refinancing efforts have fallen far short of their goals is that Fannie and Freddie continue to charge homeowners high, risk-based fees up front to refinance their loans you can avoid this if you check your rates and fees at 123 Refinance before you sign

  • Igor

    Laissez faire only works in small circumstances. In large societies it breaks down.

    Capitalists love laissez faire the way that lions love gazelles. They’re easy to hunt down and devour. Capitalists figure that 100% is their fair share of the market.

    If one proposed to throw open the gates of our prisons and let all the murderers and thieves out into society, then everyone would consider that insane. But we proposed exactly that with de-regulation: we threw open the doors of commerce and banking to every criminal in the land. It’s little compensation that they dressed better and drove shinier cars.

  • Kenn Jacobine

    Igor and Glenn and everyone else who loves to play the de-regulation card,

    I guess de-regulation is also responsible for the bankruptcies in Greece, Spain, Portugal, and Ireland. Folks we are talking about hardcore welfare states with big safety nets, early retirement and of course, “free healthcare”.

    These bankruptcies are the result of runaway governments. They are the result of close to sixty years of Keynesian economics and welfare state abuse. In the U.S. you can also include the military-industrial complex and corporatism.

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    Kenn, even if we accept your premise that excessive regulation caused the crises in the EU, it doesn’t follow that doing the exact opposite is the remedy.

  • Arch Conservative

    “I’m no longer buying the story about saving these big financial concerns being the key to the economy. This is a shameful but not new problem.”

    You were at some point buying it?

    I too have an affinity for Thomas Jefferson OAR. Unlike our current president, Jefferson did not have the luxury of the ubiquitous elitist media fawning over his every word, brow beating the people into accepting his genius. Unlike our current national joke, when it came to intellectual prowess and the foresight and character necessary to lead a nation, TJ was the real deal.

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.” – Thomas Jefferson

    It’s been 200 years. The more things change the more they stay the same it would seem.

  • Glenn Contrarian

    Kenn –

    I guess de-regulation is also responsible for the bankruptcies in Greece, Spain, Portugal, and Ireland. Folks we are talking about hardcore welfare states with big safety nets, early retirement and of course, “free healthcare”.

    There you go with false equivalencies again.

    Greece, for instance, allowed pensioned retirement for everyone at 55 and would pay all its government employees an extra month’s pay in December. America has NEVER had such wasteful policies! Furthermore, the nations were running deficits that are (relative to GDP) FAR greater than America’s. So stop with the false equivalencies – I won’t let you get away with it.

    And if you’ll recall, which European nation first started going down the drain? Iceland, which DID drink the deregulation Kool-Aid and which nearly went bankrupt when its banks melted down after taking on so many toxic assets. Sound familiar?

    And THEN we have to consider which nation in Europe is doing the best – GERMANY…which has a VERY healthy economy and is one of the most strongly socialized economies in the EU – including your bugaboos of a strong social safety net, early retirement, and free health care. But what has the EU been pushing for the past two years to fix the economic troubles? AUSTERITY. And how has it worked? Not too well, as we can now see. And the EU’s grand experiment with a unified currency had one big flaw – there was no overarching regulatory agency to prevent one or fiscally-irresponsible nation from dragging down the rest of the EU…so RIGHT NOW they are considering such an agency which would have such authority despite how it would weaken the sovereignty of the member nations of the EU…

    …so in other words, I’m paying attention to what’s going on, and because I’m paying attention, YOU are not going to be able to push your false equivalencies.

    Above, Doc Dreadful said in one sentence what I’ve been saying all along – MODERATION IN ALL THINGS. Too much regulation is bad. So is too little…and I can show you example after example after example of that in government, business, and industry.

  • Igor

    “Greece, Spain, Portugal, and Ireland.” All countries who called in American financial experts from Goldman Sachs who uniformly advised them to de-regulate, privatize and put public assets at risk in financial ponzi schemes that THEY sold those countries at high commissions and high bonuses for hollow short-term gains.

    If they had the courage to investigate thoroughly hundreds of financiers would go to jail for conflict of interest and fraud. But even the USA doesn’t have the courage (or maybe it’s because they’re all suborned) to pursue THAT course, which, after all is what we did after the crooked S&L swindles 20 years ago when we sent over 1000 bankers to prison. Just look at the crooked deal that the bought-and-paid-for SEC and their crooked owners Citicorp tried to put through that Judge Rakoff stopped.

    Rakoff vs. Citicorp ripoff

    The crooked SEC and crooked companies have been making these sweetheart out-of-court settlements for years that bury the case and cutoff investors from suits and bury the evidence out of sight of mere citizens.

    It’s about time, and long overdue.

    But I suppose the dullards and dopes who have totally bought into the naive business-uber-alles doctrine of the rightist US capital crime industry will complain that out-of-court settlements are so wonderful, but they are NOT.

  • Maurice

    Kenn – great job on an article that clearly states the current problems.

    The plans differ; the planners are all alike…

  • Kenn Jacobine

    Glenn,

    It is nice how you pick and choose which welfare programs you like. Social Security and Medicare are not wasteful programs? We pay people to retire early like the Greeks do. The age reqiurement has never been raised and Americans live on average until 75 years. Thus, most get much more money out of the system then put in. As far as Mediicare is concerned, it is a major cause of the high price of healthcare.

    And before you tell me how Great Germany is, remember that last week she was unable to sell 35 percent of her bonds. The end is near for the welfare/warfare state. Tighten your seat belts, what’s coming is going to make the crisis of 2008 look lime a picnic in the Great Smokey Mountains.

  • Glenn Contrarian

    Kenn –

    The age reqiurement has never been raised and Americans live on average until 75 years.

    That statement is patently FALSE. The SS system was amended in 1983 to allow for a gradual increase in the age of eligibility for full retirement benefits from age 65 to age 66 in 2009 and age 67 in 2027.

    So yippie! According to YOUR numbers we get on average a whole TEN YEARS of Social Security coverage in return for forty-five years of work! Look how spoiled we are!

    And WHY was Germany unable to sell 35% of her bonds? Because of the instability of the EU as a whole and NOT because of any weakness inherent in Germany itself.

    In comment #9 I already addressed what the problem was and what they’re considering doing about it:

    And the EU’s grand experiment with a unified currency had one big flaw – there was no overarching regulatory agency to prevent one or fiscally-irresponsible nation from dragging down the rest of the EU…so RIGHT NOW they are considering such an agency which would have such authority despite how it would weaken the sovereignty of the member nations of the EU…

    Germany’s economy is not in bad shape – it’s been in good shape for some time. But it’s stuck with the Euro and the other, less responsible nations are dragging them down.

    By the way, Kenn – exactly how is it that Germany, since they’re so socialized and their labor costs are so high because they’re so unionized…how is it that Germany is the world’s second-largest exporter, with exports making up ONE-THIRD of their national economic output? Last I recall, according to conservative and libertarian dogma, a high-level of unionization coupled with a comprehensive social safety net and a national emphasis on public works was a sure-fire recipe for economic disaster, that there was NO WAY they could compete in the export market.

    So…exactly how is it that Germany’s defying conservative and libertarian economic dogma, Kenn?

    And when it comes to Social Security, Kenn, next time, could you please do a little fact-checking? Because I WILL fact-check you.

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    The end is near for the welfare/warfare state. Tighten your seat belts, what’s coming is going to make the crisis of 2008 look lime a picnic in the Great Smokey Mountains.

    Well, then, Kenn, perhaps we will find out if laissez-faire actually does work, since there will be no government capability de se mêler des affaires.

  • Kenn Jacobine

    2027 doesn’t count – it hasn’t happened yet. 66 years is one more than 65! Wow, that is a real age raise. The system is tens of trillions in the whole for future obligations. You are talking about something that may not be around in 2027. Where is all that money going to come from to pay future beneficiaries. You and Washington are just not realistic. A true raising of the retirement age would be to 75. When s.s. was instituted the retirement age was 65 and the average life expectancy was 65. Thus very few people collected until life expectancy went up. That’s a hoax. Of course s.s hits minority folks more unfairly because they pay the same amounts but their life expectancy is shorter than white folks so they recoup less of their contributions. The whole system is a joke.

  • Igor

    Actually, SS is a big success. It usually has a surplus every year, accumulating to about $2.5trillion, and easily pays millions of recipients even though they typically live for many years after starting SS. And it will continue to work as long as we are vigilant and keep Wall Streets cotton-picking hands OFF SS!

    “Privatization” is a failed scheme designed to steal money from public funds that have already been funded by citizens. Don’t fall for it!

  • Glenn Contrarian

    Kenn –

    Oh, silly me! It’s SO much better to wait to give SS benefits to people at the age when half of them are dead already!

    FYI, Kenn, we could fix the Social Security system with one sentence of legislation:

    FICA deductions will no longer be limited to the first $106,000 of income.

    EVERYBODY should pay the FICA deduction on ALL their income. It should not apply to only the first few percentage points of a billionaire’s income!

  • Kenn Jacobine

    Wow, we agree on something! Yes Glenn, if you are going to steal then it should be equal and against all parties.

    SS is not a success. If Americans invested their contributions instead of having them stolen from the trust fund by politicians, they would retire with much bigger nest eggs and wouldn’t have to rely on phony government CPI numbers to get COLAs.

  • Glenn Contrarian

    Kenn –

    I hate to break this to you, but all people are not the same. If everybody were savers, and if nobody ever faced bankruptcy, and if no one ever faced having to pay for a life-threatening illness, then YES, they could all retire with much bigger nest eggs.

    But life happens, Kenn. People get fired. People have life-threatening illnesses. People get saddled with mountains of debt for houses that are suddenly worth half what they paid for them. People go bankrupt. People have to bail their kids/grandkids/whatever out of problems. Life happens.

    Life happens, Kenn – and that was the point of Social Security in the first place, that no matter how rotten a person’s luck has been in the previous 45 years, they’ll still be able to eat and maybe even afford to live somewhere when they retire.

    Your plan is great, absolutely fabulous…for those to whom life doesn’t happen, and sure, retirement would be fantasy-like for them! But real life happens for most of us…and it’s for people like us who experience REAL life that Social Security was designed, to act as a dependable backstop to all the curveballs that life hands most of us over the decades.

  • Clavos

    Glenn, why do you say things like, “I hate to break this to you?” Not only is it a worn out cliché, but neither you nor anyone else who uses that line means it.

    C’mon, Glenn, you’re smarter than that!

  • Kenn Jacobine

    Oh yea a system that was set up to pay people who were already dead is a system meant to help people through life? Social security was just another way for that fascist FDR to steal more of the people’s money. The U.S. Government was never intended to be an insurance company, a mail delieverer, a mortgage guarantor or a corporate rescuer. Government’s have no incentives to do well like private businessess. They can lose trillions of dollars but as long as the gravy train continues for the constituents in the distrct I can get reelected and everything is okay.

    Something you totally ignore Glenn, is how after three years in office, trillions spent or lended in credit and many new regulations, the economy is still in the toilet. Obama is the epitomy of your philosophy and things are getting even worse. As you would say, “answer that Glenn”.

  • Kenn Jacobine

    further, if Glass-Steagel is so important why didn’t Obama propose and work it through Congress when he had big majorities in both chambers and an electoral mandate from the people to clean up the mess that Bush 2 left him. “answer that Glenn”

  • Clavos

    The U.S. Government was never intended to be an insurance company, a mail delieverer, a mortgage guarantor or a corporate rescuer.

    DAMN!!!

    QUOTED FOR TRUTH!!!

  • Igor

    SS is a success because it has achieved it’s charter: keeping old retired people out of abject poverty.

    And, as an investment, it’s one of the best you can make. Young hotshots only fantasize that they can make the sustained yields that they claim they would if they invested their SS money. But they’re wrong. Any way, it’s a small cut out of your income, so you have plenty left over to invest in those fancy investments, so go to it. When you get to 70 let me know how it worked out.

  • Igor

    21-Kenn:

    “…that fascist FDR …”

    Do you have any way to backup that claim?

    “The U.S. Government was never intended to be…

    The US government was intended to be flexible. That’s why the Constitution deals so much with the making of laws and the restrictions on laws instead of specific laws (thus, the Constitution doesn’t say “thou shall not steal”).

    “Government’s have no incentives to do well…”

    Of course they do. Politicians want to be re-elected. Government departments want to get further funding, etc. There are plenty of incentives.

    “… like private businessess.’

    IMO you have a dreamy idea of real business.

  • Clavos

    Do you have any way to backup that claim?

    It’s an opinion, not a “claim.”

  • Clavos

    Of course they do. Politicians want to be re-elected.

    The government doing well has little to do with the re-election of politicians, a far greater determinant is how much largess (read money) they’ve directly or indirectly thrown at their constituents while in office.

    And government departments rarely suffer curtailment of their budgets — to the contrary, most grow continuously, year after year.

  • Igor

    Laissez Faire can’t sustain itself. It is quickly gobbled up by monopolists who want to dictate prices to buyers, wages to employees and terms to suppliers.

    The unregulated “Free Market” is an empty dream.

  • Glenn Contrarian

    Clavos –

    And to this day, none of you have been able to explain how it is that

    (1) the greatest economic stimulus of this nation’s history pulled us out of the Depression,

    (2) that stimulus (which left us with a staggering debt even worse (in relative terms) than today’s) was nearly completely paid off in less than ten years during a time of 90% top marginal tax rates,

    (3) America not only did NOT go into a recession or depression during the 1950’s time of 90% top marginal tax rates, but our economy BOOMED (and no, the rich (who are NOT the job-creators) didn’t go broke), AND

    (4) America had recessions, but nothing to compare with the ’82-’83 recession and the S&L bailout, both of which followed Reagan’s slashing of taxes and deregulation, AND

    (5) except for the S&L crisis (half of which was based in Texas) we had ZERO banking crises in America until after Clinton signed off on the Republican plan to deregulate banks by repealing Glass-Steagal, AND

    (6) WHY IS IT that now that our banks still have less regulation than before Glass-Steagal was repealed, AND now that Americans have a lower overall tax burden under Obama than they’ve had under Bush, Bush, Reagan, Nixon, OR Eisenhower…WHY IS IT THAT NOW THAT CONSERVATIVES HAVE THE DEREGULATION AND THE HISTORICALLY-LOW TAXES THEY’VE CLAIMED ARE WHAT AMERICA NEEDS…

    …why isn’t America’s economy booming? Y’all claimed that low taxes and deregulation are what we need, and now that we have them, why isn’t our economy booming? You can’t blame it on the spending, because the spending is not directly taking money away from businesses.

    You’ve got your way now, Clavos – WHY isn’t America’s economy booming?

    Because Austrian economics is a chimera, a wonderful set of rhetoric that does not work, whereas America’s economic history from FDR until Reagan PROVES that Keynesian economics works.

    What YOU think, Clavos, doesn’t matter. What DOES matter is history.

  • Glenn Contrarian

    Kenn –

    The U.S. Government was never intended to be an insurance company, a mail delieverer, a mortgage guarantor or a corporate rescuer.

    I’m in a hurry right now, but most of what I posted to Clavos applies to you as well…

    …but I thought I’d give you, Mr. History, a quick lesson in the history of the Post Office since you are absolutely sure that America’s government was never intended to be involved with the Post Office:

    The USPS traces its roots to 1775 during the Second Continental Congress, where Benjamin Franklin was appointed the first postmaster general. The cabinet-level Post Office Department was created in 1792 from Franklin’s operation and transformed into its current form in 1971 under the Postal Reorganization Act.

    Now I realize that YOU know far more about what America’s government was supposed to be about than did the Second Continental Congress, YOU know more about it than the first Postmaster (Benjamin Franklin) did, and YOU CERTAINLY KNOW MORE about it than George Washington did, who was PRESIDENT when the Post Office was made into a cabinet-level department under his administration.

    Gee, Kenn, look at that! If what you say is true, then YOU KNOW MORE ABOUT WHAT AMERICA’S GOVERNMENT WAS SUPPOSED TO BE THAN DID BEN FRANKLIN, GEORGE WASHINGTON, OR THE SECOND CONTINENTAL CONGRESS!

  • Glenn Contrarian

    And CLAVOS!

    The U.S. Government was never intended to be an insurance company, a mail delieverer, a mortgage guarantor or a corporate rescuer.

    Didn’t you say, “QUOTED FOR TRUTH!!!”? I can argue the ‘insurance company’ and the ‘corporate rescuer’ later, but would you care to rethink your ‘QFT’ post since it appears that Ben Franklin, George Washington, and the Second Continental Congress don’t agree with you?

  • Igor

    Glenn asks:

    And to this day, none of you have been able to explain how it is that

    (1) the greatest economic stimulus of this nation’s history pulled us out of the Depression,

    (2) that stimulus (which left us with a staggering debt even worse (in relative terms) than today’s) was nearly completely paid off in less than ten years during a time of 90% top marginal tax rates,


    etc.

    And since none of the BC giant brain trust has volunteered to answer, I’ll give it a try.

    …explain how it is that

    (1) the greatest economic stimulus of this nation’s history pulled us out of the Depression,

    Because it created DEMAND for labor. Workers mobilized across the country and moved if necessary to the jobs at the shipyards, ammo plants, tank factories, airplane factories, etc.

    DEMAND is what drives any economy. Without DEMAND you simply have no economy.


    (2) that stimulus (which left us with a staggering debt even worse (in relative terms) than today’s) was nearly completely paid off in less than ten years during a time of 90% top marginal tax rates,

    Top marginal tax rate has NO affect on ambition. NO striver is discouraged from becoming a millionaire because taxes are high! No one! I dare anyone: show me a poverty-stricken homeless person who is that way because the top tax rate was too high!

    The impetus of the planned economy of FDR kept the economy building, when business leaders were ready to take it back down to pre-war levels. Make no mistake, FDR SOCIALIZED the economy! And thereby saved it.


    (3) America not only did NOT go into a recession or depression during the 1950’s time of 90% top marginal tax rates, but our economy BOOMED (and no, the rich (who are NOT the job-creators) didn’t go broke), AND

    Americans were THRILLED by what they had accomplished in WW2. They were thrilled that “the home front” was able to produce a B-24 every 55 minutes because of the tremendous team spirit they had. The excitement of the teamwork carried over.


    (4) America had recessions, but nothing to compare with the ’82-’83 recession and the S&L bailout, both of which followed Reagan’s slashing of taxes and deregulation, AND

    we had confidence that we’d pull out and that everyone had that goal, not that some would seek to benefit at the expense of others.

    (5) except for the S&L crisis (half of which was based in Texas) we had ZERO banking crises in America until after Clinton signed off on the Republican plan to deregulate banks by repealing Glass-Steagal, AND

    Banks weren’t that powerful. They were little organized, and they could only organize within a state. Interstate banking was disallowed. Banking reserves were controlled by law.


    (6) WHY IS IT that now that our banks still have less regulation than before Glass-Steagal was repealed, AND now that Americans have a lower overall tax burden under Obama than they’ve had under Bush, Bush, Reagan, Nixon, OR Eisenhower…WHY IS IT THAT NOW THAT CONSERVATIVES HAVE THE DEREGULATION AND THE HISTORICALLY-LOW TAXES THEY’VE CLAIMED ARE WHAT AMERICA NEEDS…

    The republicans were JUST GUESSING! Time has proven them wrong. And all their guesses were tilted to their own benefit, so they win even when wrong.

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    @32

    Of course, a similar claim could be made for the pre-war Germany. No nation has ever been so mobilized in terms pulling together of human and material resources towards one end.

    It’s almost uncanny.

  • Kenn Jacobine

    Igor,

    FDR was a fascist – he stole the people’s gold, he supported deficit spending, he cartellized industry for the benefit of the state, and when that failed to end the depression he got us involved in war. During the war he organized Washington into bureaucracies that resembled what Hitler was doing in Germany. Read John Flynn’s book As We Go Marching.

    Secondly the Constitution was not supposed to be flexible. Article 1 Section 8 specifies Congress’s powers – period. If you want Congress to do more there is the Amendment process.

    Lastly, have you ever dealt with a a government agency. They could care less about you because the guy you deal with or his supervisor get no benefit or harm by the way they treat you. They are installed in their positions by the government and immune from the market. Just look at the post office for instance, if it participated in the market free of government regulation it would have been dead years ago and not now begging for billions in bailout money. Don’t believe everything you hear on the state run media.

  • Kenn Jacobine

    Glenn,

    You don’t understand Austrian economics because if you did you wouldn’t make such ridiculous claims.

    The Great Depression lasted until 1946. Roosevelt’s stimulus like Obama’s today prolonged the crisis (along with cartelizing industry and price supports).

    The bottom line is that mortal man’s manipulation of the money supply causes booms and busts. The larger the boom the larger the bust. Once the bust happens it should be left to run its course to liquidate all of the mal-investments of the boom caused by manipulated interest rates, monetized debt, etc… Attempting to stimulate or lower interest rates (which got you into the mess in the first place) will only prolong the agony. Yes the appearance of recovery will happen because you are injecting new capital into a stagnant economy, but that will also prove false when that crutch is pulled away. In FDR’s case he raised excise fees on business to pay for his schemes and we got the recession of 1937.

    Right now the economy looks pretty good, hell unemployment is down to 8.6 percent. But mark my words, it is because the Fed is doing QE3 and when that crutch is pulled the economy will dip. You cannot build a healthy economy on debt. Furthermore, price controls distort the economy. Fed policy is price controls of our money. It distorts investors and businesses and causes booms and busts. Understand that and you will understand that The New Deal did not end the G.D.

  • Igor

    34-Kenn,

    Boy, are YOU screwed up!

    FDR was a fascist…


    Prove it! You haven’t said anything that hasn’t been said about other presidents.

    Read John Flynn’s book As We Go Marching.

    No. If you want to make his points then make them here.

    Secondly the Constitution was not supposed to be flexible.

    Sure it was. That’s why the Constitution was about how to make laws (procedure), not about the laws themselves (content).


    Lastly, have you ever dealt with a a government agency. They could care less about you because the guy you deal with or his supervisor get no benefit or harm by the way they treat you. They are installed in their positions by the government and immune from the market. Just look at the post office for instance, if it participated in the market free of government regulation it would have been dead years ago and not now begging for billions in bailout money. Don’t believe everything you hear on the state run media.

    Sure I have. I stopped at my postoffice today to pay my yearly box fee, and the lady knew who I am and why I was there! There was no crowd and I got instant friendly service. My service at my postoffice has always been excellent!

    In fact, the service and friendliness was MUCH better than the coffee shop I just came from, where I had to wait at the counter while the counter clerk ground beans for someone who was not around and two backroom employees chatted instead of coming out to take orders from the 6 of us waiting at the counter. I complained to the counterman, as I’ve done before, and he just shrugged his shoulders. I’ve written letters to the management of that chain detailing my complaints and nothing happened. I even volunteered to consult as a manager to get their customer relations improved. It’s nuts to leave customers with money in their hands begging at the counter. I’ve walked out, and so have others. This is such an elementary point of retail sales that it’s a wonder that the company is able to stay in business.

    The postoffice would be making decent profits except that the loony bush/republican congress of 2006 passed a law requiring that the PO “pre-fund” ALL it’s retirement plans in the next 10 years, at a cost of some $70billion! NOTHING in private business requires that kind of pre-funding! Even your regular insurance policies, auto, home, life are NOT pre-funded! They will pay claims out of future revenues, and if they don’t have them just declare the fund bankrupt. Sorry, Mr. policyholder.

    Your bank only pre-funds about 10% of the demand-deposit accounts on their books.

  • Igor

    35 – Kenn Jacobine

    You don’t understand Austrian economics because if you did you wouldn’t make such ridiculous claims.

    I understand Austrian Econ, and it is based on two premises: (1) efficient markets, and (2) incessant demand.

    Both premises FAIL at the current time. And that’s also why “supplyside” fails.

    Markets are inefficient because they are dominated by monopolies and oligopolies running wild, plus the occasional massive government bailout.

    We are in a demand drought, which has utterly invalidated Austrian econ.

    There is NOTHING that Austrian econ can do on the supplyside to make up for lost demand. That is why US business is saddled with $3trillion retained earnings (and banks with $2trillion) that it CANNOT deploy as capital. US business cannot justify capital investment in the face of rotten demand.

    Whether you like it or not, an economy is driven by DEMAND. The supplyside is just along for the ride.

  • Igor

    35-Kenn


    The bottom line is that mortal man’s manipulation of the money supply causes booms and busts.

    Economists for 200 years have remarked that ONLY the capitalist system has systemic booms and busts, i.e., booms/busts caused by the system itself instead of external events like drought, war, plague, etc.

    Hume, Smith, Ricardo, all wrote about it.

    It’s caused the way that ALL system instabilities are caused, by excess positive feedback. Indeed, systemic instability is impossible without positive feedback. Usually the instability is cyclical, but sometimes it can be a Relaxation Oscillation, which is what Joseph Schumpeter was writing about.

    The solution to instability is damping, which is the ideal application of a tax. In fact, a properly sized Financial Transaction Tax is the right solution for excess instability because it also throws off a useful social tax. The proper magnitude revolves around such considerations of Control System Stability as Optimal Damping vs. Critical Damping, etc.

  • Kenn Jacobine

    Igor,

    You vote for statist politicians; I am buying more gold.

  • Jordan Richardson

    You buy more gold; I am eating two hamburgers at the same time.

  • Glenn Contrarian

    Roger –

    Of course, a similar claim could be made for the pre-war Germany. No nation has ever been so mobilized in terms pulling together of human and material resources towards one end.

    I don’t know if we can say that “no nation has ever been so mobilized”, but other than that you’re completely right. Hitler DID bring Germany out of its own depression…and he did so by means of a taxpayer-funded stimulus. Unfortunately, he used the “German economic miracle” to arm for WWII.

  • Glenn Contrarian

    Kenn –

    You don’t understand Austrian economics because if you did you wouldn’t make such ridiculous claims.

    The Great Depression lasted until 1946. Roosevelt’s stimulus like Obama’s today prolonged the crisis (along with cartelizing industry and price supports).

    The bottom line is that mortal man’s manipulation of the money supply causes booms and busts. The larger the boom the larger the bust.

    Waitaminnit – you said I made ridiculous claims, and then immediately afterwards you said the Great Depression lasted until 1946!!!! What the heck are you teaching people in your history class????

    First you claim the American government was never meant to be in the business of delivering mail – never mind what George Washington, Ben Franklin, and the Second Continental Congress DID. And THEN you say the Depression lasted until 1946?

    And you didn’t stop there! Then you said “the larger the boom, the larger the bust”. What was the largest boom in American history? Was it the 1950’s? Perhaps. And a case could also be made for the boom of the 1990’s. As far as the 1990’s boom, sure, we had the dot-com bubble burst in 2001, but was it really as bad as you seem claim that it MUST have been? And as far as the 1950’s boom, where was the bust?

    WHERE WAS THE BUST, Kenn? You said it had to be there (and we had 90% top marginal tax rates to boot), so where was the bust?

    What, exactly, are you smoking?

    Kenn, you’re in the trap of having made up your mind about the way things are supposed to be, and then you are CHANGING HISTORY to fit your preconceived conception of what you think the facts are. And when you’re called on it – as I called you on your ignorance of the history of the Post Office – you flatly ignore it.

    You are NOT being an honest historian. You are NOT allowing history to determine your beliefs.

    Let me know when you want to begin holding yourself to the standards of an honest historian.

  • Kenn Jacobine

    It is a waste of time talking about this with you because you already have your mind made up. But for the sake of clarity, I will say that yes the Fed induced boom of the 1920s busted in the 1930s and the Fed induced boom of the 1960s brought high inflation in the 70s and then the bust in the early 80s. The dot-com and housing bubble were also caused by manipulation of the money supply.

    You keep saying a 90 percent tax rate gave us prosperity. what percentage of Americans actually paid that? And much lower government spending in the 50’s didn’t free capital up for entrepreneurs to invest and build a healthy economy? You just don’t understand economics.

    As far as the post office is concerned, you are right, the Constitution does give power to Congress to set up post offices and post roads, but it doesn’t mean it has to. It did but now with being billions in debt and our technology isn’t it time to abolish it? I don’t believe the government was intended to be a mail deliverer but at the start of the country it may have been a necessity. With our technology today, the Founders would be appalled that Uncle Scam is still delivering letters.

  • Glenn Contrarian

    Kenn –

    Your “Fed-induced booms” rant is based on your belief, but not on provable fact. The dot-com and housing bubbles were NOT caused by manipulation of the money supply any more than the tulip bubble was.

    But perhaps your definition of “manipulation of the money supply” is different from what I’m expecting – please elaborate.

    On the 90% top marginal tax rate…if you’ll check, the middle class was paying a higher rate, too. But what that 90% top marginal tax rate DID was force the rich to REINVEST their income in their companies…because doing so was deductible from their taxable income.

    Do you see the rich reinvesting their income in companies today? Not so much. Not only that, but when a rich man has to reinvest his money in a company, suddenly he’s got a lot more “skin in the game” when it comes to making sure that company is good in the long run.

    So, yes, Kenn, I DO have somewhat of a clue when it comes to economics…and I know how to look at the nations of the world and see that – generally speaking – the nations with the lowest income inequality strongly tend to be first-world nations, whereas those nations with the highest income inequality strongly tend to be third-world nations.

    And you’ve seen it too in your travels.

  • Igor

    44-Glenn: “…the nations with the lowest income inequality strongly tend to be first-world nations, whereas those nations with the highest income inequality strongly tend to be third-world nations.”

    Lots of people with small funds have discovered that: they can move to a poor country and live like royalty on meager SS payments. Haiti and various African countries have been mentioned by friends.

    Maybe that’s what will happen in the USA. People from Spain moving here with their good SS payments and lording it over broke Americans.

  • Kenn Jacobine

    Igor, the same thing is happening in the U.S. and it is called crony capitalism. Those countries that are still developing are in lousy shape because they have suffered corruption and nepotism at the hands of a ruling elite – all done in the name of the people. Further enter the U.S. so-called AID agencies to commit economic terrorism against these countries and you have a recipe for continuous poverty and large income inequalities.

    When the U.S. was more capitalistic we were more prosperous and free. Now, we have a system where political cronies like Jon Corzine can steal his clients money out of their accounts because his firm is going bankrupt and nothing happens to him. How many of the bankers who violated the law before the crisis have been prosecuted? How about robosigning banks? Has anything happened to them?

    True capitalism is a system where the legally efficient and effective are rewarded and the opposite are punished. Short of that you have a system where some rule and others are enslaved. We are enslaved because the state has become so big and beholden to special interests. of course those special interests with the most money rule.

  • Glenn Contrarian

    Kenn –

    I would love to see the bankers prosecuted…but they won’t be. Why? Try “Citizens United”. It was the conservatives on the Supreme Court that enshrined the ability of corporate money to be used as “free speech”, where a million dollars given to a politician can result in a billion-dollar contract.

    THIS, Kenn, is where rampant deregulation leads – and FYI, the most prosperous times we’ve had since WWII were the ones where we were taxed at significantly higher rates and our regulatory agencies weren’t emasculated. By “unshackling business”, you’ve allowed business to turn America into an oligarchy where the rich Must Not Be Punished for the crimes they commit.

  • Igor

    46-Kenn: that’s a really contorted excuse for the excesses of the rich and powerful. Somehow it’s all the fault of ‘the government’.

  • Igor

    “Crony capitalism” is just monopoly capitalism. Capitalism ALWAYS drives toward monopoly.

  • Igor

    In #38 above I pointed out that the boom/bust cycle in capitalism is systemic, i.e., the result of internal instability, not external disruption like drought and war.

    Capitalist systems oscillate because of excess positive feedback. Oscillations are unavoidable. It’s because of the internal mechanics, not any particular destabilizing externality. Instability is INEVITABLE. The proximate cause is immaterial because the system is poised to oscillate at almost any disturbance. It is hopeless to search for the proximate cause because if it wasn’t one thing it would be another. Just as an electronic oscillator will be primed by some errant electron, so any systemically unstable system will.

    The fault lies with the system.

  • Kenn Jacobine

    So under your premise there is no government action that could change the course of a capitalist system either good or bad? You want to blame the instability on capitalism while ignoring capitalism’s benefits.

  • Kenn Jacobine

    And Igor, how is it that some recessions are worse than others? There was no external force, say government poliices that perhaps made it worse. I suppose the financial crisis of 2008 is as bad as it is because of inherent market instability? Sometimes we get lucky like in 1921 when the depression ended in a year and other times not so lucky like from 1929-1946 and 2008-??

  • Glenn Contrarian

    There he goes with the “Depression ended in 1946″ line again…and this guy’s teaching history!

  • Kenn Jacobine

    And what exactly do you do for a living , Glenn?

  • http://blogcritics.org/writers/dr-dreadful/ Dr Dreadful

    Laissez-faire doesn’t convince me because it seems intuitively wrong.

    First of all, whether or not an economy would grow under a hands-off government is a moot point, because nobody would care. All that would matter would be whether one’s own business, bank balance, stock portfolio, mortgage etc was healthy.

    Some, like Kenn, might think that’s a good thing, and that’s as may be. But it leads into my second point, which is that there’s something to be said for the argument that a laissez-faire approach discourages innovation and leads to stagnation.

    If we look back in history to the period between the collapse of the Roman Empire and the Renaissance, we see that rulers were little concerned with the health of their territories’ economies. Their main concern was prestige, obtained either through the homage of lesser princes or, almost as often, through warfare (pretty much the only reason they levied taxes). There was little to no innovation of any kind except in military technology (as rulers sought better ways of conquering each other) and abstract philosophy (through the clergy, who did operate under a tightly-regulated economy). As a result, quality of life, whether for rich or poor, changed little for centuries.

    While being aware of the logical caution that correlation does not equal causation, I don’t think it’s a coincidence that with the possible exception of Greece (a special case), the most advanced and accomplished civilizations in history were all highly centralized.

  • Igor

    I think Germany was under a command system, not a republican (in the original sense) system. In a real sense Our Hearts Were Pure (most of us anyhow).

    33 – roger nowosielski:

    “Of course, a similar claim could be made for the pre-war Germany….”

  • Igor

    I didn’t say that, Kenn. And I don’t believe it. I LIKE capitalism. We’ve proven it can work. It’s just that when some people carry things to extremes they cause extreme results. Capitalism just doesn’t scale up.

    I didn’t say to ignore capitalisms benefits, those are your words.

    One MUST have regulations to keep capitalism working. FDR proved that capitalism could work under central planning, we can’t disregard the lessons of history.

    51 – Kenn Jacobine
    “So under your premise there is no government action that could change the course of a capitalist system either good or bad? You want to blame the instability on capitalism while ignoring capitalism’s benefits.”

  • Igor

    I never said this:

    39 – Kenn :
    “You vote for statist politicians;…”

  • http://takeitorleaveit.typepad.com/ roger nowosielski

    @57

    I disagree with your analysis, Igor. Capitalism was still young at FDR’s time, full of unfulfilled promises like a child or a bride. By now, it had run it’s course and it’s running on fumes, for which reason your optimism and comparison are unwarranted. There would be no such thing as “financial capitalism,” the last stage if it weren’t so. It isn’t just a coincidence; it’s a symptom of a broken system. And I don’t think I need to get into dispute with you here about the relative merits or benefits the capitalist system of production has bestowed upon us. Not to disagree with you here, it’s really beside the point. All economic systems, just as forms of government, come and go once they outlive their usefulness and a more equitable system is devised in their place. And capitalism should be no exception, not on account of any real or sentimental value.

    No question that capitalism is not entirely done with yet; it will still have a staying power in such places as China or India; but it’s done insofar as the West is concerned. And the West, it’s my prediction, will eventually drag everybody else down the bottomless hole. Global economy is the reason.

    In any case, it behooves you to specify how the capitalist system might thrive under the conditions of “social planning.” You haven’t done that, nor have you given us any indication how capitalism would be transformed under those conditions.

  • Igor

    Roger, I think it’s too early to give up on properly administered capitalism. What we’ve learned from the Great Depression and the Great Recession is that various internals of capitalism must be regulated, and what that means is throttled.

    Our resident EE, Maurice, will tell you the old EE’s adage “If you want an oscillator, design an amplifier. If you want an amplifier design an oscillator”. The reason is that the separation between success and failure in electronics is small and Murphey’s law of perversity applies.

    But the experienced and educated EE does not surrender when his bright new amplifier howls and shrieks on the test bench. He has tools and experiments to apply that he and his colleagues have found to work historically. He does a few routine things: de-couple the power supply, balance DC bias levels to spot parasitic oscillations (that often can’t be seen on an oscilloscope). Study and test.

    In the end, the chief fix that he applies will be to introduce extra damping, i.e., resistors (which are wasteful of power!). Yes, to stabilize the circuit he introduces WASTE! And slowdowns! Yes, too much speed leads to instability.

    And that’s what taxes and regulations do in an economy: they introduce waste and slowdowns to fight instability.

    This tells me that what we need in the capitalistic economy is financial transaction taxes and appropriate regulation and inspection protocols.

    Lack of transaction fees means that micro-investing can run wild at high speed and send the system into instability.

    The way to solve the economies instability is the same as a circuit: re-design the internal mechanisms for stability. transaction fees function like resistors: they passively exact an energy toll from the flow that would result in instability.

  • troll

    Igor – I too frequently feel that capitalists need to be throttled…I’m working on suppressing these violent impulses

    (descriptions of capitalism that abstract from human relationships make me nervous)