Give Freedom a Chance

I have only called two radio talk shows: Larry King twenty some years ago to ask a Nixon administration official how we managed to screw up so badly on relations with Iran. He did not seem to understand the question. I also called Curtis Sliwa about six months ago, (actually I was trying to call Mark Levin). I wanted to discuss the similarities between the Roosevelt and Obama economic policies. I told him what my grandpa George thought of Roosevelt (see earlier post). Mr. Sliwa did not agree that the situations were similar. He thought that in the early 1930’s the economy was worse. I told him that neither administration was allowing markets to clear. He did not understand this. He thought that I meant the financial markets, which he said were corrupt.

What I meant by markets, were the markets for goods and services. By clearing, I meant that products and services offered for sale, would sell. What I mean by the administrations not allowing this was that both administration’s economic policies propped prices up. People are and were not willing to pay the price offered. Normally, this would cause prices to go down. Instead, the government is going into the market to buy goods and services and prop up prices by other means. This keeps prices up but keeps production down because individuals are not buying at the propped-up prices. (I refer to the price of nearly everything: food, housing, labor…). Unemployment results. Markets still clear, but at a lower level of activity.

Glen Beck today, spoke about the 1920 depression. In 1920, economic conditions were much worse that in 1929 and 1930. Although President Harding did nothing to interfere with the economy, in 18 months the economy recovered. In 1920, Harding proposed no bailouts, stimulants, or jobs programs. Unemployment had risen above 10%, housing values dropped dramatically, and GDP plunged. This was due to various policies of the Wilson administration. Harding took over, did nothing, and the economy quickly recovered on its own. This is a well known example cited by free market economists, which of course, everyone ignores. Prices adjust and markets clear. Soon the economy picks up and prices, including wages, and production begin to rise again. (Things went well until the policies of Hoover (or Bush), which were actually the original New Deal, caused more trouble. This was made infinitely worse by FDR (and BHO). YES, believe it or not: History does Repeat itself.)

An interesting starting point for economic study is “Say’s Law.” Named after Jean-Baptiste Say, who stated that markets always clear. This has been restated as, “supply creates its own demand.” Meaning that the money received for our goods and services (supply), allows us to purchase other goods and services (demand). Keynesians and Obamaites have this idea backwards.

The implications of Say’s Law raise questions that have led to the development of modern economic theories. Free market economists state that imbalances occur most often because of government interference. That interference is what caused recessions and depressions. By intentionally raising or lowering interest rates, the government misleads producers as to actual market conditions. Government creation of money to get out of a slump makes a bad situation worse. Furthermore, sometimes governments take partial or full control of certain industries, which is defined as socialism. Technocrats make orders for production based upon their short and long term plans. These plans may be based upon what they think we want, but more often on what they think we should want. They are bound to get it wrong, producing too much of some things and too little of others. The free market with millions of individuals acting as producers and consumers, basing their actions on ever changing prices, produces optimal results.