By Paul Hsieh @ 8:00 AM
Although economic regulations in the US have become increasingly onerous, they're still relatively mild compared to other Western countries.
On January 5, 2010, blogger "DirkBeauregard" in France wrote:
Hooray, the sales start tomorrow in France. A chance to pick up a few bargains, if you actually have any cash left after Christmas. There again, you can always spend the credit note you got when you took your Christmas presents back, or you can spend all the money you made selling your unwanted gifts on E-Bay.
So, sales in France. Like everything else in this country, there is specific legislation relating to sales - laws designed to stop unfair competition and protect small shopkeepers from those "all year" sales by large stores who can afford to sell some items at a loss.
In France out of the sales period, it is actually an offence to knowingly sell goods at a loss, again a measure designed to protect small shopkeepers from large retail groups
Trading laws stipulate that there are two periods for sales in France. Winter sales from January to February and summer sales from June to July. In each case, the sales last for five weeks. All goods on sale must have been in the shop for a minimum of thirty days prior to the sale date - no buying in cheap stock and selling it as a sale item. Reuctions must be visibly displayed in percentage terms. Labels must also show the old pre-sale price and the new sale price. Retailers are allowed to reduce their prices three times in the sales - after the first fortnight, and again in the final week.
Outside the official sale periods, retailers are allowed two weeks in the year, to use at their discretion, for extra sales such as pre-Christmas sales or spring sales.
Shops are allowed to run "special offers" on certain items of stock throughout the year i.e. - a rack of cheap "end of line" clothing.
Shops that are closing down, or refitting are allowed to hold sales - "everything must go" with written permission from local authorities.
(I corrected a few typos in the original post, but otherwise quoted it verbatim.)
How nice of the French government to protect consumers from the danger of being able to purchase goods from willing merchants at low prices year-round!
By Paul Hsieh @ 8:00 AM
The January 9, 2010 edition of PJTV includes an interesting discussion by Yaron Brook and Terry Jones on the estate tax.
Apparently, due to a fluke in US tax laws, the estate tax for 2010 is zero percent. (It's scheduled to go back up to 55% in 2011.)
One of the points Yaron Brook discussed was this view expressed by Bill Gates, Sr. (father of the Microsoft founder Bill Gates, Jr) that, "Society has a just claim on our fortunes, and that claim goes by the name estate tax."
As Brook notes, this battle is not just over economics but over fundamental philosophy. Does wealth properly belong to "society" or to the person who created it? The way our country answers that question will determine our future.
The segment on the estate tax begins at 8:35 minutes, but I enjoyed watching the whole video. (You can click on either image above to go to the PJTV video.)
The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.
Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.
As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.
Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.
Go read the whole article. Conservatives tend to speak of these kinds of harms to underwater homeowners and financial markets as "unintended consequences." That's terribly wrong, I think.
Politicians should know better than to enact such laws. They ought to take some care in how they do their job -- just as electricians, doctors, and even garbage collectors do. That includes investigating the likely effects of proposed laws -- rather than hand-waving them away with the thought that they mean well. If they fail to do that due diligence, we are entitled to think them negligent -- or worse... that they intend their laws to fail so as to excuse even more violations of our property and contract rights.
Let's make sure that we call the spade that's digging our mass grave "a spade," not an "unintended consequence."
By Paul Hsieh @ 8:00 AM
Harvard economist Greg Mankiw discusses why an exploding monetary base doesn't necessarily translate into impending high inflation.
He notes that the frequently-circulated graph of money supply-vs.-time does look dramatic:
But he also emphasizes that the other critical factor that will determine whether significant inflation will occur is interest rate policy:
...But, you might ask, won't the inflationary logic eventually take hold as the economy recovers and banks start lending more freely? Not necessarily. Recall that the Fed now pays interest on reserves. As long as the interest rate on reserves is high enough, banks should be happy to hold onto those excess reserves. That should prevent a surge in the monetary base from being inflationary.
Of course, interest rates are driven by decisions made by the Federal Reserve.
Hence, Mankiw concludes:
...[T]he worry should stem not from the monetary base but from the political economy and difficult tradeoffs facing monetary policymakers.
So whether we experience inflation (or even worse, hyperinflation) will depend on arbitrary decisions made by politicians and bureaucrats -- decisions that are necessarily detached from real-world market forces.
Maybe we'll get lucky and dodge the hyperinflation bullet. Or maybe we won't.
When rational markets aren't allowed to operate, that's all we can do -- trust to luck...
By Diana Hsieh @ 5:00 AM
Yesterday, Ari Armstrong published a good op-ed against the push by the American Booksellers Association appeal for antitrust action against sellers of low-price books like Amazon and Wal-mart. As he observes:
When politicians control the physical conveyance of ideas, they can control the ideas themselves. As a villain in Ayn Rand's Atlas Shrugged explains, "If you breathe the word 'censorship' now, they'll all scream bloody murder... But if you leave the spirit alone and make it a simple material issue -- not a matter of ideas, but just a matter of paper, ink and printing presses -- you accomplish your purpose much more smoothly."
That was certainly the method used in the Soviet Union: the Bolsheviks suppressed opposition by taking control over mere property, namely the printing presses.
I see another parallel to Atlas Shrugged in this call for government intervention, particularly from the section that we just read for our Atlas Shrugged Reading Group. Ari writes:
The letter [from the American Booksellers Association] argues that selling low-priced books to people who want to buy them constitutes "illegal predatory pricing that is damaging to the book industry and harmful to consumers."
You might think that "lower prices will encourage more reading and a greater sharing of ideas in the culture," but you would be wrong, the ABA claims. Low-priced books will drive out "many independent bookstores," put book buying "in very few hands," and eventually allow "mega booksellers to raise prices," the ABA asserts.
Ari's response to that is right:
Once a retailer purchases books from a willing publisher without pricing restrictions, the retailer properly has the right to sell the book for any amount it deems proper. If the retailer wants to sell books below cost as a loss leader, give them away, or pay people to take them, that's between them and their customers.
Yet notice that the ABA regards the most successful book sellers as eating up the whole market share, understood as a fixed pie, thereby taking business that would otherwise be given to the smaller bookseller. Yet that's a naive view of markets. As Ayn Rand observes, large producers often make the existence of smaller ones possible by keeping down costs. She makes this point in the course of describing the effects of Ellis Wyatt's quitting:
It had lasted less than six months after Ellis Wyatt had gone -- that period which a columnist had gleefully called "the field day of the little fellow." Every oil operator in the country, who owned three wells and whined that Ellis Wyatt left him no chance of livelihood, had rushed to fill the hole which Wyatt had left wide open. They formed leagues, cooperatives, associations; they pooled their resources and their letterheads. "The little fellow's day in the sun," the columnist had said. Their sun had been the flames that twisted through the derricks of Wyatt Oil. In its glare, they made the kind of fortunes they had dreamed about, fortunes requiring no competence or effort. Then their biggest customers, such as power companies, who drank oil by the trainful and would make no allowances for human frailty, began to convert to coal -- and the smaller customers, who were more tolerant, began to go out of business -- the boys in Washington imposed rationing on oil and an emergency tax on employers to support the unemployed oil field workers -- then a few of the big oil companies closed down -- then the little fellows in the sun discovered that a drilling bit which had cost a hundred dollars, now cost them five hundred, there being no market for oilfield equipment, and the suppliers having to earn on one drill what they had earned on five, or perish -- then the pipe lines began to close, there being no one able to pay for their upkeep -- then the railroads were granted permission to raise their freight rates, there being little oil to carry and the cost of running tank trains having crushed two small lines out of existence -- and when the sun went down, they saw that the operating costs, which had once permitted them to exist on their sixty-acre fields, had been made possible by the miles of Wyatt's hillside and had gone in the same coils of smoke. Not until their fortunes had vanished and their pumps had stopped, did the little fellows realize that no business in the country could afford to buy oil at the price it would now take them to produce it. Then the boys in Washington granted subsidies to the oil operators, but not all of the oil operators had friends in Washington, and there followed a situation which no one cared to examine too closely or to discuss.
By Paul Hsieh @ 5:00 AM
Megan McArdle recently argued that concerns about hyperinflation are overstated, and that we should instead be worried about different economic dangers.
One point she makes which may have merit is that governments might be able to use hyperinflation to essentially default on already-issued debt, but that doesn't eliminate the problem of running debt streams (such as Social Security and Medicare), especially when those payments are theoretically indexed to inflation. (McArdle credits GMU economist Tyler Cowen for this argument.)
She also argues that US policy makers are too aware of the problem of hyperinflation, and that they would choose some other "solution" to our fiscal crisis. The alternatives include outright default on the debt (which she also regards as unlikely), or some combination of drastic reduction of entitlement payments and tax hikes (which she argues is the most likely outcome).
I'm not an economist, so I'm not well qualified to assess all her arguments. So here are a few questions that I'd like to throw out to NoodleFood readers:
1) Is it possible that our monetary policies might push us into hyperinflation even if our central bankers don't want it and are trying to avoid it? For instance, the money supply has shot upwards lately, as noted in this chart:
So is some inflation and/or hyperinflation inevitable regardless of our central bankers' desires and plans?
2) Will our politicians really decide that they will slash entitlement payments, when too many of them built their entire political careers around promising more goodies for free -- and they continue to spend like mad today despite the current crisis?
(I suppose that the government could perform some de facto cuts without calling them such. For instance, they could use artificially low inflation estimates to calculate the cost-of-living increases for Social Security. Over time, this basically allows them to indirectly cut benefits without being too obvious.)
3) Is there some big pot of money out there that the politicians will be tempted to loot in order to buy themselves more time?
For instance, one idea is that the US government might decide to "nationalize" citizens' private 401(k) retirement funds and instead tell retirees that they would receive public pensions in lieu of payments from those former privately-owned accounts. Of course, the new payouts won't be as large as the old payouts, thus allowing the government to keep a portion of this formerly-private money.
Or the government might slap a new surtax on 401(k) account balances over $1 million in order to fund the Social Security deficit. After all, that just hurts "millionaires" in order to help those who have the greatest need.
...She didn't say that hyperinflation would be impossible, just that it would be really, really crazy and shortsighted. So I'm not comforted.
Given that the current system of deficit spending for unsustainable entitlement programs will eventually collapse, the only real questions are how and when. I don't think anyone can confidently predict which flavor of bad and/or irrational decisions politicians will make -- not when their core economic premises are fundamentally unsound.
I hate to end on such a gloomy note, so if anyone has more optimistic insights to offer, please do so in the comments section!
"There have been 28 episodes of hyperinflation of national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz (Professor Emeritus of Economics in the Center for Economics and Business (WWZ) at the University of Basel, Switzerland) has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, Monetary Regimes and Inflation: History, Economic and Political Relationships, Bernholz analyzes the 12 largest episodes of hyperinflations - all of which were caused by financing huge public budget deficits through money creation. His conclusion: the tipping point for hyperinflation occurs when the government's deficit exceed 40% of its expenditures.
"According to the current Office of Management and Budget (OMB) projections, US federal expenditures are projected to be $3.653 trillion in FY 2009 and $3.766 trillion in FY 2010, with unified deficits of $1.580 trillion and $1.502 trillion, respectively. These projections imply that the US will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. To put it simply, roughly 40% of what our government is spending has to be borrowed."
As Amit notes, this is just one numerical indicator, although an eye-opening one.
And hyperinflation is just one possible scenario. But prudent investors may wish to hedge their bets and take appropriate measures.
I'm not an economist and this should not be construed as any kind of investment advice or endorsement. But Instapundit has mentioned two books on this topic:
The second book was written by "Ferfal", the Argentinian who survived his country's hyperinflation during the 1980s and posted a now-classic online essay about his experience and how others can cope under similar circumstances.
Other bloggers have made specific recommendations for asset protection, for instance here and here.
Again, I'm not necessarily endorsing any specific investment advice here nor predicting the worst-case alarmist view. But if history is any guide, these scenarios are not outside the realm of possibility, even for the US.
Whether any of this happens will depend on decisions that still remain to be made by our politicians, as well as the responses of private citizens in the US and abroad, all of whom have free will.
Hence, my own (admittedly vague) prediction is that lots of "interesting" stuff will happen to the US (and global) economy over the next several years, but the exact nature is yet to be determined. So all anyone can do is buckle up and get ready!
Groceries on the Upper East Side and Upper West Side of Manhattan are expensive. How expensive? One guy with a truck has started a business delivering cheaper groceries. One catch, he doesn't own a grocery store. He will go to Costco, where items cost a fraction of their Manhattan prices -- and split the savings with you.
He requires that you live in a doorman building and that the savings add up to at least $40 -- which shouldn't be hard based on his estimates.
By Paul Hsieh @ 11:15 AM Time magazine has an nice photoessay on "The Dangers of Printing Money", showing what happened in 1920's Germany when the hyperinflation hit.
They also note that the modern euphemism for printing more money is "quantitative easing". (Via Instapundit.)
By Paul Hsieh @ 12:01 AM
I'm not an economist, but even I find stories like the following to be a bit unsettling.
First, there's this announcement by US Senator Gregg (R-NH) that, "The United States wouldn't even be eligible to enter the European Union if it wanted to because of its debt levels".
For a visual representation of the projected deficit (which is only how much we're adding each year to the total cumulative debt), the Washington Post has a nice graphic:
In the first independent analysis, the nonpartisan Congressional Budget Office concluded that President Obama's budget would rack up massive deficits even after the economy recovers, forcing the nation to borrow nearly $9.3 trillion over the next decade.
Second, there's this OpEd in the March 29, 2009 Washington Post which warns against an Argentina-style financial crisis in the US. Here's an excerpt:
...Many economists and analysts are worrying that the United States might go the way of Japan, which suffered a "lost decade" after its own real estate market fell apart in the early 1990s. But I'm more concerned that the United States is coming to resemble Argentina, Russia and other so-called emerging markets, both in what led us to the crisis, and in how we're trying to fix it.
Again, I don't think that an Argentina-style collapse is the most likely scenario for the US.
But the fact that more mainstream analysts are mentioning this as a live possibility is not a good sign.
And of course, if you want to know what sorts of problems ordinary Argentinians faced (and how they coped), don't forget this detailed essay which has been making the blogosphere rounds lately.
I sincerely hope the US never gets to this point. But it's not outside the realm of possibility.
By Paul Hsieh @ 12:01 PM
Congratulations to frequent NoodleFood commenter Rory Hodgson for this citation in the March 31, 2009 Evening Standard:
Capitalists fight back at G20
The fightback is starting... well, sort of. A chap called Rory Hodgson is organising a G20 Pro-Capitalist Counter-protest and is rallying supporters of market economics, via Facebook, for events on 1 April at the Bank of England and 2 April at the ExCel Centre. He claims state regulation, rather than market forces, is to blame for the recession. “It is in the most regulated sectors -- the banking and housing sectors -- that this crisis has occurred,” says Hodgson.
By the time they have been retired for two years, 78% of former NFL players have gone bankrupt or are under financial stress because of joblessness or divorce.
Within five years of retirement, an estimated 60% of former NBA players are broke
The article analyzes the psychology behind the bad decision-making and puts them into four main categories:
1. The Lure of the Tangible 2. Misplaced Trust 3. Family Matters 4. Great Expectations
As the article notes, many professional athletes are very similar to lottery winners in that they suddenly gain a great deal of money out of proportion to their life skills. Either they raise their life skills to match their money, or they lose money until their bank accounts are again proportionate to their life skills.
These athletes' stories also illustrate the following truth from Francisco D'Anconia's "money speech" in Atlas Shrugged:
...Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money.
...Only the man who does not need it, is fit to inherit wealth -- the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him.
...One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism.
...Reform of health care, environmental policy, education, energy, banking, regulation -- every nook and cranny of the U.S. economy has been put on alert for major change. Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America.
Corcoran also discusses the recent massive expansion of the money supply caused by the Federal Reserve and the risk of inflation.
So is this the end of America? I hope not. And it won't be if enough people are willing to speak out against our current path and also stand up for the right ideas.
Sooner or later, this increase in the money supply is going to create tremendous inflation. I don't know how long it will take. Zywicki notes:
Why has this incredible boost in the money supply had no impact? Presumably because the "velocity" of money has remained low -- people and banks are hoarding money, rather than spending, borrowing, and lending it. Assuming velocity rises again, however, we may be looking at an inflationary spiral like we've never seen before in this country.
Note, incidentally, the tiny little wiggle at the year 2000. That represents the Y2K monetary expansion, judged huge at the time. There are plenty of people who would argue that the Fed's efforts to shrink the money supply afterwards -- that is, Greenspan's mopping up operation -- burst the high-tech bubble, causing the last downturn. How will the Fed mop up after this expansion?
By Diana Hsieh @ 12:01 AM
Amanda Teresi is an activist for free markets and limited government here in Colorado. She runs Liberty on the Rocks, for example. I met her through the Leadership Program of the Rockies (which I'm really enjoying) -- and I think very highly of her. She recently made this very clever and memorable video of "your nest egg on the government bailout":
I'd love to see more Objectivists being so creative and memorable in their activism -- in conjunction with the necessary economic and moral arguments, of course.
By Paul Hsieh @ 12:01 PM
The February 20, 2009 edition of the Glenn Beck television show featured a chilling discussion of some worst-case economic and political scenarios facing the US in the next 5 years. Beck was always careful to point out that he and his guests weren't claiming that these scenarios would happen, but rather that they could happen (i.e., they were within the realm of possibility), and that thinking about them was an important part of working to prevent them from occurring.
Dr. Onkar Ghate of the ARI appeared to discuss possible restrictions of free speech if we started heading towards dictatorship and some of the warning signs we should look for. You can watch his segment here:
One of the other topics discussed in detail was the possibility of a large-scale financial meltdown on the order of the Great Depression (if not worse). Given the US government will dig itself into unprecedented levels of debt due to the various bailout programs, it may start trying to print money (i.e., inflate the currency) as a way to "solve" the problem:
Of course, this won't work. And Beck's guests pointed out that this unhappy scenario has already played out in other countries in the past, such as Argentina during the 1990s.
Although I still believe that an Argentina-style financial meltdown probably won't occur in the US, I also believe that there is a small but nonzero chance that it might.
Hence, I'd like to point readers towards this very interesting essay by an Argentinian who lived through that country's crisis. The author dispels some of the extreme right-wing survivalist myths about such scenarios. More importantly, he also discusses the very real threats and challenges that ordinary people have to deal with in such circumstances, and he gives some worthwhile advice and recommendations on how best to cope.
Much of his advice would be applicable to any number of natural or man-made crises. Anyone who values his or her life might want to make it a point to cultivate the mental and physical tools necessary to survive such circumstances.
Again, I don't think this is the most likely future for the US. And I intend to concentrate my main effort in the battle of ideas, precisely to help prevent this from happening. But just as I think it's prudent to keep a fire extinguisher in one's kitchen or a first-aid kit in one's car as protection against bad events, I also think it would be prudent for Americans to plan for significant economic and political turbulence in the near future. Many of these actions are things most intelligent people would want to do anyways, such as minimizing/eliminating debt, keeping at least 6 months of living expenses in the bank, staying physically healthy, etc.
The recent history of Argentina offers Americans some important lessons. Whether we learn from them is up to us.
(Disclaimer: This is the first episode of the Glenn Beck show that I've ever watched. He's pretty good on some concrete points of politics and economics. But he also fell into the typical conservative error of stating that rights come from God, rather than being a consequence of our nature. But I'm hoping that there will be future opportunities for Objectivists to present the correct philosophic justification of individual rights on shows like his.)
By Diana Hsieh @ 12:08 PM
In this video, Yaron Brook answers a question on how to ensure product safety in capitalism via tort law. And he explains why the regulatory state undermines the incentives to make products safe found in a free market.
By Paul Hsieh @ 12:03 AM
I've just had the pleasure of reading two of Ray Niles' recent articles, one on financial regulation and one on proposed government internet regulations to guarantee "net neutrality". Both are clear and excellent applications of Objectivist principles to important and timely issues. If you have an interest in these topics (or know someone who does), these are "must reads".
Given the widespread prevalence of the "information wants to be free" viewpoint by libertarian tech types, it's refreshing to read a principled defense of property rights as applied to the issues of internet traffic and the "net neutrality" debate.
If you're not a subscriber, you can purchase a PDF of the entire piece for $4.95. But you really should be a subscriber, if you're not already.
His second piece is on the issue of financial regulations in the wake of the recent economic crisis. Here is his description (reproduced with his permission):
I am excited to announce that an article I wrote has been published in CFA Magazine, a magazine with global circulation of 100,000 that is published by CFA Institute, a finance professional organization. It is part of an "Agree / Disagree" set on the proposition: "The global market crisis calls for an expansion of regulatory oversight." I have permission to email it; if you want a copy, let me know and I will email it to you. Please feel free to re-distribute it, but do not post it in its entirety on the web.
In the article, I call for gold money and the abolition of regulatory agencies. I identify the need for government to recognize the right to life, liberty, and property. The editor featured the article as the magazine's cover story under a scary image that says, "Big Government Is Watching." In the print version of the magazine, a yellow banner also asks, "Is more regulation the answer to market woes?"
Here are the opening paragraphs. Later, I discuss the specific causes and solution to the crisis.
Regulation cannot be the solution to the financial crisis because it is the cause of the financial crisis. The only proper action for governments to take is to remove existing regulations, fully recognize property rights, and enforce already-existing laws against fraud and theft. Doing so will help our economy speedily recover and make future crises smaller and rarer.
In fact, the premise itself is misleading. "Regulatory oversight" implies that regulation is some form of law enforcement mechanism that protects the rights to life and property, akin to laws against robbery, murder, and fraud. But that is not the case. Such laws already exist on the books and should be enforced when mortgage lenders, for example, commit fraud. No new regulation is necessary to protect rights.
Instead of protecting rights, regulations violate them. A regulation is an action by a government body that intervenes in voluntary agreements between individuals. It prohibits -- before the fact -- entire classes of behavior, criminalizing that behavior even if it is voluntary and involves no compulsion or fraud. For example, a law such as the Community Reinvestment Act that forces lenders to give mortgage loans to borrowers that do not meet their credit standards violates the right of the lender to decide whether and to whom to lend its money.
To get the full version of the article, you can contact Ray directly at: "rayniles (at) rcniles (dot) com".
This would be a great article to distribute to friends, coworkers, your investment advisor, or anyone who lost money in the markets in the last 6 months (which is pretty much everyone in the Western World!)
Plus Ray's example highlights two important points:
1) Americans are interested in hearing our message. Many people know that there is something deeply wrong with the status quo, and at some level they recognize that Obama-style socialism is not the answer. But they don't know what the positive alternative is. We can offer them that. Americans are becoming increasingly receptive to our ideas. Hence, there is no better time to speak out.
2) Individuals can make a difference. I'll let Ray speak for himself if he wishes, but until relatively recently he did not engage in any kind of formal activism. But he has found subjects that were of great interest to him and chosen to write on those subjects to appropriate audiences.
The result has been two articles in The Objective Standard (one on energy policy now available for free and his more recent article on "net neutrality") as well as his article for CFA Magazine. This latter piece could reach many influential minds in the financial industry and give them the moral defense of the free market that they so badly need.
Ray Niles has clearly upped his game. And I thank him for it!
By Paul Hsieh @ 12:07 AM
The Decmeber 17, 2008 Christian Science Monitor has a terrific profile of Underwriters Laboratories. This is the private organization that performs safety certifications of an enormous range of consumer products, including extension cord, washing machines, and even bulletproof glass.
Every product they test is at the request, and the expense, of its manufacturer, who seeks out UL not because it has to -- no federal law mandates safety tests for most items -- but because it's cheaper and easier than a product-injury lawsuit, Drengenberg says. In fact, most retailers won't stock a product if it hasn't been safety tested. But it's all voluntary, a tidy case study of the free market at its best: bottom-line drivers of consumer good.
..."We have one weapon in the factory... The UL mark," says [tester John] Drengenberg. So UL guards it carefully, through a rigorous documentation process. Every product tested is photographed, all of its parts cataloged, and every test performed described in detail. If it passes, the manufacturer puts it on the assembly line -- but at some point during production, a UL inspector will show up, unannounced, for a spot-check, making sure the company is using all the same parts UL saw on the prototype
This is an excellent concrete example of how such private certification agencies could thrive and succeed in a free market, because they meet a rational consumer demand for trustworthy and independent product safety certification.
In a truly free market, comparable private agencies can and should replace the current alphabet-soup of costly inefficient government bureaucracies such as the FDA, OSHA, NTSB, etc.
By Diana Hsieh @ 12:20 AM
A question: Are Thomas Sowell's books worth reading? I'm particularly interested in his books on economics, namely Basic Economics, Applied Economics, and Economic Facts and Fallacies. I don't need these books to be philosophically perfect, but I'd like them to be good and clear on the economics.
I'm skeptical because I read his book Marxism: Philosophy and Economics some years ago. Although I read it carefully, I learned absolutely nothing from it. It was just a long string of floating abstractions that illuminated nothing. So I'm reluctant to try again, but I'd like to read some economics -- or rather listen, and he seems to be the only potentially decent author available on Audible.
By Gina Liggett @ 12:01 AM
On a Nov. 20th NPR radio interview, David Wessel, Pulitzer-prize-winning Economics Editor of the Wall Street Journal sounded rather optimistic. Despite calling our present economy "as fragile as at anytime since Roosevelt took over," he predicted that the Obama team would get right to work even before inauguration to hold off another Great Depression.
He said the challenge for Obama will be basically threefold: 1. like Roosevelt during the Depression, Obama will have to reassure the American people, that is "make us feel better," by whom he appoints and how he describes the economic situation; 2. put together a huge fiscal stimulus package consisting of tax cuts and increase in government spending; and 3. deal directly with the housing crisis by helping people whose mortgages are worth more than the value of their home.
He summed up his personal reaction to the economic crisis by saying he was "quite impressed by the diligence of the people in the government who are charged with this and how creative they've been and inventive in trying to respond to it."
In an October panel discussion at his alma mater Haverford College he explained the causes of the present crisis -- that complicated interplay of Federal Reserve interest rates, the across-the-spectrum failure of economic checks and balances by rating agencies and regulators, the "democratization of credit" for homeownership, the "morally criminal" predatory lending practices, faulty assumptions about ever-increasing housing prices and unsecured lending by investment banks, and the under-appreciated connection between the housing market and banking system.
He then describes the timeline of the government's reaction to each emerging crisis: a huge Fed rate cut in January, the historic loan to Bear Stearns (a non-Federal Reserve bank), the quick and efficient nationalization of Freddie and Fannie, Treasury Secretary Paulson's sweeping authority granted by Congress, the $700 billion bailout legislated by Congress in a 400-page bill, Barney Frank, Democrat chairman of the House Financial Services Committee, being unable to refute the argument that "if you help Wall Street, why can't you help Main Street," and the spill-over protectionist reaction by central governments in Europe and Asia.
Mr. Wessel's comment about the historic economic crisis: "I don't think this was a problem caused by government, but government permitted it to happen."
Despite a couple of disparaging remarks Mr. Wessel made about businessmen and choosing a career on Wall Street, maybe I can't explain Mr. Wessel's reaction to the crisis on the fact that he's worked his entire career as a journalist and never as a businessman who has had to meet payroll, answer to shareholders, negotiate with unions, comply with regulations, pay ever-rising costs of employee health care, pay taxes, pay Worker's Compensation taxes, hold the line on production costs, etc. etc. ... and still survive.
I also can't necessarily explain it by the fact that the college economics department co-sponsored the talk with the college's Center for Peace and Global Citizenship, which:
"...exists to expose all members of the Haverford community, but especially students, to the key global issues of the day so that they can better equip themselves to help solve these problems after they leave Haverford's campus. In this regard, the CPGC is one of the most visible examples of the College's Quaker ethos, grounded in testimonies of peace, lives of service, and a concern for the world at large." (emphasis mine)
Regardless, what I can say is that one of society's best-recognized experts on the American economy makes absolutely no defense of capitalism in anyway whatsoever. He not only credits government in "creatively" tackling the crisis, he tacitly accepts the premise that government bureaucrats, regulators and legislators should play a fundamental and sweeping role in managing the economy. Furthermore, he flagrantly denies that government is the problem.
Yaron Brook, executive director of the Ayn Rand Institute , has spoken a lot about the economic crisis lately. He correctly explains that if capitalism is to survive, it needs moral sanction to counter the altruist ethics that infects our society today. As Objectivists know, Ayn Rand provided that philosophic moral justification for the total separation of state and economics: the morality of rational egoism.
We have a separation of church and state that is explicitly spelled out in the Constitution, and yet we still are fighting tooth-and-nail against the Religious Right to uphold it.
And we don't even have that much of an explicit defense of capitalism. How then is capitalism to survive in an environment when leading knowledgeable and educated intellectuals like Wessel can look the facts straight in the eye, and be blind to the conclusions?
As Dr. Brook states in his talks, obviously the fact about capitalism's success is simply not enough; the fact that government interference in the economy wrecks havoc is simply not enough. We must make the moral argument that laissez-faire capitalism is not only practical, it is morally right.
The United States government has direct ownership of almost 650 million acres of land (2.63 million square kilometers) - nearly 30% of its total territory. These federal lands are used as military bases or testing grounds, nature parks and reserves and indian reservations, or are leased to the private sector for commercial exploitation (e.g. forestry, mining, agriculture). They are managed by different administrations, such as the Bureau of Land Management, the US Forest Service, the US Fish and Wildlife Service, the National Park Service, the Bureau of Indian Affairs, the US Department of Defense, the US Army Corps of Engineers, the US Bureau of Reclamation or the Tennessee Valley Authority.
This map details the percentage of state territory owned by the federal government. The top 10 list of states with the highest percentage of federally owned land looks like this:
The following thought then occurred to me. One day, the US is going to face a financial crisis due to the insolvency of Social Security that will make the current mortgage crisis look like chump change in comparison. And everyone who advocates privatizing Social Security also points out that there would be huge transition costs.
So the question is whether those costs (or overall transition costs of moving from the current mixed economy to a fully consistent system of laissez-faire capitalism) could be covered by selling off those Federal lands? It might conceivably have to be done in stages to avoid depressing the market by dumping all that land on the market at once.
But there is something appealing about the idea of paying for the transition costs of privatizing our economy by a method which also privatizes a big chunk of US government assets.
By Paul Hsieh @ 12:06 AM
One of the slowly-simmering issues I try to follow is the future of Social Security. Eventually, the current Ponzi scheme is going to go bankrupt, and right now there's no morally principled reform on the horizon. So one big question is what sort of response to this brewing problem can we expect, given the current political and cultural climate?
Last week, there were a couple of high-profile news stories that indicate which way we'll be headed. And it's not a pleasant picture.
...President Kirchner painted the move as an attempt to help workers weather the financial crisis. The value of private retirement accounts in Argentina has probably fallen in recent months due to a declining stock market, economists say. President Kirchner said in a speech: "The main member countries of the [Group of Eight] are adopting a policy of protection of the banks and, in our case, we are protecting the workers and retirees."
Buenos Aires economist Aldo Abram, among many other economists, wasn't buying that argument. "They were in a tight situation and this was an accessible source of funds," he said.
The step requires approval of Congress, where the governing Peronist party has a majority. Opposition leader Elisa Carrio vowed to contest it, saying, "The government measures aren't designed to better the retirement system but rather to plunder the funds of the retirees."
The current financial crisis is being used as a pretext to confiscate that money, in the name of "protecting" the Argentinian workers. Of course, in reality it's just a way for a bankrupt government to attempt to steal enough money to keep going for a little while longer.
House Democrats recently invited Teresa Ghilarducci, a professor at the New School of Social Research, to testify before a subcommittee on her idea to eliminate the preferential tax treatment of the popular retirement plans. In place of 401(k) plans, she would have workers transfer their dough into government-created "guaranteed retirement accounts" for every worker. The government would deposit $600 (inflation indexed) every year into the GRAs. Each worker would also have to save 5 percent of pay into the accounts, to which the government would pay a measly 3 percent return.
By taking over this huge pot of private 401(k) retirement money, but promising to pay out only a pittance to the nominal "owners", the government would (quite literally) make out like bandits.
Although this is just an academic proposal at the moment, these ideas have a way of leaping from academia and think tanks to the floor of the US Congress in a surprisingly short period of time.
Several of my friends and co-workers have independently told me that they fear that their own private retirement money will no longer be available to them by the time they retire. (They already recognize that Social Security won't be). The government might not engage in a complete confiscation this private money. Instead, they might use an indirect approach, such as imposing, say, a 40% tax on any balance over $1 million on 401(k) accounts. That way, it would only harm evil "millionaires", whom the government would claim could easily afford such a tax.
Or it might be mandatory conversion of private 401(k) accounts into government accounts as proposed by Ghilarducci, where the government would then control which retirees could receive any money, and how much.
Another less likely possibility (which some libertarian groups advocate) is that the government might propose some sort of faux-privatization scheme, in which our current Social Security system was replaced by a system of "private" accounts (but still heavily regulated by the government). In that case, there is still the worry that current 401(k) plans would have to be folded into these new accounts (in the name of "efficiency"). Such a pseudo-privatization would merely gives the government more control over private assets, not less. Hence, this would still not protect Americans from the possibility of confiscatory taxation of those nominally "private" accounts -- not if there were political and economic pressure to do so, as I predict there will be.
Given that (1) there are lots of working Americans who will not have saved enough for retirement, and (2) there will not be anywhere near enough Social Security money to pay for these people, the gloomy scenario predicted by my friends may not be too far-fetched.
Furthermore, I predict that many statists will argue that the need of those who didn't save outweighs any alleged claims of "right" to the money by those who actually did save, and that the savers have an obligation to bail out the non-savers. This would be the predictable end result of the altruist morality that is too-prevalent in our culture.
Based on numerous conversations, those who have been responsible and who have saved enough money for their retirements are understandably angry at the prospect that they will be punished for their frugality in order to reward those who didn't exercise proper long-range thinking and failed to save when they could have.
What they need is the moral sanction to be told that this money is rightfully theirs and that it's therefore wrong for the government to steal their money to give to others.
Most of society won't give them that sanction. Objectivists will.
Hence, the purpose of this post is two-fold: (1) I want to put this issue on more Objectivists' radar, since I predict it will heat up over the next several years. (2) I want Objectivists to be prepared to give the virtuous people (i.e. the savers) their moral sanction at that point in time in the future when they'll be needing it the most.
By Paul Hsieh @ 1:45 PM
Despite all of the recent economic turmoil, it's important to keep a long-term perspective. If the currently semi-free US economy is allowed to function, we will still be in pretty good shape. The following graph of GDP per capital over the past 200 years shows how the US economy has done. Even the Great Depression and WWII can be seen as fairly minor blips in the overall upward trend.
However, the one thing that we can do to screw things up is to impose massive new regulations. This sort of self-inflicted damage could harm the long-term future economy far more than any particular stock market crash. Hence, it's important to continue to defend and advocate for the free market.
By Paul Hsieh @ 12:10 AM
According to the October 2, 2008 Wall Street Journal, the unofficial prison currency in the US is no longer the cigarette, but rather the mackerel:
There's been a mackerel economy in federal prisons since about 2004, former inmates and some prison consultants say. That's when federal prisons prohibited smoking and, by default, the cigarette pack, which was the earlier gold standard.
Prisoners need a proxy for the dollar because they're not allowed to possess cash. Money they get from prison jobs (which pay a maximum of 40 cents an hour, according to the Federal Bureau of Prisons) or family members goes into commissary accounts that let them buy things such as food and toiletries. After the smokes disappeared, inmates turned to other items on the commissary menu to use as currency.
...[T]he mack is a good stand-in for the greenback because each can (or pouch) costs about $1 and few -- other than weight-lifters craving protein -- want to eat it.
It's interesting that these prisoners understand the need for a stable objective medium of economic exchange far better than the US government which is incarcerating them, even though few of those prisoners have studied articles such as, "Gold and Economic Freedom" in Capitalism: The Unknown Ideal which explain the importance of a gold standard.
In light of the recent Wall Street bailout inflicted on us by government officials based on bad economic theories, here are a couple of conclusions one might draw:
1) Perhaps it's the US economy that is based "fishy" premises, not the prison economy.
2) Perhaps more US government officials need to spend some time in a federal penitentiary -- they may learn an important lesson about sound money (as well as some well-deserved lessons on other subjects.)
By Brandon Byrd @ 12:01 AM
As someone who takes ideas seriously, I've always found it frustrating when philosophers take it upon themselves to offer judgments on subjects they haven't bothered to devote serious time and attention to studying. The charge that philosophers (academic or otherwise) sometimes judge where the epistemically virtuous would fear to comment isn't new. (For instance, it isn't rare to hear someone claim that speculation from the philosophical armchair is a poor method of settling some contentious issue.) What makes this phenomenon -- the venturing of unwarranted opinions -- especially pernicious in the case of philosophers is that philosophers are supposed to be the guardians of rationality, revering the mind by sacrificing hasty conclusions at the altar of the well-formed argument. Philosophers are supposed to love wisdom and shun mere belief; when they make assertions that betray culpable ignorance, they sin against their profession as well as the truth.
I don't know what it is about Ayn Rand that makes many philosophers think they can get away with saying whatever they damn well please about her without having studied her work carefully and honestly. I suspect that the real explanation has less to do with Rand and more to do with personal biases on the part of her critics. But whatever the cause, the phenomenon is nevertheless real. It isn't just that many philosophers dislike Rand. We philosophers are an opinionated bunch; we dislike all sorts of things. Rather it's that many philosophers will attribute all sorts of nonsense to Rand without actually considering what she has to say.
To offer an example, below is a passage from Rosalind Hursthouse's On Virtue Ethics. This work, published relatively recently by Oxford University Press, is intended to be used as a textbook on, unsurprisingly, virtue ethics.
"We can interpret Thrasymachus, and more obviously Nietzsche and Rand, as saying that, rather like hive bees, human beings fall, by nature, into two distinct groups, the weak and the strong (or the especially clever or talented or 'chosen by destiny'), whose members must be evaluated differently, as worker bees and the drones or queens are."
Um... what? Anyone with even a cursory familiarity with Rand's ideas will realize that she believes no such thing. Rand's philosophical anthropology -- her theory of human nature -- does not recognize a distinction between types of human beings. Her ethical theory evaluates individuals on the basis of their choices, not their unchosen attributes, and she appeals to a univocal standard of moral evaluation -- not to distinct standards for distinct types.
Hursthouse does not provide any sources that might justify her 'obvious' interpretation of Rand's philosophy. But this totally wrongheaded interpretation of Rand was good enough for her editors and peer reviewers at OUP (as well as the numerous philosophers who gave her editorial comments on the final manuscript). Apparently that group of distinguished professors found nothing objectionable in Hursthouse's characterization of Rand. Of course, realizing Hursthouse's error would have required reading Rand.
(On a grimly ironic note, the above passage comes from chapter 11 of On Virtue Ethics. The chapter title? "Objectivity.")
Hursthouse isn't the only person who presents Rand's views incorrectly in a way that betrays ignorance. Chandran Kukathas's entry on Rand in the otherwise excellent Routledge Encyclopedia of Philosophy is another example. No, Kukathas... Rand didn't think that integrity was "at the root of the idea of freedom," her "real concerns" were not "the defence of the value of integrity (to the point of self-sacrifice) in the face of evil and moral despair," and The Virtue of Selfishness was not a novel.
So far, we've seen a philosopher attribute views to Rand that she 'obviously' didn't hold, and we've seen another philosopher misunderstand the fundamentals of Rand's politics and misconstrue her central concerns. But Gerald Dworkin, a professor of philosophy at UC Davis, has recently exemplified yet another way of getting Rand wrong: saying that her ideas lead to catastrophe.
The forum in which Dworkin makes this charge is Leiter Reports: A Philosophy Blog -- a blog featuring "news and views about philosophy, the academic profession, academic freedom, intellectual culture... and a bit of poetry." The blog is run by Brian Leiter, currently John Wilson Professor of Law at the University of Chicago, and Director of Chicago's Center for Law, Philosophy, and Human Values. Leiter is also the editor of The Philosophical Gourmet, which ranks the top philosophy departments in the English-speaking world. I read Leiter Reports semi-regularly, as it is a good source of professional news related to academic philosophy (faculty hires, moves, deaths, retirements and whatnot). In addition to this valuable material, the blog also features occasional leftist cultural commentary of more dubious value. Of extremely dubious value is Dworkin's post "Blame it on Ayn Rand" in which he claims Rand is a cause of our economic troubles. Dworkin doesn't really provide much of an argument for this claim, so I'll attempt to provide him with a charitable reconstruction (a courtesy I'm not so sure he deserves... but for the sake of argument...).
Dworkin quotes a recent New York Times article on Greenspan's involvement in the current financial crisis. (That article seems to get Rand wrong too; Rand didn't have "a resolute faith that those participating in financial markets would act responsibly" but that's beside the point.) The article implies that Greenspan's positions on regulation -- specifically the regulation of derivatives markets -- were causally relevant factors in producing the recent financial crisis. Why did Greenspan hold his positions on regulation? Here, Dworkin invokes Keynes:
"...the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."
(I can't resist noting that Rand held a similar view to Keynes about the importance of philosophy in history, though her insight was deeper than Keynes. Rather than viewing history as being primarily driven by political philosophy, Rand viewed metaphysics and epistemology as being much more influential. For more on Rand's insights here, consult the title essay of For the New Intellectual, as well as the title essay of Philosophy: Who Needs It. Peikoff develops Rand's insights on the philosophical motor of history in Ominous Parallels, the epilogue to Objectivism: The Philosophy of Ayn Rand, and in his forthcoming book on how epistemology shapes society.)
Greenspan was a student of Rand, and Rand argued for the principled separation of the state and economics, and thus for an absence of government interference in voluntary economic exchanges. She was a categorical opponent of governmental regulation in financial markets. Greenspan opposed regulation of derivatives markets. The current financial crisis was supposedly brought on by an absence of regulation in these markets. Thus Dworkin claims that Rand is "an important cause of the catastrophe we are in."
Let us examine this argument.
This argument gets its force from the claim that Greenspan was practicing what Rand preached. In an update to Dworkin's post, Leiter snarkily remarks that "Greenspan was not only a friend of Rand's, but a lifelong devotee of her ideas and her 'philosophy,' such as it is." While it is true that Rand and Greenspan were friendly toward one another, it is demonstrably false that Greenspan was "a lifelong devotee of her ideas." It doesn't take a hell of a lot of legwork to discover this; thanks to Google, I didn't even have to leave my armchair.
In The Age of Turbulence, Greenspan's recent autobiography, Greenspan discusses the important formative influence Rand had on his intellectual development. In his discussion, he talks about how Rand encouraged him to look beyond mere economic data and more deeply into the values and ideas that move history and influence human action (including economic action). She was credited with broadening his perspective on the world and helping him reject logical positivism. He even describes himself as "writing spirited commentary for [Rand's] newsletter with the fervor of a young acolyte...". But this enthusiasm was not to last; Greenspan's autobiography claims that Rand's philosophy has inherent contradictions, and that his "fervor receded."
So Greenspan isn't an Objectivist. His policies, as we shall see, reflect this fact.
We're in the midst of a recession, teetering (some might say) on the precipice of a depression. What were Rand's views about recessions and depressions? Well, Dworkin doesn't say. His blog post doesn't even bother to discuss which of Rand's ideas were supposed to get us into this mess. He doesn't explicitly discuss her ideas at all. If one consults Rand's Capitalism: The Unknown Ideal to discover her views on the causes of recessions and depressions, one is directed to the works of Ludwig von Mises. It is important (for getting Rand right) to recognize that while Rand found Mises's economic analyses convincing, she had substantial philosophical and methodological disagreements with him. Mises was a Kantian who viewed economics as a primarily deductive enterprise (and thus was inclined toward epistemological rationalism). He also attempted to do economics in an ethical vacuum, divorcing economic analysis from any underlying normative framework. Rand, of course, rejected Kantianism, rationalism, and a strict division between morality and economics. But despite his errors, Rand thought that Mises's economic theories represented a significant achievement.
At this point, I don't want to provide a lengthy, detailed summary of Mises's views on the business cycle. I may write something in the near future about the causes of our current economic woes, but I'll hold off for now. The following short summary should provide a general indication of the economic views Rand found most convincing.
The most salient aspect of the Austrian theory of the business cycle is that implicates central banks as the fundamental cause of depressions and recessions. Ah! The plot thickens! Wasn't Greenspan the head of our central bank? He was indeed. How do central banks cause recessions?
In a free market, the interest rate (the price of money) is determined by the law of supply and demand. Roughly, the supply of loanable funds that banks have (our savings) determines the interest rate, when taken in conjunction with the overall demand for money and the riskiness of potential debtors. Central banks, such as the Federal Reserve, distort this market mechanism by setting artificially low interest rates (interest rates below the market rate). What happens next? I defer to Wikipedia:
Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. This in turn leads to an unsustainable "monetary boom" during which the "artificially stimulated" borrowing seeks out diminishing investment opportunities. This boom results in widespread malinvestments, causing capital resources to be misallocated into areas which would not attract investment if the money supply remained stable. A correction or "credit crunch" -- commonly called a "recession" or "bust" -- occurs when credit creation cannot be sustained.
Loose monetary policy by central banks leads to people taking on more debt than they otherwise would. Artificially low interest rates allow more credit to be extended to risky borrowers. In our current case this lead to skyrocketing real estate values, since there was an increased demand for houses (made possible by banks extending credit to more and riskier debtors). This effect is obvious enough in the case of commercial banks, which more than doubled the amount of real estate loans they made (thus allocating large amounts of resources into the real estate market -- allocations that wouldn't have occurred in a free market for money and credit.
And then there's the welfare state. Don't let's forget about Fannie and Freddy. The former is a holdover from the New Deal; the latter is a "government sponsored enterprise" created by the Emergency Home Finance Act of 1976, and designed to increase home ownership. Both of which did their part to screw us all by spurring on the housing bubble... and they were able to borrow money at a (de facto, if not de jure) subsidized rate in the marketplace because the public viewed them as being low risk (since the state would presumably bail them out, should the need arise).
All of a sudden, everyone's in debt and no one wants to lend. Small wonder. Small wonder that risky investors are defaulting on their mortgage payments. Small wonder that the derivatives markets are screwing up (I'd argue that we can only make sense of the kerfuffle in the derivatives market in light of monetary policy). Small wonders that major financial institutions are losing their credit rating because they took on too many risky debtors.
We frequently hear that that the market got drunk. What was it drunk on? Cheap credit. Who was the man behind the bar? You can probably guess.
In May of 2000, the Fed Funds rate was 6.5%. By June of 2003, Greenspan had slashed it to 1%, and it stayed there for more than a year (and remained ridiculously low for much longer). Would Rand have found this type of monetary policy commendable (or even tolerable)? Of course not. She'd read her Mises. Moreover, she regarded central banking as morally repugnant and politically unnecessary.
There's much more to be said about our current credit crunch and how to evaluate it in light of Rand's moral and political philosophy. But it should now be evident that Dworkin (and Leiter) are wrong on all counts. They were wrong about Greenspan; they were wrong about Rand. Their errors on these subjects betray a culpable ignorance. One needn't do much research to figure out Greenspan's real views on Rand, or Rand's views on economics. Twenty minutes with Google and Wikipedia would probably have gotten the job done. If a philosopher is going to assert, in a public forum, that another philosopher's ideas lead to disaster, then they have an obligation to carefully consider that thinker's ideas, to understand them, and to show how (in practice) they would result in catastrophe. When a philosopher fails to do that, they do a disservice not only to the thinker they criticize, but also to the truth, to their profession, and to themselves.
Academic philosophers often get Rand wrong. They often have only themselves to blame.
By Paul Hsieh @ 1:06 PM
There's been a lot of buzz on the blogosphere lately regarding this chart in the October 14, 2008 New York Times showing that since 1929, the stock market has done far better under a Democratic President than a Republican President (even if you exclude the Herbert Hoover years).
The annualized rate of return under Democrats was 8.9% where as under Republicans was 4.7% (excluding Hoover) and 0.4% (including Hoover).
However, this article in the Wall Street Journal shows that although the figures are true, the stock market has actually done best under a divided government -- and specifically when the President is a Democrat and the Congress is Republican.
This makes sense to me. Under a divided government, each party tends to moderate some (although not all) of the worst excesses of the other party. Furthermore, a divided system seems to work better with a Republican Congress restraining a Democratic President, rather than the other way around. For a variety of reasons, Republicans are better in the opposition than in power and will then sometimes even fight for fiscal responsibility. On the other hand, when we've had a Republican President and a Democratic Congress, the President often tries to be "more altruist than thou" in outspending the Democrats, so as to avoid looking mean and selfish.
Yaron Brook once said that we've seen the least growth in government when we've had this pattern of divided government with a Democratic President and Republican Congress. It's good to know that this also is the best combination for the stock market and economic growth.
Unfortunately, it seems pretty unlikely that we'll have that particular combination in 2008. But depending on how the next 2 years turns out, we could easily see this relatively desirable combination in 2010 (just as Democratic control of both branches in 1992 turned into the "better" divided government in 1994.)
By Diana Hsieh @ 1:17 PM
A most welcome message from Tony Donadio, posted to OActivists last week:
In response to last week's passage of the financial bailout legislation, I've taken the liberty of acquiring the domain name repealthebailout.net and creating a rudimentary website. It can be found here:
Right now, it's more or less just a skeleton, consisting mainly of links to various articles on the subject. However, I have a strong suspicion that last week's bailout isn't the last one we're going to be facing, and that the website may continue to be relevant for some time to come. I plan to try to update it steadily as my (unfortunately limited) time allows, both with original material and with new and timely links.
I'm interested in feedback and thoughts on what I've (hastily) thrown together so far, so please feel free to respond to me (preferably directly, so as not to clutter the list) if you have any. I'm also interested in new and useful links as well as original contributions if you have any to offer or suggest.
Thanks -- Tony Donadio
Tony has done a fantastic job with Repeal the Bailout. Kudos to him! Please do point people to it in any writing you do about the financial crisis, e.g. in e-mail discussions, comments on news stories, comments on blogs, and the like.
Such small sites focused on some current issue -- like my even smaller Vote No on 59 -- are relatively easy to create, maintain, and promote. They can get a steady stream of search traffic, as shown by the stats of No on 59. (See the visits and referrals.) They're an effective and enduring form of activism for just a few hours of your time.
Notably, because of Vote No on 59, Ari Armstrong was interviewed by the local news for a segment on Amendment 59 on Tuesday. It was shown at 5:30 and again at 9:00; you can watch it here. (The reporter called me due to the web site, and I pointed her to Ari, as he's more knowledgeable than me.) That's an unusually good result, but certainly possible in a busy election season! In the meantime, over 100 interested Colorado voters each day are reading why they should vote "No" on this permanent tax hike.
By Paul Hsieh @ 1:41 PM
Amit Ghate defends speculators and short-sellers in this excellent OpEd from the Ayn Rand Institute. Here's an excerpt:
...So just as doctors specialize in identifying and evaluating the facts affecting health and disease, speculators and short-sellers specialize in identifying and evaluating the facts pertinent to market prices. They make it their business to understand economic facts like supply and demand, and then risk their capital on their judgment, properly profiting if they're right and losing if they’re wrong. Thus in a free market, rather than prices being set by wish or decree, they are set by a rational process, one which benefits from the knowledge of all who participate.
For instance, if speculators believe that future oil supplies won't match demand, they buy oil, increasing its price. If they're right, and oil prices continue to increase, they sell their positions, profiting from their insight but also capping prices as their supply comes to market; furthermore, their initial effect on prices signals to the market that greater oil supplies are needed and reduced oil consumption is appropriate -- efficiently allowing market participants to adjust their actions to the facts.
So too for short-sellers. If they judge that Enron is cooking the books, or that Lehman is insolvent, they can seek to profit from their insight by short-sales. These lower stock prices in the present and convey to the market that there are potential problems with the companies, helping others avoid losses in the stocks. And if shorts are proved correct, rather than exacerbating any price slide, they actually mitigate price declines when they buy their positions back. (Of course, short-sellers, like speculators, only profit if their judgment is correct. If they short a productive, undervalued firm, say, e.g., Wal-Mart or Apple, they lose when the actual facts belie their predictions.)
...Speculators and short-sellers don't create facts, they seek to identify and respond to them; and in the process they help adjust prices to economic conditions and establish smooth and liquid markets. As a result -- instead of being scapegoated and banished--they should be respected and welcomed for the productive role they play in our markets.
Sir - Ayn Rand has been mentioned several times in your pages of late, but it is startling how prescient was her novel Atlas Shrugged.
There is the socially responsible banker who went bust because he gave loans to those who needed them, rather than to those who could afford them. There's the government regulation and takeovers to ensure that failed businesses keep going.
There's the unthinking desire to cling on to "stability", and the consensus that it is a global problem and everyone must pull together for the common good.
All is in denial of reality, a rejection of reason. Result: the rational is distrusted; men are guilty of being "unfair" if they value competence and "unfeeling" if they refuse to indulge failure. The individual is subordinated to the national, and the national to the international.
If Rand was right thus far, what of the years ahead? Perhaps the motor of the world is stopping.
Iwan Price-Evans, Enfield, Middlesex
The big question is whether our version will have the same happy ending or not...
By Paul Hsieh @ 2:02 PM
Although the economic crisis and subsequent bailout are going to be painful for our country, there may be a very slender silver lining -- namely that the loss of money will likely derail some plans for more big government programs.
Here are a two recent examples, one in health care and the other in "green" legislation:
A growing number of experts have abandoned all hopes of major health reform. "The bailout makes it that much tougher, because health care will be crowded out by other issues," said Drew Altman, president and CEO of Kaiser Family Foundation...
The economic free fall gripping the nation may bring down one of the main environmental objectives: capping the greenhouse gases that are blamed for global warming. ...[T]he focus on stabilizing the economy probably will make it more difficult to pass a law to reduce carbon dioxide and other greenhouse gases. At the very least, it will push back when the reductions would have to start.
These stories suggest that even if a President Obama and a Democratic-controlled Congress wanted to implement these bad ideas, they probably wouldn't be able to do so immediately, purely because of cost.
(It was similar economic constraints that stopped California from imposing "universal health care" at the state level last year, even though the Democratic state legislature and Republican Governor Schwarzenegger were both strongly in favor of it.)
Obviously, this would just be a temporary reprieve -- the liberals' underlying bad ideology has not changed. And I fully recognize that there are plenty of other bad laws that both the Left and the Right could propose (such as restrictions on free speech) that wouldn't require much money to implement.
But the economic downturn could buy us a little more time to continue the fight for good ideas. Let's not waste it...
Update: This New York Times column by David Brooks argues the opposite -- that an Obama admininistration would use the financial crisis as the pretext for massively increased government spending, despite the fact that the country will not be able to afford it.
Either way, I think we'll have our work cut out for us...
By Diana Hsieh @ 12:38 PM
On September 27th, I sent the following letter on the bailout to various papers in Colorado. I don't think it was printed -- although I haven't checked. In any case, I thought I should post it here:
Are politicians in Washington trying to sink the country into a depression? It seems so. The current financial crisis was created by government controls and subsidies. Now politicians want to inject more of that poison into the markets.
Financial meltdowns are the inevitable product of bureaucratic meddling. The health of the economy requires the opposite: freedom. The government should not bail out any Wall Street firms -- or anyone else. The ban on shorting financial stocks should be lifted immediately. The Community Reinvestment Act must be repealed. Fannie Mae and Freddie Mac should be privatized.
The only proper role of the government in the financial markets is the protection of the inalienable rights to property and contract. Only then will every person be free to act on his own rational judgment in pursuit of his own wealth, security, and happiness. That's what America should be all about.
E-mail Diana Hsieh
Comments
