Friday, October 30, 2009

Capitalism is not a suicide pact

Spoiled by the very capitalist market system that gave them the abundance that allowed them the freedom to conger up their Utopian visions, the progressive left looks to destroy capitalism.

Excerpts from: We're Governed by Callous Children: Americans feel increasingly disheartened, and our leaders don't even notice, By Peggy Noonan in the Wall Street Journal

The biggest threat to America right now is not government spending, huge deficits, foreign ownership of our debt, world terrorism, two wars, potential epidemics or nuts with nukes. The biggest long-term threat is that people are becoming and have become disheartened, that this condition is reaching critical mass, and that it afflicts most broadly and deeply those members of the American leadership class who are not in Washington, most especially those in business. . .

This is historic. This is something new in modern political history, and I'm not sure we're fully noticing it. Americans are starting to think the problems we are facing cannot be solved.

Part of the reason is that the problems—debt, spending, war—seem too big. But a larger part is that our federal government, from the White House through Congress, and so many state and local governments, seems to be demonstrating every day that they cannot make things better. They are not offering a new path, they are only offering old paths—spend more, regulate more, tax more in an attempt to make us more healthy locally and nationally. And in the long term everyone—well, not those in government, but most everyone else—seems to know that won't work. It's not a way out. It's not a path through. . .

While Americans feel increasingly disheartened, their leaders evince a mindless . . . one almost calls it optimism, but it is not that.

It is a curious thing that those who feel most mistily affectionate toward America, and most protective toward it, are the most aware of its vulnerabilities, the most aware that it can be harmed. They don't see it as all-powerful, impregnable, unharmable. The loving have a sense of its limits.

When I see those in government, both locally and in Washington, spend and tax and come up each day with new ways to spend and tax—health care, cap and trade, etc.—I think: Why aren't they worried about the impact of what they're doing? Why do they think America is so strong it can take endless abuse?

I think I know part of the answer. It is that they've never seen things go dark. They came of age during the great abundance, circa 1980-2008 (or 1950-2008, take your pick), and they don't have the habit of worry. They talk about their "concerns"—they're big on that word. But they're not really concerned. . .

They don't feel anxious, because they never had anything to be anxious about. They grew up in an America surrounded by phrases—"strongest nation in the world," "indispensable nation," "unipolar power," "highest standard of living"—and are not bright enough, or serious enough, to imagine that they can damage that, hurt it, even fatally.

We are governed at all levels by America's luckiest children, sons and daughters of the abundance, and they call themselves optimists but they're not optimists—they're unimaginative. They don't have faith, they've just never been foreclosed on. They are stupid and they are callous, and they don't mind it when people become disheartened. They don't even notice.

Thursday, October 29, 2009

The fight for economic liberty must continue

In the minds of the self anointed intelligentsia, 233 years of economic theory, practice and fact must be destroyed because it does not align with their agenda. The progressive left -who believe man is benevolent, utopia is possible, and a collective economy will create prosperity- will say anything and spend any amount necessary to create "proof" that their misguided worldview is valid. This is the agenda of tyrants. History has shown us all to many times the sickening results of such thinking and behavior.

Excerpts from: Converting the Preachers: George Soros launches a $50 million effort to purge economics of its free-market zeal. By Michael Hirsh, Newsweek

This week [George] Soros is gathering some of the leading practitioners of the market-skeptic school, who were marginalized during the era of "free-market fundamentalism," among them Nobelists Joseph Stiglitz, George Akerlof, Michael Spence, and Sir James Mirrlees.

He's also creating an "Institute for New Economic Thinking" to make research grants, convene symposiums, and establish a journal, all in an effort to take back the economics profession from the champions of free-market zealotry who have dominated it for decades, and to correct the failures of decades of market deregulation. . .

"Economics has failed not only to predict and explain what happened but has also failed to protect society," says Robert Johnson, a former managing director at Soros Fund Management, who will direct the new institute. "That's what the crisis revealed. The paradigm has failed. There is no guidance."

It might be tempting to dismiss all this as a war of words among brainiacs. It's not. The critical issues being discussed in Washington about the future regulation and control of the financial industry—the very nature of Wall Street and the health of the economy—depend on this battle of idea

And almost by default, the profession and many of its leading journals remain controlled by free-market thinking out of the University of Chicago, Stanford, MIT, and other institutions, Soros, Johnson, and others argue. Free-market thinking also dominates the debate on everything from the "too big to fail" problem to health care.

Wednesday, October 28, 2009

Economic literacy and income redistribution

Money, kids and schools, by Tom McMahon

Money, Kids, and Schools

Why Capitalism Always Wins

Because the PC villain will become the hero.

Excerpts from: Why we don't hate Wal-Mart anymore
, by Hank Gilman, deputy managing editor, Fortune

Let's go to the numbers. If you did a database search . . . there were some 47 stories in 2006 with the words "evil" within ten words of a "Wal-Mart" mention. So far in 2009: only two. Of all stories with at least two mentions of Wal-Mart, there were more than 14,000 in 2006 and just under 5,000 this year.

Saving Capitalism from the Capitalists

Detailed article outlining the reasoning behind the need for the emergence of a pro-market party, not pr0-business party. This can be done either by re-branding the GOP or better yet, in my opinion, building a new conservative party based on classical liberal ideas of the enlightenment, supply side/Austrian school economic theory, and the founding documents strictly interpreted and underscored by historical events.

Behavioral economics and the left

Excerpts from: Democrats' Policies Based on Dogma, Hopes, Dreams, not Reality by Dennis Prager
Given the huge economic failures that the left itself attributes to Medicare and Medicaid and given the economic collapse or near collapse of these systems in other countries, the left's prescriptions can only be explained in one way: The left has made its views a form of religion.

Most individuals on the left are not religious, but virtually all people, secular and religious, liberal and conservative, yearn to believe in dogma, i.e., absolute beliefs that transcend reason. For people on the left in Europe, the United States and elsewhere, belief in the state -- the notion that the state can do a better job at helping people and making a good society -- is one such dogma. This applies especially to educating the young and to health care.

Examples of left-wing dogmas that transcend reason are as numerous as any religion's catechism. One example is the belief that men and women, boys and girls, are basically the same, that the vast majority of characteristics we ascribe to male and female natures are in fact socially induced. . .

Another is the belief that manmade carbon dioxide emissions are heating the world to the point of imminent worldwide catastrophe, including island nations disappearing underwater, mass starvation, inundation of the world's major coastal areas and much more. . .

One cannot understand the left if one does not appreciate the world of dogmas in which most left-wing thinkers live. What the monastery is to monks, the university and the mainstream media are to the left.

That is the only way to explain the left's belief that government-run health care, having the government take over so much more of society, raising taxes yet again, expanding government even more and increasing the number of people employed by the government will all be good for America.

Dogma explains why it is useless to point out to the left how the left has economically crippled California, once the most prosperous, most adventurous, most successful "country" in the world . . . Likewise, it does not matter to blacks what Democrats have done to their cities. As they watch their cities crumble, they will once again vote overwhelmingly for the party that oversaw this destruction.

None of these facts matters because religious-like dogmas are not derived from facts.

In addition to dogma, the left relies for its policies on "hope," which it often substitutes for analysis. People on the left rarely vote based on reality. They vote based on "hope." That's why the word "hope" is so much more significant to the left than to the right. . . The right doesn't have "hope" candidates because conservatives don't live on hope. They live in reality, meaning that people are not born basically good; that investing men and women with great state power leads inevitably to abuse of that power; that people stop innovating if they are taxed too highly; and that a perfect health care system is understood to be impossible.

And, finally, the left dreams. Robert F. Kennedy often cited the statement first made by George Bernard Shaw: "Some men see things as they are and say 'why?' I dream things that never were and say 'why not?'" The left dreams of an America in which health care will constantly improve, health insurance will be given to every American at the same price irrespective of his or her health, doctors will be fairly reimbursed, there will be no waiting lines, and there will not be a dime's increase in the national debt for all of this.

Frankly, I don't yearn for what is unseen. Rather, having a realistic understanding of the limitations of human beings, I am in awe of what I already see -- the unique American achievement of affluence, liberty, decency, opportunity and medical innovations.

And I see this all being squandered for the sake of left-wing dogma, left-wing hopes and left-wing dreams.

Tuesday, October 27, 2009

The New York Times is dangerous to liberty

Be prepared to be totally dumbfounded. The Keynesian's are alive and well. So much for economic literacy.

Excerpts from October 27, 2009 Editorial The Case for More Stimulus in the New York Times. Bold by me.

The consensus among economists is that the recession is over, and, technically, the herd is probably right. Corporate profitability has been boosted by job cuts, pay cuts and a drive to restock depleted inventories. Immense federal stimulus has jolted the economy.

But what happens when those measures run their course? The economy is going to need more government support, or it is bound to be very weak for a very long time — and vulnerable to a relapse into recession. . .

And Washington is mired in a warped political debate. Congressional Republicans say continued economic weakness is proof that February’s stimulus package failed. Lawmakers in both parties fret that large budget deficits preclude more stimulus, lest the burden of debt outweigh the benefit of deficit spending.

Both arguments are wrong. If anything, ongoing economic problems are a sign that stimulus needs to be bolstered. Deficits are a serious issue, but the immediate need for stimulus trumps the longer-term need for deficit reduction. A self-reinforcing stretch of economic weakness would be far costlier than additional stimulus. . .

Congress and the administration should agree on ways to ease the dire financial condition of the states. Most important is continued aid for state Medicaid programs, which would ensure vital services, support jobs and free up money for other needs. . .

To be highly effective as stimulus, cash aid must be targeted to needy populations. The housing market would be better served by a reinvigorated attempt to reduce foreclosures, including, at long last, reducing principal balances for the millions of people who owe more on their homes than they are worth.

Without another round of effective stimulus, the worst recession in modern memory will likely become — at best — the weakest recovery in modern memory. Another boost to federal spending that is targeted and timely should not be too much for politicians to deliver.

Facebook as a sales force

Dan Fost in a LA Times story

Facebook is not just for friends anymore. The free social networking site -- blocked in many workplaces as a potential time-waster -- is increasingly becoming an inexpensive marketing tool for small businesses. . .

Facebook doesn't break out figures for small businesses but says it has 1.4 million business "pages," with an average of 100 fans per page. Facebook Chief Operating Officer Sheryl Sandberg said in a speech in New York last month that every day, 10 million people become fans of pages.

Businesses need to go where their customers are, and increasingly these days, that's on Facebook and other social media sites, analysts say. More than 300 million people have signed up for Facebook, and half of them visit the site every day.,0,7371262.story

Excellent observations. Do I laugh,cry or get angry?

Excerpts from: Tarped and Stimulated by Joseph Y. Calhoun, III

The Commerce Department will release the preliminary estimate of third quarter GDP on Thursday and the consensus expectation is for a positive growth rate of 3%. Considering what has been spent on behalf of economic recovery I would sure hope that we get something north of 3%. TARP took roughly 5% of GDP from the private economy and passed it on to the financial and auto industries. The stimulus bill took another 5% of GDP from the private economy and passed it out to a variety of constituencies apparently chosen from a Democratic Party campaign contribution list. If the Keynesians are right, the spending of this 10% of GDP should be working some wonders right about now through the magic of multipliers. . .

Steve Rattner, the Obama administration official in charge of the auto bailout, said last week that they were shocked - shocked! - at the poor management they found at GM and Chrysler. Really? Did it take a car czar to figure out that GM and Chrysler were poorly managed? I would think losing billions of dollars would have been a clue but then I’m not a hot shot hedge fund manager like Rattner. . .

I’m sure there are some good things in all this spending but the basic bet of government spending as a recession cure is that 535 politicians, heavily influenced by lobbyists, can make better spending decisions than the other 220 million adults in the US. I just find that hard to believe.

For evidence I offer the following observation. I live near Black Point marina in Miami and I often head out there to watch the drunks launch and retrieve their boats at the ramp. . . Anyway, a few months back, I started to notice a lot of new golf carts using the bike path out to the marina. Until a few months ago I’d never seen one so I got curious. In talking with one of the drivers of a totally tricked out model, I learned that the purchase of this vehicle was so heavily subsidized that the total cost to the driver was less than $500.

It turns out that the American Recovery and Reinvestment Act, otherwise known as the “stimulus” bill, included a tax credit for the purchase of electric vehicles and someone convinced the government that golf carts should qualify. And so, I have apparently been purchasing golf carts for my neighbors which they drive on the bike paths, also built with my tax dollars by the way, endangering those of us who are trying to use them for their intended purpose. I’m sure the golf cart manufacturers are ecstatic about this, but is this really how the US economy will lead the 21st century global economy? Through the domination of the golf cart industry? Really? The shape of the fellow behind the wheel of the golf cart I purchased involuntarily would seem to indicate that the purchase of a bicycle would have been more beneficial for him and our future health care costs. Stimulated is probably not the best way to describe my mood upon learning of the great golf cart tax credit.

Quote of note

From Mattheus Von Guttenberg

"Blaming economic disasters on greed is like blaming gravity for airplane disasters."- Steve Forbes

health insurance industry earning only 3.3% profit

Check out this link and look to the column on the right that details net profit rates.

Monday, October 26, 2009

A Four-Step Healthcare Solution

Excerpts from artice of same name in Mises Daily by Hans-Hermann Hoppe

It's true that the US health-care system is a mess, but this demonstrates not market but government failure. To cure the problem requires not different or more government regulations and bureaucracies, as self-serving politicians want us to believe, but the elimination of all existing government controls. . . Tax credits, vouchers, and privatization will go a long way toward decentralizing the system and removing unnecessary burdens from business. But four additional steps must also be taken:

1. Eliminate all licensing requirements for medical schools, hospitals, pharmacies, and medical doctors and other health-care personnel.

2. Eliminate all government restrictions on the production and sale of pharmaceutical products and medical devices. This means no more Food and Drug Administration, which presently hinders innovation and increases costs. .

3. Deregulate the health-insurance industry. Private enterprise can offer insurance against events over whose outcome the insured possesses no control. One cannot insure oneself against suicide or bankruptcy, for example, because it is in one's own hands to bring these events about.

Because a person's health, or lack of it, lies increasingly within his own control, many, if not most health risks, are actually uninsurable. "Insurance" against risks whose likelihood an individual can systematically influence falls within that person's own responsibility.

All insurance, moreover, involves the pooling of individual risks. It implies that insurers pay more to some and less to others. But no one knows in advance, and with certainty, who the "winners" and "losers" will be. . .

Because of legal restrictions on the health insurers' right of refusal — to exclude any individual risk as uninsurable — the present health-insurance system is only partly concerned with insurance. The industry cannot discriminate freely among different groups' risks. . .

To deregulate the industry means to restore it to unrestricted freedom of contract: to allow a health insurer to offer any contract whatsoever, to include or exclude any risk, and to discriminate among any groups of individuals. Uninsurable risks would lose coverage, the variety of insurance policies for the remaining coverage would increase, and price differentials would reflect genuine insurance risks. On average, prices would drastically fall. And the reform would restore individual responsibility in health care.

4. Eliminate all subsidies to the sick or unhealthy. Subsidies create more of whatever is being subsidized. Subsidies for the ill and diseased promote carelessness, indigence, and dependency.

At the beginning of the 20th century, about 90% of all American hospitals were private, for-profit enterprises, today it is 10%

Excerpts from: American Healthcare Fascialism from Mises Daily by Thomas J. DiLorenzo

. . . The problems of the American healthcare system are caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature, while others are socialist.

In 1992, the Hoover Institution published an essay by Milton Friedman titled "Input and Output in Medical Care," in which Friedman documented how, at the beginning of the 20th century, about 90% of all American hospitals were private, for-profit enterprises. State and local governments then began taking over the hospital industry. So, by the early 1990s only about 10% of all American hospitals were private, for-profit enterprises. Socialism characterizes at least 90% of all hospitals. Many other hospitals have received government subsidies, and with the subsidies come reams of regulation, making them fascist by definition.

"The problems caused entirely by the fact that the government subjects the system to massive interventions, some of which are fascist in nature while others are socialist."

The effect of this vast government takeover of the hospital industry, Friedman documented, is what any student of the economics of bureaucracy should expect: the more that is spent on hospital care, the worse the quality and quantity of care become, thanks to the effects of governmental bureaucratization. According to Friedman, as governments took over an ever-larger share of the hospital industry (being exempt from antitrust laws), hospital personnel per occupied hospital bed quintupled, as cost per bed rose tenfold. . .

"The U.S. medical system, in large part, has become a socialist enterprise," Friedman ended. Friedman also once suggested a syllogism to explain the bizarre spectacle on display today of responding to problems caused by healthcare socialism with even more healthcare socialism.

The syllogism goes as follows:

1. Socialism has been a failure everywhere it has been tried;
2. Everyone knows this; and
3. Therefore, we need more socialism.

Layers of regulation plague every aspect of medical care and health insurance in America. In the health-insurance industry, for instance, each state imposes dozens of regulatory mandates on health insurers, requiring them to include coverage of everything from massage therapy to hair implants. . .

Each mandate increases the cost of health insurance and probably increases the typical health-insurance policy by hundreds, or thousands, of dollars yearly. . .

Government policy in the health-insurance industry applies both the brakes and the gas at the same time. While imposing onerous and cost-increasing regulations, government also limits legal liability in some cases where an insurer refuses to pay for a particular procedure or treatment that costs a patient his life. The state also creates state-wide cartels with laws prohibiting the portability of some aspects of health insurance. . .

Getting back to pure socialism, Medicare, Medicaid, and the Veterans Administration hospitals socialize a very large portion of healthcare in America, with the same predictable results as the socialization of hospitals: runaway costs for decade after decade, coupled with massive fraud, as is often the case when politicians are enabled to spend other people's money. Even the federal government admits that there is currently about $60 billion in Medicare fraud. Since government always understates the cost of everything it does, it is likely that the real number is at least two or three times that amount.

Having taken over most of the hospital industry, government-run or government-subsidized hospitals have created regional monopoly power for themselves with so-called "certificate-of-need" (CON) regulation. How this regulatory scam works is that an existing hospital in an area will give itself the legal "right" to decide whether there is a legitimate "need" for more hospitals. They have given themselves, in other words, the right to veto new competition in the hospital industry. . .

Not surprisingly, research has shown that CON regulation has increased hospital costs. CON regulation is also used to block competition in various healthcare professions as well, from nursing to home healthcare. . .

Physicians have long enjoyed a degree of monopoly power derived from state legislatures that delegate to the American Medical Association (the doctors' union) the "right" to limit entry into medical schools through accreditation. Only graduates of accredited (by the AMA) medical schools are licensed to practice medicine. The AMA has used these state-granted privileges to limit both the number of medical schools and the number of medical-school graduates. The reduced supply of doctors drives up the price of medical care and the income of AMA members. .

Government regulation of pharmaceuticals and medical devices, primarily by the Food and Drug Administration (FDA), increases healthcare costs, denies the benefits of myriad helpful drugs and devices, and creates monopoly power. It has literally been responsible for the premature death of thousands of Americans who have been deprived of drugs that were long available to people in other countries. . .

The government's legal system is also responsible for what used to be called "the liability crisis." The genesis of this crisis began in the 1960s. The government courts began accepting the Chicago School Law and Economics argument that assigning all liability in product-liability cases to manufacturers would be a good way to minimize the "social costs" of accidents. Manufacturers know more about products such as medical devices than anyone else, the argument went, so contract law and shared responsibility for accidents with the users of the products were thrown out the window.

So, when accidents occur, slick trial lawyers have had an easy time convincing dumbed-down juries to award millions, or hundreds of millions, of dollars in liability lawsuits. These lawsuits have bankrupted the manufacturers of many medical devices, while convincing others that the devices are too risky to make. The effect on the healthcare consumer is poorer healthcare and higher prices. . .

The only sensible approach to healthcare "reform" would be massive privatization of America's socialized hospitals, combined with deregulation of the medical professions to introduce more competition, and deregulation of the health-insurance industry. Free-market competition would produce medical "miracles" the likes of which have never been seen, while dramatically lowering the cost of healthcare, just as it has done in every other industry where it is allowed to exist to any large degree.

Economics and moral courage

How did the crisis happen and what can we do to prevent another?

Excerpts from: Economics and Moral Courage from Mises Daily by Llewellyn H. Rockwell Jr. parenthesis mine.

Among the mainstream, . . . no one saw it coming. That is because they have never learned the lesson that Bastiat sought to teach, namely that we need to look beneath the surface, to the unseen dimensions of human action, in order to see the full economic reality. It is not enough just to stand back and look at points on a chart going up and down, smiling when things go up and frowning when things go down. That is the nihilism of an economic statistician who employs no theory, no notion of cause and effect, no understanding of the dynamics of human history.

So long as things were going up, everyone thought the economic system was healthy. It was the same in the late '20s. In fact, it has been the same throughout human history. It is no different today. The stock market is going up, so surely that is a sign of economic health. But people ought to reflect on the fact that the highest performing stock market in the world in 2007 belonged to Zimbabwe, which is now home to a spectacular economic collapse.

Because of this tendency to look at the surface rather than the underlying reality, the business-cycle theory has been a source of much confusion throughout economic history. To understand the theory requires looking beyond the data and into the core of the structure of production and its overall health. It requires abstract thinking about the relationship between capital and interest rates, money and investment, real and fake saving, and the economic impact of the central bank and the illusions it weaves. You can't get that information by watching numbers blow by at the bottom of your TV screen. . .

The Austrians in the late 1920s and early 1930s found themselves having to explain this again and again, but it was the onset of the age of positivism — the method that posits that only what you see on the surface really matters — so they had a very difficult time making points that were more sophisticated. They were like scientists trying to address a convention of witch doctors. . .

(As Mises, Fertig, Hazlitt, and Hayek represented by the choices they made in life) This puts the Austrians in an interesting position within the intellectual culture of any time and place. They must go against the grain. They must say the things that others do not want to hear. They must be willing to be unpopular, socially and politically. . .

Later in life, when speaking before a group of economics students, Hayek bared his soul about this problem of the moral choices economists must make. He said that it is very dangerous for an economist to seek fame and fortune and to work closely with political establishments, simply because, in his experience, the most important trait of a good economist is the courage to say the unpopular thing. If you value your position and privileges more than truth, you will say what people want to hear rather than what needs to be said. . .

Mises (as well) was as undaunted then as he had been throughout his life, and as he remained until his death. He had made a moral choice not to give in to the prevailing winds. . .

In different ways, in different sectors, and in different countries, it seemed like Mises and Hazlitt were living parallel lives. At each crossroad in life, they had both chosen the path of principle. They chose freedom even when it was at the expense of their own bank accounts and even though their choice brought professional decline and risked failure in the eyes of their colleagues. . .

It is interesting to read Hayek's acceptance speech, . . . It is a tribute to a profession to which he wanted closer ties. But it was not a loving presentation of the glories of academia. In fact, it was the opposite. He said that the most dangerous person on earth is an arrogant intellectual who lacks the humility necessary to see that society needs no masters and cannot be planned from the top down. An intellectual lacking humility can become a tyrant — and an accomplice in the destruction of civilization itself. . .

And what did these men earn for all their commitments? They earned for their ideas a certain kind of immortality. . .

We are living now through another period of economic planning and we are seeing economists split on both sides. The overwhelming majority is saying what the regime wants them to say. To depart too much from the prevailing ideology of power is more of a risk than most want to take. A small minority, the same group that warned of the bubble, is again warning that the stimulus is a fake. And they are going against the grain in saying so.

I'm with Hayek on this point. To be an economist with integrity means having to say things that people don't want to hear and especially to say things that the regime does not want to hear. It takes more than technical knowledge to be a good economist. It takes moral courage, and that is in even shorter supply than economic logic.

Just as Mises needed Fertig and Hazlitt, economists with moral courage need supporters and institutions to back them up and give them voice. We must all bear this burden. As Mises said, the only way to fight bad ideas is with good ones. And in the end, no one is safe if civilization is sweeping to destruction.

Thursday, October 22, 2009

What's Hot

Rick Newman tells us 10 Products That Boomed During the Recession. From U.S. World News and World Report

1. Arm & Hammer laundry detergent
2. Coleman camping gear
3. Hyundai automobiles
4. Keurig single-cup coffee
5. Monster Energy drinks
6. Presto cookers
7. Private-label salad dressing
8. Transformers
9. Tupperware
10. Universal remotes

Poverty in America

From Real Clear Markets.

If you want to not live in poverty (which in America is a relative concept) get married and stay married.

Chart Data

Below poverty level, 2008 Below poverty level, 2007
Male household, no wife13.8 %13.6 %
Female household, no husband28.7 %28.3 %
Married-couple5.5 %4.9 %
All families10.3 %9.8 %

The U.S. Census Bureau recently released a new report, Income Poverty and Health Insurance Coverage in the U.S., 2008. Above are the percentage of families living below the poverty level, by type of household.

Government vaccine decisions kill people

The deadly irony is the very government, who claim they are acting to save lives, ends up killing people.

Excerpts from: Can Government Fight Epidemics? by Eric M. Staib from Mises Daily

Now that the vast undersupply of H1N1 vaccines has finally impacted the market, the latest debacle of government-supplied health production has been exposed. Millions of shots were produced but not distributed on time, and in some areas the majority of promised shots have not been delivered. The vast magnitude of this undersupply reveals not simple dysfunction in the Department of Health and Human Services (DHHS) but rather the necessary failure of central planning.

The problem began simply enough: the DHHS granted itself a monopoly on the production, pricing, and distribution of H1N1 flu vaccines. The price was decreed to be an affordable $25, ostensibly ensuring universal access to the vaccine. However, because American politicians must maintain a fa├žade of support for a free-market system, the DHHS awarded the flu vaccine contract to a private firm, Novartis.

The health bureaucracy's monumental failure to provide H1N1 shots should be no surprise to students of Austrian production theory. The production and distribution of a flu vaccination requires the harmonious cooperation of many different types of entrepreneurs, scientists, laborers, and logistics managers across space and time. This structure of production must be guided by economic calculation, which, as Mises taught, is impossible under socialism.

It might seem that because the actual producer of the vaccines, Novartis, is a private firm, the socialist calculation problem would not impede vaccine production. However, deeper research reveals that the quantity, price, and timing of the flu vaccines were stipulated in advance by the DHHS.

This point is crucial; a central health bureaucracy is staffed chiefly by expert navigators of red tape, not by the best and most-experienced medical surveyors and epidemic experts. This is largely because such experts, unlike bureaucrats, contribute real value to a firm, so they are hired away by private health providers. Thus, the DHHS faces what Hayek termed a "knowledge problem" and will therefore be completely unable to calculate market-clearing quantities and prices.

In setting a price of $25 and a production capacity of 150 million units, the DHHS forced a severe shortage of vaccines. Such massive shortages do not occur in truly free markets, in which prices fluctuate to coordinate production with demand. . .

The legal monopoly and the revenue ceiling also functioned as impediments to excellence in the provision of healthcare. Because Novartis only faces a possible total reward of $486 million, and because they face literally no competition, they have no incentive to exceed their obligations to the government. . .

To destroy a market, a bureaucracy need not actually physically produce and disseminate the good in production. Any influence which uninformed, ill-equipped bureaucrats and politicians exercise over a market is sure to have disastrous effects.

This is an important principle to keep in mind when considering Obama's healthcare legislation. The prospect of central planners setting or even influencing claims levels, care-accessibility thresholds, and the distribution of medical technology ought to be enough to terrify any economically literate person. . .

Central planning of medical markets ought to be categorically rejected before government fails to fight a more serious and deadly epidemic.

Wednesday, October 21, 2009

Throwing money down a rat hole

$150billion spent so far of the 787 billion stimulus package.

30,000 jobs created- according to the White House web site.

That is $5 million dollars spent for each job created!

Government efficiency to its fullest.

Freedom of "correct" speech. When harassment and intimidation undermines the 1st Amendment, privacy, and property rights

Excerpts from: Come Let Us Harass Them by John Fund in the Wall Street Journal

Americans claim to favor open and honest debate in the democratic process, but when it comes to gay marriage it appears some proponents would rather intimidate their critics. In Washington State, gay rights groups have demanded public release of the names of 138,000 people who signed a petition to put forward a November ballot measure to protect traditional marriage. The gay groups want to put the names online, which could lead to signers being harassed along the lines of what happened to donors to Proposition 8 in California last year.

Yesterday, Supreme Court Justice Anthony Kennedy, who authored the landmark decision overturning state anti-gay laws, nonetheless blocked a federal appeals court ruling that would have allowed release of the names.

The prospect of harassment is real. Last year, activists hounded those who had financially supported California's Proposition 8. Scott Eckern, artistic director of the California Musical Theater in Sacramento, the state's largest nonprofit performing arts company, was forced to resign over his $1,000 donation to the "Yes on 8" campaign. Los Angeles Film Festival Director Richard Raddon was similarly forced to step down. Marjorie Christoffersen, manager of the famous Los Angeles restaurant El Coyote, resigned after her restaurant was subjected to a month of boycotts and demonstrations because she had contributed a mere $100 to the campaign against gay marriage. . .

Justice Kennedy was no doubt aware of what happened in California when he blocked a Ninth Circuit Court of Appeals ruling that would have allowed the release of names and addresses of people who signed a petition for Referendum 71, a ballot initiative that would ask voters to reject the state's same-sex domestic partner law.

The Ninth Circuit action had overturned a previous ruling by U.S. District Court Judge Benjamin Settle who said releasing the names could infringe on the First Amendment rights of those who signed petitions. . .

Bruce Chapman, a former Washington Secretary of State and a former Director of the U. S. Census Bureau, says the publication of the names could "chill democracy" in the state when it comes to other issues. "We don't make the votes of people public, we don't make how jurors vote public and we keep Census data private for 70 years," he says.

The rule of law, justice, and revenge

The war issues facing America deal with some hard economic realities in both the short and long term.

The Afghanistan question is often framed as "do we stay or do we go." This is linear and inefficient thinking. Since the last person to conquer Afghanistan was Alexander the Great, maybe we need to look at the current options being weighed as well as some other possible alternatives:

1. Bring the troops home
2. Stay and fight a conventional war and try to nation build
3. Finish the job by obliterating the tribal regions into dust and then bring the troops home
4. Bring the troops home, and then use them to close all of our boarders, seek out all illegal aliens and send them home, convict those in Guantanino and throw away the key, spend the war dollars on homeland security- including airline, container and port security, and tell the world we will no longer protect them
5. Combination of #3 and #4

Maybe we just need to "even the score."

With this in mind, the following are excerpts from-Evening the Score in Afghanistan: Revenge is a just motive for finishing a war they started, By Thane Rosenbaum in The Wall Street Journal

Perhaps this is a good time to recall why we bombed and invaded Afghanistan in the first place. With all the rhetoric about what should happen next, the most obvious reason we can't leave before we finish what we started has been ignored: revenge.

Yes, revenge. It is a concept that makes many uncomfortable, and so it is often condemned. Yet it is instinctively necessary and fundamentally ingrained in the moral development of human beings. Neuroscientists and evolutionary psychologists have determined that revenge is hard wired in the brain. We all root for the revenge-seeker in novels and movies not because we are depraved, but because the avenger is right. . .

This is the language and imperative of revenge, which should not be distinguished from justice itself. When properly identified and undertaken, revenge and justice are the same: There is no justice unless wrongdoers are punished and victims are avenged. Revenge puts the just deserts in justice. It is both legally and morally just for debts to be redeemed and lost honor reclaimed. Justice that does not result in the moral and emotional closure that accompanies revenge is no justice at all.

This is the ancient law of lex talionis—an eye for an eye— which is so often misunderstood as primitive bloodthirstiness. In fact, it is about reclaiming what is deservedly owed, measure for measure. No more can be taken in retaliation for loss, but equally important, no less. The redemption of the debt is inviolable, whether carried out by nations, tribal societies, or legal systems.

Clearly, the mass murder of nearly 3,000 lives on 9/11 is a substantial debt. After eight years in Afghanistan, with the ranks of al Qaeda depleted but metastasizing elsewhere, the Taliban resurgent, and bin Laden still at large, does anyone believe this debt has been repaid?

There are actually two ground zeros: one in lower Manhattan, and the other symbolically located in Afghanistan, where the demonic aspirations of al Qaeda were bred and where bin Laden may still be. Whether in Afghanistan, Pakistan or some other dark and murderous corner of the world, America simply cannot abandon the obligation of evening this score. Justice demands no less.

Tuesday, October 20, 2009

The gold price: inflation or deflation?

Excerpts from: Inflation Vs. Deflation by John Tamny in Real Clear Markets

When money is fluctuating in value, the money prices of all investments become distorted and mistakes are made. During periods of inflation, capital moves into the assets of the earth such as housing and gold that are least vulnerable to currency debasement. . . Conversely when money increases in value, earth assets are ignored to the near-term benefit of intellectual producers, . .

inflation and deflation are often misunderstood precisely because both ultimately lead to withering investment environments and tough markets when it comes to finding work. During periods of inflation, capital moves away from job-creating concepts for inflation-eroding nominal returns, while during periods of deflation businesses avoid borrowing to fund future growth, knowing full well that the money they'll pay back over time will be more than what they borrowed.

To simplify both, inflation occurs when the value of money declines--the decline most notable in the rise of the price of gold. Conversely, deflation results from an unchecked rise in the value of money, which shows up in the decline of the price of gold in terms of the currency in question.

What makes this all so interesting right now is that despite the dollar's substantial collapse vs. gold this decade (roughly 300%), seasoned market observers believe that we're currently in a period of deflation. The only conclusion to this is that they're mistaking for deflation negative symptoms that occur during periods of deflation and inflation.

Those who argue that we're deflating point to slow economic growth, high unemployment, falling prices in certain sectors and a difficult capital environment. This jibes well with the modern view that slow economic growth is inflation's cure.

But the problem with this thinking is that inflation has always coincided with slow economic growth. When money declines in value, capital essentially goes on strike. With investors not willing to commit capital to ideas when their value will only be destroyed by inflation, money dries up.

In today's case, those who see deflation in our midst point to a difficult capital environment for businesses. No doubt there is one, but this isn't due to money being too expensive as much as it's the result of capital flowing to non-productive, hard assets that tend to perform best when money is losing value.

Regarding the high level of unemployment, there are quite simply no jobs without capital, so contrary to the widely held belief that low unemployment is the driver of inflation, the reality is the opposite. Inflationary periods frequently coincide with high unemployment because the very investment necessary to create jobs disappears.

Most notably, deflation's advocates point to falling prices for certain goods, such as cars, clothes and hotel rooms, as evidence that the general price level is falling. The problem at first glance is that falling prices in isolation are not evidence of deflation.

More broadly, deflation's proponents miss the greater truth that supply and demand are but two sides of the same coin. No one can demand anything without supplying something first. So since Americans are working less given the difficult employment environment, there is also less supply. These things ultimately balance out such that the price level does not change.. .

Ultimately, deflation's proponents point to Japan in suggesting that we're in the midst of a similar deflationary episode. . .

From 1985 to 2000, the yen tripled in value vs. gold, and--as mentioned earlier--gold has tripled in value against the dollar this decade. The yen's rise demonstrates that Japan most certainly suffered a major bout with deflation, but the dollar's collapse only points to an inflationary episode.

The mistake in all this has to do with a misunderstanding of inflation and deflation. Slow growth, high unemployment, capital constraints and falling prices are frequently the symptoms of both despite inflation and deflation being two different ills.

In today's case, to devalue the dollar more to eradicate a nonexistent deflation would merely add gasoline to the fire, with greater unemployment and bankruptcy the result. What our economy needs now is a stronger dollar, but foremost it needs a stable dollar so that capital can more rationally reach its most productive use, free of the investment distortions and illusions wrought by unstable money values.

The internet: model of free market principles

Excerpts from: Witness the Freest Economy: the Internet from Mises Daily by Dan O'Connor

One of the few places in the world not yet plagued by government intervention is the internet. Although some governments in certain parts of the world have infiltrated the activities of the internet to varying degrees, it remains the closest thing to a purely free economy that we can identify in the modern world.

On the internet, the beautiful aspects of human nature manifest themselves, and we see individuals and companies maximizing their talents and resources for reasons of profit, pleasure, altruism, and mere progress in itself. Given that the government neither inhibits the activities of the internet nor props up or favors any particular actors or individuals, perhaps we are witnessing the closest thing to a free market that man has ever witnessed. . .

So here we are in a worldwide web that connects people from all parts of the world, allowing them to exchange whatever they want with one another. It is the essence of a free market: voluntary exchange. There is no use of force or coercion on the internet. No higher authority effectively controls or dictates the way that we spend our time online or the activities that we partake in. . .

Arguably, the human race has seen more progress and innovation through the use of the internet in the past 20 years than through the use of any innovation known in the history of mankind. As we reflect back over the last 20 years, we see thousands of amazing success stories. We see entrepreneurs from all different economic backgrounds and classes making full use of their skills, ideas, and passions. We read about success stories such as Facebook and Google, where very young people have been able to generate massive wealth while providing a cheap, convenient, and valuable new tool for everyone across the globe to enjoy. This is the beauty of a system free from government intervention. . .

Sure enough, various actors in DC are now lobbying to regulate the internet. In April 2009, AP began to publicize a widespread attack on Google — arguably the most successful company and widely enjoyed technology of the past 10 years. As more and more information-providing companies see their revenues dwindle as a result of better and more convenient information being provided by competitors on the internet, we can be certain that a greater number of companies will congregate in DC to propose greater regulation.

Let us hope our government is stern enough to defend the Constitution as it was written with the intent of dealing with this type of dilemma. The first amendment, freedom of the press, was most strongly emphasized by Thomas Jefferson. He stated, "Where the press is free and every man able to read, all is safe."

The internet is a model of the free market. It represents all of the aspects of capitalism that we cannot witness in our current offline world due to the high level of government intervention that pervades our society. Online, we see widespread competition, low barriers to entry, voluntary exchange, rapid technological advancements, decreased prices, and a flowering of creativity.

Monday, October 19, 2009

The rosetta stone of market capitalism

The following is the most clearly articulated and comprehensive historical explanation as to the reason government intervention into the free market triggers the boom and bust cycles that create economic chaos. Everyone must read this, and I urge you to forward it to every free thinking American. –Dean Kalahar

This is an edited version of:

Warren Harding and the Forgotten Depression of 1920, by Thomas E. Woods, Jr.

Footnotes can be found by linking to the full article.

[a]ccording to the endlessly repeated conventional wisdom, the Great Depression of the 1930s was the result of capitalism run riot, and only the wise interventions of progressive politicians restored prosperity. Many of those who concede that the New Deal programs alone did not succeed in lifting the country out of depression nevertheless go on to suggest that the massive government spending during World War II is what did it.

The connection between this version of history and the events of today is obvious enough: once again, it is claimed, wildcat capitalism has created a terrific mess, and once again, only a combination of fiscal and monetary stimulus can save us.

In order to make sure that this version of events sticks, little, if any, public mention is ever made of the depression of 1920–21. . .The conventional wisdom holds that in the absence of government countercyclical policy, whether fiscal or monetary (or both), we cannot expect economic recovery – at least, not without an intolerably long delay. Yet the very opposite policies were followed during the depression of 1920–21, and recovery was in fact not long in coming.

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. . . Instead of “fiscal stimulus,” Harding cut the government’s budget nearly in half between 1920 and 1922. The rest of Harding’s approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve’s activity, moreover, was hardly noticeable. . . By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.

It is instructive to compare the American response in this period to that of Japan. In 1920, the Japanese government introduced the fundamentals of a planned economy, with the aim of keeping prices artificially high. According to economist Benjamin Anderson, “The great banks, the concentrated industries, and the government got together, destroyed the freedom of the markets, arrested the decline in commodity prices, and held the Japanese price level high above the receding world level for seven years. During these years Japan endured chronic industrial stagnation and at the end, in 1927, she had a banking crisis of such severity that many great branch bank systems went down, as well as many industries. It was a stupid policy. In the effort to avert losses on inventory representing one year’s production, Japan lost seven years.”3

The U.S., by contrast, allowed its economy to readjust. “In 1920–21,” writes Anderson, “we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again. . . . The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.” The federal government did not do what Keynesian economists ever since have urged it to do: run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep spending and taxation low and reduce the public debt.4 . . .

(What about the notion that the policies made the “rich,” richer?)

[t]wo historians of the Harding presidency, who urge that without government confiscation of much of the income of the wealthiest Americans, the American economy will never be stable:

The tax cuts, along with the emphasis on repayment of the national debt and reduced federal expenditures, combined to favor the rich. Many economists came to agree that one of the chief causes of the Great Depression of 1929 was the unequal distribution of wealth, which appeared to accelerate during the 1920s, and which was a result of the return to normalcy. Five percent of the population had more than 33 percent of the nation’s wealth by 1929. This group failed to use its wealth responsibly. . . . Instead, they fueled unhealthy speculation on the stock market as well as uneven economic growth.8

If this absurd attempt at a theory were correct, the world would be in a constant state of depression. There was nothing at all unusual about the pattern of American wealth in the 1920s. Far greater disparities have existed in countless times and places without any resulting disruption. In fact, the Great Depression actually came in the midst of a dramatic upward trend in the share of national income devoted to wages and salaries in the United States – and a downward trend in the share going to interest, dividends, and entrepreneurial income.9 . . .

It is not enough, however, to demonstrate that prosperity happened to follow upon the absence of fiscal or monetary stimulus. We need to understand why this outcome is to be expected . . .

First, we need to consider why the market economy is afflicted by the boom-bust cycle in the first place. The British economist Lionel Robbins asked in his 1934 book The Great Depression why there should be a sudden “cluster of error” among entrepreneurs. Given that the market, via the profit-and-loss system, weeds out the least competent entrepreneurs, why should the relatively more skilled ones that the market has rewarded with profits and control over additional resources suddenly commit grave errors – and all in the same direction? Could something outside the market economy, rather than anything that inheres in it, account for this phenomenon?

Ludwig von Mises and F. A. Hayek both pointed to artificial credit expansion, normally at the hands of a government-established central bank, as the non-market culprit. (Hayek won the Nobel Prize in 1974 for his work on what is known as Austrian business cycle theory.) When the central bank expands the money supply – for instance, when it buys government securities – it creates the money to do so out of thin air. This money either goes directly to commercial banks or, if the securities were purchased from an investment bank, very quickly makes its way to the commercial banks when the investment banks deposit the Fed’s checks. In the same way that the price of any good tends to decline with an increase in supply, the influx of new money leads to lower interest rates, since the banks have experienced an increase in loanable funds.

The lower interest rates stimulate investment in long-term projects, which are more interest-rate sensitive than shorter-term ones. . . Additional investment in, say, research and development (R&D), which can take many years to bear fruit, will suddenly seem profitable, whereas it would not have been profitable without the lower financing costs brought about by the lower interest rates.

We describe R&D as belonging to a “higher-order” stage of production than a retail establishment selling hats, for example, since the hats are immediately available to consumers while the commercial results of R&D will not be available for a relatively long time. The closer a stage of production is to the finished consumer good to which it contributes, the lower a stage we describe it as occupying.

On the free market, interest rates coordinate production across time. They ensure that the production structure is configured in a way that conforms to consumer preferences. If consumers want more of existing goods right now, the lower-order stages of production expand. If, on the other hand, they are willing to postpone consumption in the present, interest rates encourage entrepreneurs to use this opportunity to devote factors of production to projects not geared toward satisfying immediate consumer wants, but which, once they come to fruition, will yield a greater supply of consumer goods in the future.

Had the lower interest rates in our example been the result of voluntary saving by the public instead of central-bank intervention, the relative decrease in consumption spending that is a correlate of such saving would have released resources for use in the higher-order stages of production. In other words, in the case of genuine saving, demand for consumer goods undergoes a relative decline; people are saving more and spending less than they used to. Consumer-goods industries, in turn, undergo a relative contraction in response to the decrease in demand for consumer goods. Factors of production that these industries once used – trucking services, for instance – are now released for use in more remote stages of the structure of production. Likewise for labor, steel, and other nonspecific inputs.

When the market’s freely established structure of interest rates is tampered with, this coordinating function is disrupted. Increased investment in higher order stages of production is undertaken at a time when demand for consumer goods has not slackened. The time structure of production is distorted such that it no longer corresponds to the time pattern of consumer demand. Consumers are demanding goods in the present at a time when investment in future production is being disproportionately undertaken.

Thus, when lower interest rates are the result of central bank policy rather than genuine saving, no letup in consumer demand has taken place. (If anything, the lower rates make people even more likely to spend than before.) In this case, resources have not been released for use in the higher-order stages. The economy instead finds itself in a tug-of-war over resources between the higher- and lower-order stages of production. With resources unexpectedly scarce, the resulting rise in costs threatens the profitability of the higher-order projects. The central bank can artificially expand credit still further in order to bolster the higher-order stages’ position in the tug of war, but it merely postpones the inevitable. If the public’s freely expressed pattern of saving and consumption will not support the diversion of resources to the higher-order stages, but, in fact, pulls those resources back to those firms dealing directly in finished consumer goods, then the central bank is in a war against reality. It will eventually have to decide whether, in order to validate all the higher-order expansion, it is prepared to expand credit at a galloping rate and risk destroying the currency altogether, or whether instead it must slow or abandon its expansion and let the economy adjust itself to real conditions.

It is important to notice that the problem is not a deficiency of consumption spending, as the popular view would have it. If anything, the trouble comes from too much consumption spending, and as a result too little channeling of funds to other kinds of spending – namely, the expansion of higher-order stages of production that cannot be profitably completed because the necessary resources are being pulled away precisely by the relatively (and unexpectedly) stronger demand for consumer goods. Stimulating consumption spending can only make things worse, by intensifying the strain on the already collapsing profitability of investment in higher-order stages.

Note also that the precipitating factor of the business cycle is not some phenomenon inherent in the free market. It is intervention into the market that brings about the cycle of unsustainable boom and inevitable bust.10 As business-cycle theorist Roger Garrison succinctly puts it, “Savings gets us genuine growth; credit expansion gets us boom and bust.”11

This phenomenon has preceded all of the major booms and busts in American history, including the 2007 bust and the contraction in 1920–21. The years preceding 1920 were characterized by a massive increase in the supply of money via the banking system, with reserve requirements having been halved by the Federal Reserve Act of 1913 and then with considerable credit expansion by the banks themselves. Total bank deposits more than doubled between January 1914, when the Fed opened its doors, and January 1920. Such artificial credit creation sets the boom-bust cycle in motion. The Fed also kept its discount rate (the rate at which it lends directly to banks) low throughout the First World War (1914–18) and for a brief period thereafter. The Fed began to tighten its stance in late 1919. . .

We are now in a position to evaluate such perennially fashionable proposals as “fiscal stimulus” and its various cousins. Think about the condition of the economy following an artificial boom. It is saddled with imbalances. Too many resources have been employed in higher order stages of production and too few in lower-order stages. These imbalances must be corrected by entrepreneurs who, enticed by higher rates of profit in the lower-order stages, bid resources away from stages that have expanded too much and allocate them toward lower-order stages where they are more in demand. The absolute freedom of prices and wages to fluctuate is essential to the accomplishment of this task, since wages and prices are indispensable ingredients of entrepreneurial appraisal.

In light of this description of the post-boom economy, we can see how unhelpful, even irrelevant, are efforts at fiscal stimulus. The government’s mere act of spending money on arbitrarily chosen projects does nothing to rectify the imbalances that led to the crisis. It is not a decline in “spending” per se that has caused the problem. It is the mismatch between the kind of production the capital structure has been misled into undertaking on the one hand, and the pattern of consumer demand, which cannot sustain the structure of production as it is, on the other.

And it is not unfair to refer to the recipients of fiscal stimulus as arbitrary projects. Since government lacks a profit-and-loss mechanism and can acquire additional resources through outright expropriation of the public, it has no way of knowing whether it is actually satisfying consumer demand . . . or whether its use of resources is grotesquely wasteful. Popular rhetoric notwithstanding, government cannot be run like a business.13

Monetary stimulus is no help either. To the contrary, it only intensifies the problem. In Human Action, Mises compared an economy under the influence of artificial credit expansion to a master builder commissioned to construct a house that (unbeknownst to him) he lacks sufficient bricks to complete. The sooner he discovers his error the better. The longer he persists in this unsustainable project, the more resources and labor time he will irretrievably squander. Monetary stimulus merely encourages entrepreneurs to continue along their unsustainable production trajectories; it is as if, instead of alerting the master builder to his error, we merely intoxicated him in order to delay his discovery of the truth. But such measures make the eventual bust no less inevitable – merely more painful.

If the Austrian view is correct . . . then the best approach to recovery would be close to the opposite of these Keynesian strategies. The government budget should be cut, not increased, thereby releasing resources that private actors can use to realign the capital structure. The money supply should not be increased. Bailouts merely freeze entrepreneurial error in place, instead of allowing the redistribution of resources into the hands of parties better able to provide for consumer demands in light of entrepreneurs’ new understanding of real conditions. Emergency lending to troubled firms perpetuates the misallocation of resources and extends favoritism to firms engaged in unsustainable activities at the expense of sound firms prepared to put those resources to more appropriate use. . .

The experience of 1920–21 reinforces the contention of genuine free-market economists that government intervention is a hindrance to economic recovery. It is not in spite of the absence of fiscal and monetary stimulus that the economy recovered from the 1920–21 depression. It is because those things were avoided that recovery came. The next time we are solemnly warned to recall the lessons of history lest our economy deteriorate still further, we ought to refer to this episode – and observe how hastily our interrogators try to change the subject.

Friday, October 16, 2009

Self evident economics

Excerpts of Obama’s Theorems By Victor Davis Hanson

If borrowing money is the right way to get us out of the recession, the public wants to know why we do not call it “borrowing,” rather than “stimulus.” If well over a trillion dollars in new debt was supposedly essential to restarting the economy, why not three, four, or five trillion more to make recovery a sure thing? And if Americans know from first-hand experience that charging purchases on their credit cards is optional, quick, easy, and fun, but that paying them off is necessary, slow, difficult, and unpleasant, why would they think their government’s charges would be any different? . .

The annual World Gas Association conference in Argentina just announced that new finds — many of them in North America — have pushed natural-gas reserves up to 1.2 trillion oil-equivalent barrels. Recent discoveries of huge fields in the Dakotas, the Gulf of Mexico, and the interior of California remind the public that there are still enormous domestic resources, which, if tapped, could tide us over until solar power, windmills, and biofuels become more economical. Developing all our energy resources, rather than using often-changing parameters to brand some sources environmentally incorrect (is nuclear power still taboo, sort of okay, or acceptable in terms of global warming?), seems far wiser to voters.

Health-care reform presents the same disconnect. The public is told the president’s radical overhaul of American medicine will save trillions of dollars. But the public wonders how that could be when more people are to be covered, with greater government intrusion.

They do not believe that the government — given vast unfunded liabilities from Medicare, Social Security, and the Postal Service — is particularly efficient. . .

If ridding Medicare of waste and fraud will help pay for nationalized health care, why have we waited this long to realize such economies? And if Medicare is admittedly rife with abuse, why would an even larger government-run program be singularly exempt from the same inherent dangers? . .

Americans want out of the recession and wish long-term problems of war, energy, and health care to be solved. They welcomed a young, charismatic president who seems eager to tackle these challenges head-on. The problem, however, is that they are not convinced that he understands the challenges, let alone that he offers the right solutions. In short, what Obama says seems pleasant to the ear, but an increasing number of Americans believe that his answers are not just unlikely, but perhaps not even possible.

Starving to death for Freedom

Excerpts from Starving for Freedom by Julian Morris in the Wall Street Journal

Today is World Food Day and, once again, millions of people in East Africa are starving. Some have sought to turn this tragedy into opportunity. Ethiopia's Prime Minister Meles Zenawi blames Western-induced climate change, and demands that rich countries cut greenhouse gas emissions and provide more aid. These views are echoed by the World Bank, Oxfam, Christian Aid and that bellwether of bad ideas, Gordon Brown. But such top-down solutions are doomed to failure. If Africans are to to weather their existing and future climates, the solutions must come from the bottom up.

Birhan Weldu became the poster child for famine in Africa 25 years ago. . . Although thousands of individuals like Ms. Weldu have been saved by Western charity and taxes, millions more have suffered and died needlessly from famine in East Africa in the past quarter century. But their suffering was not caused by a lack of aid. Nor was it caused primarily by climate change (Western-induced or otherwise). Rather, it was and is the result of policies in the affected countries that inhibit freedom and incentives to trade, own land, and invest in diverse, prosperity-enhancing economic activities.

Before about 1800, famine was a common cause of death everywhere. The majority of the world's population were subsistence farmers. When conditions were good, they produced enough to eat and a little more. When conditions were bad, they consumed their savings. If the bad conditions persisted, they died.

Then, first in England and soon in many other parts of the world, people began to rise above subsistence. They specialized more narrowly than before in the production of certain goods and they traded with others who also specialized. This led to increased output, as specialists were able to produce more than generalists. Competition in the supply of goods drove innovation, which led to further increases in output. Agricultural production rose dramatically and famine declined.

Two European famines of the nineteenth century stand out as exceptions: Ireland from 1845 to 1852, and Finland from 1866 to 1868. Both were the result of oppressive governments restricting the rights of individuals to own land and trade. In both countries, subsistence farming, combined with disease and bad weather, resulted in the death of many.

Since the 1920s, global deaths from drought-related famines have fallen by 99.9%. The reason? Continued specialization and trade, which has skyrocketed the amount of food produced per capita, and has enabled people in drought-prone regions to diversify and become less vulnerable.

In places where trade is restricted, people are forced to remain subsistence farmers. So, when drought occurs, the majority suffer and many die. The Indian drought of 1965 affected 100 million people, of which 1.5 million died. India subsequently liberalized and farmers adopted new technologies, notably high-yielding varieties of wheat and rice developed by Norman Borlaug, a truly deserving recipient of the Nobel Peace Prize. Although the droughts of 1987 and 2002 affected three times as many people, there were only 300 reported deaths in 1987 and none in 2002.

The 1983 to 1985 famine in Ethiopia, which Ms. Weldu survived, was a direct result of then-President Mengistu Haile Miriam's policies, which combined socialism with a violent resettlement program. Unable to trade, people engaged in subsistence agriculture. When drought struck in 1983, as it does periodically, millions were unable to obtain enough food. Aid flowed in from foreign governments . . . but much of it was requisitioned by the regime and used to oppress the very people it was supposed to help. Over a million died. . .

Things did not change much during the 1990s, and GDP stagnated. Since coming to power in 1991, Mr. Zenawi has removed some trade restrictions and introduced a commodities exchange. As a result, the economy has grown rapidly. Yet state restrictions on ownership of land, and the government's view that certain agricultural activities are essential, have undermined investment and prohibited the rural poor from fully participating in the economy. This means the recent drought has again hit the rural poor hardest, and left around 14 million people on the verge of starvation.

The pattern repeats across the continent. In the 1970s, Idi Amin murdered and exiled Uganda's traders and nationalized many businesses. The country's economy collapsed. When Yoweri Museveni came to power, he gradually liberalized the economy and it has since prospered. But in the northeast, government forces have clashed with the Lords Resistance Army and with so-called "warrior" pastoralists in Karamoja. Over two million people have been forced into subsistence farming, and are thus at the mercy of the variable climate.

Kenya's economy has also grown rapidly for the past several years, as a result of economic liberalization. But large swathes remain subject to uncertain tenure rules, which make it more difficult to buy, sell or mortgage land, thus inhibiting agricultural improvement and diversification, and acting as barriers to trade. In such areas, tribal conflicts are more frequent, for in the absence of trade, warfare is the only way to improve one's lot. Kenya's land reforms of 2009 promise to exacerbate this situation by further undermining security of tenure.

The situation in Somalia is similar: Years of lawlessness and warfare have destroyed formal property rights and trade. As a consequence, about half of the population now faces the prospect of starvation.

Instead of carping about climate change and more aid, the World Bank, Western governments and all those charities in Africa should learn the lessons from one of this year's economics Nobel laureates. Elinor Ostrom has spent a lifetime analyzing the ways in which humans devise institutions—from formal property rights to informal "rules of the game"—that let them solve their own problems. Her work emphasizes the need for such institutions to be built from the bottom up, without interference from higher levels of government.

Unfortunately, the West still incentivizes the political elite in Africa to impose rules from the top down, by providing "aid" that lets them ignore their citizens. Let's stop "aiding" these kleptocrats with our taxes. Those leaders who genuinely want to govern will have to stop interfering, so their people can own property and trade.

Wall Street's government backed shell game

Excerpts from The banking system is still broken By Ann Lee from the Wall Street Journal

[w]hy should banks make new loans when they can make money for free with the government? There is no longer a stigma associated with borrowing from the Fed, so banks can earn a huge spread by borrowing virtually unlimited amounts for nothing and lending that same money back to the Treasury.

Wall Street will most definitely get richer again. But a return to easy credit for the average consumer and business is not likely in the near future. The only reason that credit spreads have tightened is because of the extraordinary interventions by the Fed and the Treasury.

Such unprecedented actions by the government have led to speculation over when inflation might get out of control. But why not question whether our current banking system actually makes any sense? Rather than giving capital to businesses with real products and services, Wall Street plays a government-backed shell game, enriching bankers' pockets at everyone else's expense.

Thursday, October 15, 2009

The Business of Compassion

Excerpts from Marilia Duffles essay of the same name in The American Spectator

September 29th, 10:48 a.m. PDT. Seismologists report a substantial earthquake epicentered on the ocean floor 120 miles south of the tiny bacon-strip island of American Samoa. Within minutes the earthquake had spawned a tsunami with terrifying consequences. . . Back in the U.S. a snap decision was made to mount and launch a disaster relief mission to fly much needed supplies and help to the beleaguered island.

At a moment's notice all available hands were called into action. Enthusiastic discipline prevailed. First, the aircraft schedule was shuffled to provide a plane. Check. Second, the situation at ground-zero was assessed to ensure the plane could land on the runway and that the fuel for the return flight had not been contaminated by the tsunami. Check. The FAA and TSA were contacted to ensure all systems go. Check.

With that, volunteers were urgently sought and over 100 quickly came forward to fill just 34 spots. Relief supplies were assessed and instantly purchased with a phone call to Wal-Mart's regional headquarters. Some 40,000 pounds of water, food, medical supplies and more were sorted, loaded and delivered to the awaiting aircraft. Logistics for smooth distribution upon landing were planned in great detail. Communications experts and equipment - satellite phones, computers, IT cable were quickly procured and brought onboard. . .

September 30th, 4:00 p.m. PDT. A mere eighteen hours after the initial decision, the plane took off precisely at this pre-established time. A government operation? A launch from a military base? No, it was a Hawaiian Airlines Boeing 767. . .

It is not a surprise that among the very first on the scene with life-sustaining supplies was a company from the private sector. Why? Because the culture of initiative and risk-taking is critical to a successful business and precisely the attributes required to put together a plan against unknown circumstances and uncertain outcomes. Companies aren't saddled with the paralyzing bureaucracy of the government. For the most part, they don't get entangled in the self-defeating morass of regulations and the government's bloated chains of command -- like FEMA during Katrina -- when making decisions. Nor do they march to the drum of political necessity. Decisions are based on market-based needs, not what votes they'll bring in. . .

It's the fluid ability that allowed Wal-Mart to overnight gather 40,000 pounds of goods into cargo palettes, load it onto trucks for delivery to the Moby Dick–sized belly of that purple-tailed 767 and Webco, a successful small-business in Honolulu, to proudly offer its goods. Without hesitation.

Indeed, Max Weber the 19th-century sociologist couldn't have said it better: "The individual bureaucrat cannot squirm out of the apparatus in which he is harnessed." This is precisely what the people's opposition to the government's control of banks, health care reform and so on is railing against. Our ancestors didn't take the enormous risk of traveling across the Atlantic to inhabit a new world that would be a carbon-copy of the rules-shackled society they left behind.

Like Hawaiian Airlines, they wanted to take off -- running with the freedom to be enterprising.

Dow Hits 10,000 as Storm Clouds Gather

Excerpts from Larry Kudlow's article of same name.

Profits are the mother's milk of stocks, business, and the economy. And top-line sales revenues now appear to be bolstering the corporate cost-cutting effort. As long as these earnings keep coming in strong, stocks will keep rising. My hunch is that we'll move back to pre-Lehman levels - to over 11,000 on the Dow and over 1,200 on the S&P. Backed by an easy-money Fed, the economy will probably grow in a mild V-shape of something like 3 to 4 percent for the next year or so.

But storm clouds are gathering.

One of the biggest clouds out there is the sinking dollar. What we're witnessing right now is a big global shift out of dollars and into commodities. The dollar is quickly losing its reserve status to the yen and the euro. The proof is in the pudding: Earlier today, the greenback notched a new 14-month low against the euro. This is not good.

Meanwhile, in the second quarter ending in June, central banks around the world invested 63 percent of their new cash reserves into euro and yen, and put only 37 percent into dollars. And over the past six months, the greenback has lost 15 percent while gold has climbed nearly $150. If this trend continues, spiking inflation and interest rates will choke off the stock market rally and do serious damage to the economy. It could happen very fast.