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.

One Debacle at a Time Please

While we have two of the worse legislative proposal before us in health care and energy, that is cap-and-trade, the Obama regime is now again talking about a proposal to 'regulate' the financial industry. Are they trying to finesse one or the other of these horrors past us if they cannot get them all? Is it a distraction move? A few things that we have learned from the recent history of this administration should prepare us to meet the coming onslaught.

The Federal Administration and its allies in congress will not offer a definitive proposal for a while, if ever. (Just as they do not offer a definitive health care plan and as the Man Made Global Warming Theory is never spelled out in total.) That will allow them to disavow and deny any accusation that some particularly repugnant scheme is part of their proposal, just as they do with health care. As with Global Warming, it will be hard to attack their proposals on grounds of economic theory, since they really won't have a proposal. It will morph depending upon the audience they are trying to persuade.

However, just because they do not tell their plans does not mean that they do not have any. Thanks to talk radio, we have heard several speeches given by Barack Obama and Democrats in Congress over the last few years to their close constituent organizations. They say that they want single government payer health care. They do not want any part of our current system. They told their friendly audiences that they may have to accept some employer provided insurance for a while, but eventually Party organizers can deliver full-blown socialized medicine. It is the same way with financial 'regulation'. What he really wants is to take control of the financial system.

At first he will say that he proposes a 'consumer protection agency' to save us from the abuses of Wall Street. The actual bill that they eventually produce when the time is ripe, will have been long in the works. Every socialistic central planning and control mechanism that has been discredited over the last two hundred years will be represented. It will be written by the likes of Van Jones communist activists, Noam Chomsky communist academics, Paul Krugman communist economists (this latter one is in disguise), and all kinds of just plain communists that we have not heard of yet. There are plenty of communist 'scholars' waiting in the wings and biting at the bit to get control of as much as they can. Wall Street would certainly be a big coup.

On the other side are the conservatives: economist, wall street businessmen, politicians, historians, and legitimate scholars who can be ignored because they have been so discredited by the press. They tells us that it is government regulation that causes economic downturn. They ask how regulation could have made any difference in the mortgage meltdown, when industry was doing just as government wanted it to do. Would the regulator have said to congress, "no Ms. Pelosi, Mr. Reid, Mr. Franks, Mr. Dodd, if you make a law like that it will lead to risky loans and excess speculation. No Mr. Greenspan, Mr. Bernanke, you can't do that or it will lead to malinvestment of our precious limited resources in a bubble that will ultimately burst and destroy capital." Any such regulator would soon be out of a job. Banks were led by congress to make loans that they thought better of and fined if they refused. They attempted to protect themselves with 'insurance' (derivatives) but you can't protect yourself when everyone, even the 'insurers' go broke. (As they always do when the bubble bursts.) When things went wrong the banks were blamed.

That and a lot more is inconvenient history that the current administration is allowed to ignore. At the time they dismissed their own responsibility by saying, "there's plenty of blame to go around." I believe it was Rush Limbaugh who said, "when a Democrat says there is plenty of blame to go around, you can bet that their share was about 95%."

Another example that is often heard is that the 'massive' banking deregulation of the Reagan and Bush administrations was obviously a mistake. When you ask just what deregulation they mean, one thing you often hear is the repeal of Glass Stiegal. This allowed financial firms to diversify: it allowed banks to underwrite securities as investment banks do and investment banks and brokers to accept deposits as regular banks do. However, in the mortgage meltdown, the banks got into trouble by acting as banks and the brokerages and investment firms by acting as such. The Glass Steigal Act was mostly irrelevant. The largest mortgage players, Fanny May and Freddie Mac behaved just as always, they were not affected by Glass Steigal. They were a creation of congress and did congress's bidding. They, along with the Fed, were the primary instigators of the meltdown. They were not regulated by government because, effectively, they were government. So who will regulate the regulators Mr. President? Another practice that they mention is short selling, which in fact is economically beneficial in that it warns investors of coming problems, which will help to remedy those problems in time. Other systematic problems in capital markets, too numerous and depressing to mention, all followed from the implementation of government plans.

The people who know the least about finance, (who manage the Post office, Social Security, Amtrack, Medicare Medicaid, government pension insurance, deposit insurance... all essentially bankrupt), now want to further regulate the financial industry. It is already regulated so much, there is not much more they can do except take it over. That is what they want to do, and may end up doing. They may not have their name on the deeds right away, but they will call the shots, which amounts to the same thing. On our side, we have an informed public, who will be hard to bamboozle, even though they will surely try. They will lie and most of the press will back them up. We have talk radio (one of their next targets) and we have Tea Parties and we had some great town meetings. We have the constitution still and we have the truth.