Tag Archive for 'economics'
Mises.org has posted an excellent article on free-market education to their site. I recommend that you go read it for yourself, but will give a short synopsis here. A teacher in a San Diego high school decides to sell advertising on tests and quizzes to local area businesses and parents. This helps the teacher to do his best job in class without incurring more expenses himself. People allowed to operate within the free-market will figure out a profitable way to do the best thing for all parties involved. Taxpayer funded schools (or anything else for that matter) are nothing but a drain on the taxpayer and will always do a poor job. Think of the irony of congress getting a pay raise while they demand pay cuts for the automaker executives. We need to remember the housing bubble which precipitated the current crisis started with the fed and it’s socialist manipulation of credit. Congress could control or abolish the fed if they cared. Shouldn’t they take a pay cut – or be fired?
Ron Paul before the U.S. House of Representatives, November 20, 2008
Madame Speaker, many Americans are hoping the new administration will solve the economic problems we face. That’s not likely to happen, because the economic advisors to the new President have no more understanding of how to get us out of this mess than previous administrations and Congresses understood how the crisis was brought about in the first place.
Except for a rare few, Members of Congress are unaware of Austrian Free Market economics. For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics. If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections.
Today, a major economic crisis is unfolding. New government programs are started daily, and future plans are being made for even more. All are based on the belief that we’re in this mess because free-market capitalism and sound money failed. The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement. Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency. These suggestions are merely more of the same policies that created our mess and are doomed to fail.
At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve. It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form. Congress added fuel to the fire by various programs and institutions like the Community Reinvestment Act, Fannie Mae and Freddie Mac, FDIC, and HUD mandates, which were all backed up by aggressive court rulings.
The Fed has now doled out close to $2 trillion in subsidized loans to troubled banks and other financial institutions. The Federal Reserve and Treasury constantly brag about the need for “transparency” and “oversight,” but it’s all just talk — they want none of it. They want secrecy while the privileged are rescued at the expense of the middle class.
It is unimaginable that Congress could be so derelict in its duty. It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone. All Members of Congress and all Americans should be outraged that conditions could deteriorate to this degree. It’s no wonder that a large and growing number of Americans are now demanding an end to the Fed.
The Federal Reserve created our problem, yet it manages to gain even more power in the socialization of the entire financial system. The whole bailout process this past year was characterized by no oversight, no limits, no concerns, no understanding, and no common sense.
Similar mistakes were made in the 1930s and ushered in the age of the New Deal, the Fair Deal, the Great Society and the supply-siders who convinced conservatives that deficits didn’t really matter after all, since they were anxious to finance a very expensive deficit-financed American empire.
All the programs since the Depression were meant to prevent recessions and depressions. Yet all that was done was to plant the seeds of the greatest financial bubble in all history. Because of this lack of understanding, the stage is now set for massive nationalization of the financial system and quite likely the means of production.
Although it is obvious that the Keynesians were all wrong and interventionism and central economic planning don’t work, whom are we listening to for advice on getting us out of this mess? Unfortunately, it’s the Keynesians, the socialists, and big-government proponents.
Who’s being ignored? The Austrian free-market economists—the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today. If the crisis was predictable and is explainable, why did no one listen? It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before–like the philosopher’s stone that could turn lead into gold. Prosperity without work is a dream of the ages.
Over and above this are those who understand that political power is controlled by those who control the money supply. Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful. The truth is otherwise. Central economic planning is always harmful. Inflating the money supply and purposely devaluing the dollar is always painful and dangerous.
The policies of big-government proponents are running out of steam. Their policies have failed and will continue to fail. Merely doing more of what caused the crisis can hardly provide a solution.
The good news is that Austrian economists are gaining more acceptance every day and have a greater chance of influencing our future than they’ve had for a long time.
The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about.
There are limits. A country cannot forever depend on a central bank to keep the economy afloat and the currency functionable through constant acceleration of money supply growth. Eventually the laws of economics will overrule the politicians, the bureaucrats and the central bankers. The system will fail to respond unless the excess debt and mal-investment is liquidated. If it goes too far and the wild extravagance is not arrested, runaway inflation will result, and an entirely new currency will be required to restore growth and reasonable political stability.
The choice we face is ominous: We either accept world-wide authoritarian government holding together a flawed system, OR we restore the principles of the Constitution, limit government power, restore commodity money without a Federal Reserve system, reject world government, and promote the cause of peace by protecting liberty equally for all persons. Freedom is the answer.
Original at The Austrians Were Right.
Inflation is a hidden and intentionally deceptive form of taxation. Governments love to be off the gold standard and use fiat currencies that allow them to inflate without controls (especially when all the other governments are also on fiat currencies).
Inflation of the money supply is what the Fed does. When the government needs more money it sells assets to the Fed (usually government securities). The Fed “invents” the money to pay for these. It doesn’t need to print new money because the transaction just increases the amount of money the government has in the bank (and it can use to pay people with).
Because of this new money in the system, all of your money is worth less – increased supply of money raises prices (that’s why housing prices have risen so high after cash was pushed into the housing market through easy loans).
You have now been taxed twice. The government takes a high percentage of your money out of your paycheck. It may give a little back on April 15. It has also taken more of your income by making what you have left worth less. This is a hidden, deceptive tax. The Fed does not protect from inflation, it causes it.
The important fact to remember when considering the current economic crisis is to remember that people like Ron Paul, who hold to austrian economics, predicted it. They pointed out years ago that what Greenspan was doing would cause such a crisis eventually.
Economics in One Lesson is an excellent book by Henry Hazlitt that attempts to help people to correctly think through any economic situation. The one lesson is reduced to a single sentence on page 5 of the Mises edition:
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.
The lesson can be applied to the bailout and the current economic situation. The government seems to believe that the problem is a lack of credit. The answer they say is to expand available credit through the bailout passed Friday and to increase the money supply through the Fed. Reuters reports:
The U.S. Federal Reserve said it would begin paying interest on reserves banks hold at the Fed, a move that would allow it to keep flooding markets with cash without driving its benchmark federal funds rate below target (U.S. urges global action on credit crisis).
This misses the bigger issues and ignores “the longer effects of any act or policy.” The current crisis was caused by easy credit – not lack of credit. Subprime mortgages were increased because that is what the government wanted. Continue reading ‘Intervention is the Problem’
The senate voted to pass their version of the $700 billion bailout of the rich by the poor. I wasn’t suprised to find that Lindsey Graham voted for it. It is great to see that Jim DeMint is one South Carolina senator with some economic sense. You can see how your senator voted here.
Now would be a good time to contact your congressman again to make sure that they don’t pass the revised version on Friday. Congress.org makes it easy to tell your congressman what you think.
The Campaign for Liberty website has posted a tally of today’s vote on the bailout plan. Check it out to see how your congressman voted.
Update: that link no longer exists but you can find updated information on the final vote at Final Bailout Vote Tally.
The Mises Institute has posted a list of articles by subject area that will help anyone trying to understand the current ecnomic situation. It’s available at The Bailout Reader.
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