What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
The faces of the Detroit bankruptcy are the thousands of pensioners whose promised benefits are suddenly part of the restructure negotiation. When Motown filed for Chapter 9 last July, the city had $11.5 billion in unsecured liabilities. The vast majority of this was pension and health care benefits owed to retired city employees.The images of […]
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”As the inequality gap grows, there is an ideological battle unfolding in the West.On the one hand, there are those who think government can fix things. It must do more, tax more, […]
On Feb. 7 the United States will once again reach its statutory debt limit, meaning it cannot legally borrow any more money. Since the obvious option of cutting spending to match the amount of revenue that the government collects is off the table for some inexplicable reason, Congress will have to pass a new, higher […]
The New York Times published an interminable article on health care recently. Plenty of facts — how scrupulous are these journalists! — but the article displayed absolutely no comprehension of the basics of cause and effect. I was left wondering about the whole point.The article details how the health care system rewards specialists to an […]
The Largest Company in History:“The United States Corporation of Government (USCOG)”I follow global social and commercial networks, looking for entrepreneurial opportunities.Innovation surges when industry and government models change. Buggy whips. Landline phones. Railroads. The Soviet Union. Apartheid South Africa. All marked social and commercial innovation, both bad and good.We are witnessing a new form of […]
We’d like to give the banks in Australia some credit. They’ve finally gone and done it. They have caught up with 1960s technology. They’ve figured out how to use PIN numbers.How to only use PIN numbers, that is. They’re considering scrapping signatures on credit cards to cut down on fraud. Apparently, having to verify your […]
We put in a good-citizen call to the SEC the other day.“There’s a massive scheme to manipulate stock prices,” we told the friendly agent.“I have to tell you that your call is being monitored so that we can better serve the public,” he replied.“Oh, don’t worry about that. The NSA is tapping our call anyway.”“Are […]
Dr. William C. Padgett is a retired optometrist who has been trying to bring an elderly care facility to Beaufort County, North Carolina, for over a decade.“Our senior citizens,” he laments, “are finding that it is difficult and in many cases impossible to find an appropriate long-term care facility locally.” Though he has received several […]
If you don’t have the angst out of your system concerning Wall Street banksters, Government Sachs, and the Affordable Care Act, settle in with Matt Taibbi’s Griftopia to make your blood boil one more time.Investors should be reminded of 2008 as they shrug their shoulders and put their money back in the stock market. The […]
What do 8 of the 10 wealthiest people in the U.S. have in common?Aside from being able to fly in private jets, the common thread is that each of them has made their fortune thanks to a start-up.Let me explain…From tech titans like Bill Gates and Larry Ellison (founders of Microsoft and Oracle, respectively), to […]
“Inequality is the defining challenge of our time,” according to President Obama. It’s certainly the topic of the day for Paul Krugman, Joe Stiglitz and a whole raft of liberal pundits.But have you noticed that hardly anyone else is talking about it? When is the last time you heard a shoeshine person or a taxi […]
In December of last year, I left my career to travel the world for one year.My plan was to visit as many countries as possible on my Star Alliance Around-the-World ticket in the first nine months, then, for the remaining three months, return back to the country that most caught my eye and my curiosity.Nine […]
Economic history is primed to repeat in the nastiest of ways unless the government stops distorting the price of something we use every day.Every product, good, or service has a price, which is essential to rational decision-making. We use prices every day as vital data that guide us. Without true prices, prices not distorted by […]
A new survey from Harvard University found a large majority of young Americans do not believe the law will save them money, do not believe it will improve their health, and do not intend to sign up for insurance through the new exchanges.
Uh-oh!The new pope, Francis from the Pampas, has just warned us to beware the “tyranny” of capitalism.Each man worships his own gods. Some worship at the altar of Jesus of Nazareth. Some at the altar of the Almighty Dollar. The capitalists don’t bad-mouth Francis’ god. You’d think he would cut them the same slack.Bad-mouthing Catholicism […]
The market has selected different things as money throughout history. Some of these items have served as money in isolated places for specific periods of time — for instance, cigarettes in prisoner-of-war camps. Cigarettes continue to be a currency in prisons if allowed, but if not, according to Wikipedia, “postage stamps have become a more […]
For his U.S. economic history class at UNLV, Murray Rothbard gave us the assignment to write a 10-page paper. The paper could be on anything we wanted it to be. However, we had to clear the topic with him.
When I proposed writing about the Great Depression, Murray was thrilled and rattled off a number of sources. Near the top of his list was a book he described as “fantastic, except it has a terrible title.”
That book is this week’s Laissez Faire Club selection — Economics and the Public Welfare: A Financial and Economic History of the United States, 1914-1946 by Benjamin M. Anderson. As you can imagine, this is a book I have very fond memories of. My copy still has paper clips marking several pages. The text is underlined throughout.
Anderson was one of the first economists to provide a systematic account of the causes of the Great Depression. It remains the most reliable documentary guide to precisely what happened, before, during, and after. That is the essence of this book.
Anderson had feet both in academia and banking. He was on the faculty at Columbia and later at Harvard, and then joined National Bank of Commerce in 1918. Two years later, he moved to Chase National Bank to serve as economist and editor of the Chase Economic Bulletin.
He was also a world-class chess player and wrote what’s been described as a brilliant preface to Jose Capablanca’s book A Primer of Chess. Sadly, Anderson never saw Economics and the Public Welfare in print. He died of a heart attack just prior to its publication.
The years between the forming of the Federal Reserve and the end of World War II are some of the most interesting and formative years in U.S. economic history. Of course, the common narrative we constantly hear is the “monetarist” version parroted by Ben Bernanke that the central bank erred on the side of tightness and the money supply plunged, lengthening the Great Depression, and it was ultimately only fixed with a massive government works program known as WWII.
Instead, imagine having a correspondent on the ground keeping a rich, informed diary of the day-to-day, week-to-week, and year-to-year events as seen through the eyes of an Austrian economist, from the creation of the Federal Reserve through the Great Depression to Bretton Woods. That is what Economics and the Public Welfare is.
Anderson provides some theory along the way, but what this great book primarily does is chronicle monetary and economic events from the beginning of the Fed’s operation to after the war. Politics, stock prices, and banking and trade data, plus a fast-paced narrative combine to make the reader feel like he or she is there.
As you would expect a bank economist would, Anderson provides a blizzard of numbers to provide emphasis for his story.
For instance, Anderson provides the principal resource and liability items of the Federal Reserve during the war. Total resources ballooned from $637 million in 1915 to $5.2 billion in 1918. On the liabilities side, Federal Reserve notes in circulation exploded as well, from $165 million to $2.5 billion, as did member banks’ reserve deposits, which increased from $398 million to $1.7 billion.
As measured by percentage growth, this is greater balance sheet growth than the Bernanke Fed post ’08 crash. Seeing these astonishing numbers triggers a realization: The years from 2008-13 amount to our own World War I. One hundred years ago, this sort of thing led to the post-boom crash of 1920 and unleashed the distortions of the roaring ’20s that led to the second major crash of 1929.
Back in these days, the banking system also found itself flush with reserves. With bank reserves held at the Fed and not being lent out, the money market tightened and rates increased, despite bank credit expanding. After dropping to 1% in 1915, the bank call rate rose sharply to 7% in 1917. Bond yields also went up. “The pressure of firm money rates undoubtedly did a great deal to retard bank expansion and to hold it down to necessary things,” Anderson wrote.
Of course, in similar fashion, bank reserves are also piling up at today’s Fed, and money is, indeed, tight for the average person. Even so, the Fed of those days was not nearly as reckless as ours is today. The Bernanke Fed works overtime to keep money tight but rates uber-low in aid of the government, big banks, and speculators on Wall Street.
If you haven’t ever heard of Benjamin Anderson and wonder about his hard money, anti-Keynesian bona fides (after all, he did work for a bank), this quote from Chapter 1 gives you an idea:
“The very inelasticity of our prewar (World War I) system made it safer than the extreme ductility of mismanaged credit under the Federal Reserve System in the period since early 1924. The whole world was, moreover, far safer financially when each of the main countries stood on its own feet and carried its own gold.”
More than once, the reader will stumble upon a sentence that will make him smile. What’s old is new again. We’ve taken note that Iowa farmland is looking bubblelike in 2012 and 2013. Sure enough, in his chapter on the 1920-21 crisis (what, you’ve never heard of that one?), Anderson offers a small section “Land Speculation — Iowa.”
In a footnote, the author remembers what an Iowa City banker told him. “I know that you economists say that land is only worth what it will produce, but it does look like some of this land around here is worth a thousand dollars an acre.”
Plugging that $1,000 into the inflation calculator turns up a number of $11,100 per acre in 2011. It’s almost eerie that the average price of land in O’Brien County, Iowa, last year was $12,862 per acre, a 35% increase over the 2011 average.
Not so famously, the government didn’t intervene in those unenlightened dark ages. Wages and wholesale price levels crashed. The result, says Anderson: “In 1920-21, we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921, we started up again. By the spring of 1923, we had reached new highs in industrial production and we had labor shortages in many lines.”
The chapter I have bookmarked with the most passages highlighted is “Digression on Keynes.” For nearly 20 pages, Anderson takes on Lord Keynes, whom he describes as “a dangerously unsound thinker.” Anderson points out that Keynes heavily influenced Roosevelt and all economists who worked for the government. In The General Theory, Keynes targets a passage from J.S. Mill out of context to challenge the idea that aggregate supply and aggregate demand grow together.
The author points out that Keynes and his followers think in aggregates. He provides an aggregate supply function and an aggregate demand function. While human action is economics, there is no discussion of interrelationships. “Nowhere is there a recognition that different elements in the aggregate supply give rise to demand for other elements in the aggregate supply.”
Our governments, corporations, and individuals pile up debt seemingly with impunity. The ideas of balanced budgets and living within our means are thought to be quaint. Modern Keynesians like Paul Krugman pooh-pooh the notion of balanced budgets and fiscal restraint. Where could he get such a notion? Anderson explains:
“Where economists generally have held that saving and avoiding unnecessary debt and paying off debt where possible are good things, Keynes holds that they are bad things. He disparages depreciation reserves for business corporations. He disparages amortization of public debt by municipalities. He disparages additions to corporate surpluses out of earnings.”
There are entire books devoted to challenging Lord Keynes and The General Theory. But, Anderson’s short chapter will provide you all the ammunition you need.
Near the end, the author reprints a memo he penned for private circulation that eventually found its way throughout government. The contents of the memo are considerable. However, one small snippet speaks to current Fed policy:
“Inflation is not something that you can turn off and on like water at a faucet. Inflation and deflation are not simple terms and they are not simple opposites. There is no financial Westinghouse air brake by means of which an inflationary movement can be tapered off and brought gently to an end without shock. Rather, inflationary forces engendered in defiance of sound financial policy may seem harmless for a long time and then suddenly break force into great violence.”
There is an enormous amount of wisdom in this book. Everyone trying to understand monetary and economic policy during the Depression or today and the subsequent effects should have Economics and the Public Welfare loaded and ready to read cover to cover, or to refer to often. Anderson is an indispensable guide to government monetary policy, as it happened, that still haunts us today.
Being the kind of guy he was, Rothbard recommended Anderson’s great book before recommending his own America’s Great Depression. Both are amazing. But Murray had the benefit of Anderson’s work in writing his. He cites him no less than 15 times.