Posts Tagged ‘Austrian Economics’

The Quantitative Easing

January 20, 2011 2 comments

From our friends at xtranormal. Definitely one of the best videos I have seen in a long long time.

Watch It

Please post your thoughts or other links on the topic. After you quit laughing of course.

Obama’s Economy Not Working

July 16, 2010 7 comments

It’s the ECONOMY, Stupid!

Barack Obama’s White House has decided to back a Keynesian economic policy of “let’s get big government dollars to spend our way out of this economic crisis.”

Is it working? Absolutely Not.

Has Obama effectively lined his supporter’s pocket’s in the process? Absolutely.

When US Automaker General Motors was in financial trouble, the US Government effectively took GM over. As the US Gov’t reworked the company, it ditched the banks and creditors of GM, and transferred huge amounts of the “New GM Ownership” to Unions and other Obama supporters. It’s almost like when a new King started in England, and he decided to take enormous tracts of land from people he didn’t like, and bequeath enormous wealth to his new supporters. Basically it’s robbery, but legalized!

In the Federal Reserve minutes from their meeting last month, there were some very important words hidden near the back, in the small print: The Fed doesn’t think that the US Economy will recover for 5 to 6 years.

In other words, far from winding down the Great Recession and talking about the new Economic Gains that Obama has been touting this week, this shows that in the global economic crisis, the US is now becoming the problem.

The new Fed Reserve minutes show a complete change in policy, demonstrating how fast the recovery has lost steam. International Monetary Research says that the US authorities have “botched the policy response.” Oh really?

  • New home sales at 300,000 in May, lowest since records began in 1963
  • Outbound exports from Long Beach (major SoCal shipping port) dropped from 139,000 in May to 116,000 in June.
  • Philadelphia’s new manufacturing orders index plunged to -4.3 in early July

So what will Barack Obama and his team of Economic Advisers do? According to Gabriel Stein of Lombard Street Research, they are “throwing in the towel.” Washington wants to start another round of government spending again — raising the debt level from $2.4 trillion, to a whopping $5 trillion.

Sound HOPEful and CHANGEful to you? Me either.

We need to get government deficit spending to stop before the dollar becomes totally worthless. Out of all the dollars ever created in the 234 years of USA’s history, over half has been created in the last 3 years.

We need to get the US Government out of the business of spending money on stimulus programs and bailouts. We have spent billions of dollars, and it hasn’t brought the economy out of the recession. Now we want to do it again?

The US Government needs to stop the bleeding. Reduce entitlement payments immediately. Reduce the size of the behemoth that has become our Federal Government, creating Czars of This and Czars of That, each with mandatory staff and spending budgets. We need to get out of the business of saving failing banks and businesses. Let the AIG’s of the world fail. Stop the bailout spending spree. And reduce the US Federal Income Tax.

The more money is in the hands of the individual consumers, the better. What, we won’t be able to afford all of the government programs? It’s okay. The individual cities and communities will pick up the slack, feeding the poor, helping them back onto their feet.

It’s what Americans do.

Scenario for the President

March 29, 2010 2 comments
“QUICK!  Mr. President, bad policies for the past 20 years have dug us into a hole….and the brightest minds we have tell us we’re within 48 hours of the financial system freezing.  Make a decision:
1) Inject liquidity AS A LOAN to the system (Like we did for S&L crisis which turned a profit for the US Gov’t.  This was how the TARP plan was sold to the Administration – but it has clearly been hijacked since by Congress, Geithner, others.).
2)  Stand there and we’ll take a guess about just how far the market can crash.  But we’re being told it is as bad/worse than 1929.

If you are standing on principles, the speed of the decision doesn’t matter as much.

I think the scenario sort-of makes one point: Government gets involved with “A” in mind (in this case the S&L loans or Financial Bailout.) First blush is positive. But as with most if not all government involvement, it gets hijacked, and turned into something not intended. Go back (choose the years) and we will see the examples. Income tax; FDR’s programs; Welfare; The Great Society programs; etc. etc. I don’t know them all.

My opinion? Given the above scenario, the President should choose 2, and let Lehman Brothers collapse. And he should have pressured the Fed to not get involved in helping bail them out. (Or maybe he didn’t know cuz it was secretive, but he could have found out, and fired the guy for doing it.) Also, allowing the Fed to facilitate JP Morgan Chase’s purchase of Bear Stearns for pennies on the dollar. Yes these banks should have failed. There’s no way that a banking system performing the kinds of stunts that they have been performing should have been bailed out with taxpayers money. You think laissez faire is adversely affected by uncertainty (absence of full information)? Absolutely it is. What about Keynesianism and other interventionist policies? Are they immune to the ails of uncertainty? Absolutely not. And the market forces will correct for any uncertainty a LOT quicker than a poor government policy that has become LAW and may take generations to overcome. We’re still paying for the ones from 60-70 years ago. In fact, the government injects it’s own uncertainty into the system, but more on that below.

We appear to have changed topics from Bush vs. the Constitution, and maybe for good reason after listening to Paul, Jeff and Deon’s points. One of the best conservative minds — possibly ever — was Edmund Burke. I bring him into the Constitution discussion because he advocated gradual change, but at the same time not destroying the pillars of freedom with our experimental Acts. I’m equating his mentioning of Experimental Acts of his time to the Patriot Acts of our time. Yes we have to change with the times as Burke says (e.g. we have to deal with terrorists), but according to him, it’s not worth destroying the pillars of liberty that we have built our society on in order to accomplish that change. If we do so, we are destroying the foundation upon which our nation is built.

In terms of the banking issues, absolutely let Lehman Brothers and Bear Stearns fail. Don’t let the Fed get involved at all. The banks made bad business decisions. There is tons of evidence of corruption. Why inject loans into that? What is the economic principle that that decision is based on? In my opinion the decision was based on fear. Once again, we have a government trying — through their macro economic policies — to right the ship. “We can fix it. We can control the market forces.” And once again, the evidence is that they can’t. It might have stabilized some things for the time being, but anyone watching KNOWS with their gut that this glut of spending is going to have to be paid for at some point, and it’s going to be worse when it’s time to pay the piper. The Fear Move didn’t do anything but delay a market correction. Check out Karl Denninger if you’d like to read more.

AND, there are even some studies, like this one by the Stanford economist John Taylor, which purports to show (pdf) that the credit markets actually did not react all that badly to Lehman going under and that the crisis was really the product of market uncertainty about the effects of government action. So, the “market” reacted not all that badly to a market force of letting a bank go under, but the real market crisis started after the government decided to get involved to try to “control” the natural market forces? Add to this the fact that the bond market says it’s safer to lend to Warren Buffet than to Barak Obama, and I think we see what Keynesian fiscal policies bring to the table in terms of uncertainty.

See, now this makes sense to me.

Was Murray Rothbard a quack?

January 21, 2010 1 comment

I have heard it claimed that the recently deceased Nobel laureate economist Paul Samuelson called fellow economist Murray Rothbard a “quack.” At first I scoffed at the idea. How could someone like M. Rothbard, so versed in logic and deductive reasoning, be a “quack”?

I love how Rothbard, in his economic treatise “Man, Economy, and State”, uses logical deduction to build up his economic theories and axioms step by step. I was happy to see an answer to the question of “where does price come from?” that is exactly the opposite to what I had been taught in my microeconomic courses at Oregon State University. I had been taught that the price of consumer goods is determined by the costs of land, labor, capital, etc. Rothbard explains logically how those costs are actually determined by what consumers will pay for the product. In other words, the consumers ultimately determine the price of goods! I believe Rothbard’s logic to be accurate. So, what about the “quack” comment? I tried to understand what would cause Samuelson to say such a thing. As I continued deeper into the treatise, my disregard of the comment began to weaken as I read more of Rothbard’s refutations of his own critics. I found that his arguments in his own defense were sounding strikingly similar.

First, a clarification: Paul Samuelson is a “Keynesian” economist, one who believes in implementing fiscal policies at a national level in order to keep the economy humming. These policies are supposed to smooth out the business cycles of boom and bust. Murray Rothbard is an “Austrian” economist, staunch believers in a free market and minimal government intervention into economic decisions.

When detractors like Samuelson attack the Austrian economic pillars of a free market system, Murray Rothbard can only point to the underlying logical principles of the free market to prove that it works. There is a dearth of case studies or real world examples for him to draw from. For example, when critics claim that a free market system is disruptive to society because it necessarily advances too many product innovations that threaten the peace of society, Rothbard cries out that, logically, in a free market, entrepreneurial foresight will be utilized and taken advantage of as much as is possible and desired by consumers. When critics claim that a free market system slows down innovation due to capitalist resistance stemming from a desire of a return on their previously invested capital, Rothbard declares that by logical reasoning, in a free market system, producers of goods will allocate the various factors of production in the most efficient manner possible. In other words, the free market naturally and logically has forces working that are always moving toward efficiency and customer satisfaction. I agree with these logical deductions and, like Von Mises and Bastiat before him, I am a proponent of a laissez-faire economic system with as little government intervention as possible.

But this logically constructed world of Rothbard’s does not exist, and that’s the rub.

There was no major economic system during Rothbard’s time that adhered to the principles he was advocating. There still is not today. There is no proving ground for his theories other than the written word and the adept use of logical arguments. As long as Rothbard can condemn Alfred Marshall’s use of mathematical equations as nonsensical and devoid of meaning due to Marshall’s assumptions being overly simplified and based on the concept of a “long run” economy that never actually exists in the real market, critics will be able to point to Rothbard’s theories and axioms that are based on a world that is not actually in existence, and claim he is a “quack.” My sympathies are growing for the accuser, although I am not in his camp. He seems to be saying that there is something missing from Rothbard’s analysis, and I am beginning to agree. I understand that Murray Rothbard’s free market world is loaded with idealisms that he doesn’t explicitly state; he doesn’t take his discussion of requirements for the ideal market into the political realm. Yet I also understand that by making a treatise of this magnitude, with its very foundation based on political and free market ideals, he is tacitly proposing them. Hear, hear! I applaud the effort and the proposition.

However, until and unless a society will adopt the principles he proposes and becomes more like Rothbard’s ideal free market system, there will be something patently missing from his treatise. I don’t believe he needs to go so far as to develop his own eschatology or raison d’être for mankind. I agree with Rothbard that that work should be left for religion and philosophy. But a greater emphasis needs to be put on how to implement his ideas in the real world: how and what needs to be done to correct our current economic crises? If interest rates are really supposed to be dependent upon how much people save and invest – as Rothbard explains logically – what are specific steps he would take to remediate our reliance on a central bank that artificially adjusts the market interest rates to low levels even when saving is non-existent? How would he purport to demonstrate to Americans that an elevated demand to consume leads to lower wages because it causes capitalists to discount to a greater degree the marginal value of the products that the workers are producing? And since the marginal value of a product is directly linked to the payment of labor (wages), high demand to consume is detrimental to their pay?

Rothbard’s treatise is great. I especially love it for its clear and methodical explanation of how an economy would work on a desert island and inside an evenly rotating economy where all uncertainty is removed. Once we see how an economy would work in these imaginary examples, he adds uncertainty and constant change in order to demonstrate how a modern economy will work within a truly free market. But it needs to be followed up with practicalities that can make a difference in the world in which we live, not only in imaginary ones – because the truly free market Rothbard posits is just as imaginary as his desert island or his evenly rotating economy.