I want to thank everyone for all of your hard work during the bailout fight. Although the vote was a disappointing reflection on the House of Representatives, we should take great encouragement in the fact that we came together as one and shocked the media and the DC establishment these past weeks.
Now that the vote is over, we must proceed to the next step: keeping our promises to hold Congress accountable.
Posted by Don Rasmussen on 10/07/08 Last updated 10/07/08
Federal Reserve Chairman Ben Bernanke Tuesday signaled a readiness to lower interest rates in a dramatic shift to support an economy battered by a financial crisis of "historic dimension."
Since cheap credit and over stimulation caused this financial meltdown, then obviously we need more cheap credit and more stimulation to fix it. So says planner-in-chief Ben Bernanke. Apparently the markets and the people are done buying this baloney. When Bernanke started his remarks today, the Dow was at -120. By the time he announced his willingness to cut rates; it had fallen to -300. The old paradigm has failed and beating that horse will only deepen the crisis.
Posted by Don Rasmussen on 10/07/08 Last updated 10/07/08
Everyone complains about what poor stewards of the people's money the government tends to be, but rarely does anyone address the question why. We chalk it up to greed and stupidity, or we just take it as the natural course of things, joke about $200 hammers and move on.
But there are actual, quantifiable reasons that government is bad with money and those reasons are systemic in nature, meaning that no matter who is in charge, or what laws are passed, the root reasons for the waste and fraud will still be with us.
Milton Friedman brilliantly described the four ways that money is spent.
The first and most common way in the private sector is people spending their own money on themselves. In this case, the buyer is interested in both quality (the best product or service that he can afford) and value (getting it at the best price) because he is both the producer of the wealth being spent and the consumer of the good or service being procured.
The second way is when people spend their own money on others (such as gifts). Here they are still concerned about value (it's their money), but less concerned about service quality as they are not the consumer.
The third way is spending other people's money on yourself. Think of the rich man's girlfriend who buys herself the nicest dresses in the store on his credit card without even looking at the tag. She wants quality, but value is irrelevant since she sacrifices nothing.
The fourth way is when people spend other people's money on other people. In this case, the buyer has no rational interest in either value or quality. Government always and necessarily spends money in this fourth way. This guarantees inefficient public spending because the spenders have no vested interest in efficiently allocating those funds.
Adding to the inherently inefficient nature of public spending is what is referred to as the "theory of measurable output." This is the idea that every system needs a "yard stick" to monitor its relative health and effectiveness. For private enterprise, these outputs are called profits (or losses), dividends, share prices, etc. However, public entities have no such affirmative measures. The only measurable outputs are increases in the entity itself, bigger budgets, more employees, greater power and regulatory authority, etc. So a million dollar loss in a private firm will signal the need to save money, cut employees, make better products, or cease to exist. In a bureaucracy, that same loss will result in a million dollar increase in budget for the next year with accompanying increases in staff, salaries and political power. If that same bureaucracy fails to spend/waste all of the annual budget, then that budget is more likely to be cut. Hence, failure is rewarded and success is punished.
The third thing to consider is the nature of the legislative process. We have seen this in full color in the last week as the bailout bill grew from 3 pages to more than 400 as additional spending was added to satisfy the special interests that control the votes of the members of congress.
While hardly comprehensive, this should give some insight into why the government is, and always will be, bad with your money. Please keep this in mind whenever someone predicates their argument on the assumption that allowing government to intervene will lead to desirable results. This was a key argument for why they should pass the bailout. We were told that buying worthless paper would be a good deal when the government analyzed these "assets" and sold them back into the market. Don't hold your breath.
Congressman Ron Paul recently called for supporters to get behind a money bomb for candidate B.J. Lawson who is running for congress in North Carolina. The money bomb is set for today. You can read Dr. Paul's statement on United Liberty here.
Posted by Thomas Woods on 10/07/08 Last updated 10/07/08
A stunning article in the Financial Post this morning. (Thanks to the Mises blog.) A tiny sample from a piece that should be read in its entirety:
"To the extent that this assessment has been made, it represents an important victory for a school of thought that has long hung on the margins of the economics discipline: the Austrian school of economics, whose most illustrious figures include the Nobel prize winning Friedrich von Hayek and Ludwig von Mises. Austrian economists hold that downturns are the inevitable aftermath of loose monetary policy, thus opposing explanations typically heard prior to the current crisis that attributed recessions to price shocks, underconsumption or central bank tightening of monetary policy.
"But if, to rephrase a well-known Nixon quote, we are all Austrians now, it illogically only extends to the diagnosis of the crisis and not to the school's market-based cure. For it is just not consistent to simultaneously assign blame to Greenspan's easy money and then support government intervention to fix the damage, as so many of the business op-ed writers and talking heads on CNBC have."
I'll be interviewing Ron Paul-endorsed congressional candidate B.J. Lawson for my weekly Internet broadcast at 2pm ET today. Listen here. Got questions? Please send them to me. And here are some previous programs.
Posted by Don Rasmussen on 10/06/08 Last updated 10/06/08
The depression of 1929 is the wrong model for the current economic crisis
By SCOTT REYNOLDS NELSON
As a historian who works on the 19th century, I have been reading my newspaper with a considerable sense of dread. While many commentators on the recent mortgage and banking crisis have drawn parallels to the Great Depression of 1929, that comparison is not particularly apt. Two years ago, I began research on the Panic of 1873, an event of some interest to my colleagues in American business and labor history but probably unknown to everyone else. But as I turn the crank on the microfilm reader, I have been hearing weird echoes of recent events.
You may have seen these links before, but they're worth
repeating. If you'd like to learn about the current mess --
what's going on, how we got here, and how to get out -- I recommend The Recession Reader and The Bailout Reader.
Posted by Thomas Woods on 10/06/08 Last updated 10/06/08
Folks, I fear we could be in this for rather a long while, all the longer the more government tries to fix it.
Here's one thing I'd like to see the Campaign for Liberty do:
produce a professional video, 30 to 60 minutes long, explaining in
layman's terms what happened to the economy. Hardly anyone is
explaining how we got here (except through "greed" -- an embarrassing
non-explanation, as if greed were something new in the world).
Interview some major people. Use a professional voice-over
man. Aesthetics count, since something that looks like it was
made in your basement won't seem credible to the average person.
Then distribute like crazy -- online, yes, but also send hardcopies to
all precinct leaders, and anyone else who requests one. Assemble
additional materials for discussion and distribution so people can
screen the video in their homes, inviting their friends and neighbors
for a special screening party. Have one of these in as many
neighborhoods as we possibly can.
Expose people to the truth, so they'll be less susceptible to
manipulation by the shysters who intend to exploit this situation to
grab more power for government.
Posted by Don Rasmussen on 10/06/08 Last updated 10/06/08
As the market spirals into an abyss, homes are foreclosed and credit becomes rarer than honest politicians, it is easy to get depressed and to experience a lot of anxiety about what is happening and what may happen in the future. I know I am planning for uncertainty and I recommend everyone else do the same.
A friend of mine recently lost her home to a fire. Literally everything she owned was destroyed. A lifetime of memories and possessions were gone in one brief conflagration. Needless to say, she was awash in despair and uncertainly. My advice to her was the same that I give myself in these moments of seeming hopelessness.
Tomorrow the sun will rise, fall will pass into winter and winter into spring. Time will pass and the pain and fear that dominates the moment will be replaced with new memories, new opportunities and that one day she will look back and realize that she has reclaimed all of the joy and hope that seemed so elusive in that moment. As long as you have your life, you have hope.
Things are going to be tough for some time, but if you are reading this, chances are that you are more prepared than the average person. Cover your bases, look out for the ones you love, and plan strategically for what may come. I promise the sun will keep on rising.
To promote and defend the great American principles of individual liberty, constitutional government, sound money, free markets, and a noninterventionist foreign policy, by means of educational and political activity.
