Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by the new law? They’re the ones on the frontlines dealing directly with new patients, as well as the red tape that makes bureaucracies go round.
Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Instead of siding with entrepreneurs, these politicians often side with political allies and cronies that helped put them into office.
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
If you’re good at something should you be penalized so others have a chance at success? Should award winning actors and actresses be barred from future Oscar ceremonies to give other men and women the chance to succeed? Success should always be rewarded and encouraged. But what happens when you have a government that wants to even the playing field and take away the spoils of success. Gregory Bresiger finds out...
Practical people often pooh-pooh fiction reading as a time wasting dalliance, dominated by a Marxist coloring of the world. However, fiction readers were given a scientific reason recently for spending hours absorbing fanciful figments of someone’s imagination.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
When government expansion is allowed to continue unabated or when it casts a heavy regulatory shadow on America’s entrepreneurial spirit, the freedoms that we’ve come to know, and perhaps take for granted, slowly begin to slip away.
Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.
Baron Rothschild, the famous French financier, was once heard to say that he knew of only two men who really understood money -- an obscure clerk in the Bank of France and one of the directors of the Bank of England. “Unfortunately,” he added, “they disagree.”
The new reality of Obamacare’s tax credits has left finance reporters to pen articles warning readers to “take care” when considering a tax credit and providing strategies for how best to “protect yourself.” So what do finance reporters know that the White House doesn’t?
Nihilo ex nihilo fit. Out of nothing, nothing comes. First put forward by ancient Greek philosopher Parmenides in the fifth century B.C., Thomas Aquinas and St. Augustine later used this axiom to prove that the universe needed a “first mover” to get things going. Even if the whole thing began with some kind of “Big Bang” moment, it still needed a banger to bang it. Who? God, of course.
Economic theories don’t lend themselves to laboratory testing, so the work of a national appraisal firm is especially enlightening. A new study lends support to the Austrian business cycle theory, which says that the less government is involved, the faster a market will recover.
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 secrecy of the Federal Reserve is legendary, but pressure in recent years has led to some opening up. Already in the last 12 months, we’ve seen some eye-popping records of who received credit during the 2008-09 credit crunch. We’ve seen lists of institutions that the Fed favors, and these lists have confirmed the worst fears. Hint: It’s all about the big banks.
But now we get the really fun stuff. The transcripts, released five years after the fact, of the open market committee meetings provide a fascinating look into how the Fed was thinking about the world just before the greatest market meltdown in modern times. No one at the 2006 meetings saw it coming. Thousands of market commentators, economists and bankers saw it coming, but the Fed — the all-wise and all-knowing Fed — did not see it coming.
That the Fed actually played the largest role in producing the bubble that turned to bust only adds to the irony that the Fed was clueless about the emerging reality on the ground. Ben Bernanke saw some softening in home prices and needed correction to the run-up, but he was somehow sure that there would be a soft landing.
The meetings opened that year with Alan Greenspan at his final meeting and saying his goodbyes. There was some talk about long-term pension problems. Greenspan dismissed it, pointing out that, “We have enough trouble forecasting nine months.” Everyone laughed. Ha ha. Thanks for admitting this — in private.
At this final meeting, the group also heard one of the clearest statements in all the transcripts that there were troubles on the horizon. Fed chief economist David Stockton stated very clearly: “As I contemplate our outlook and the things that I worry about the most on the domestic side of the economy, I’d say the housing sector is clearly one of the biggest risks that you’re currently confronting.”
But the gloom didn’t last long, and the meeting ended with a wildly upbeat report from none other than Timothy Geithner, now secretary of the Treasury. He begins with an over-the-top tribute to Greenspan (“I’d like the record to show that I think you’re pretty terrific”) and continues on with an upbeat forecast of endless growth and happiness forever. Even though he was spectacularly wrong, he is now running the show.
The opening meeting with Bernanke set the tone for all the meetings that followed. Stockton probably sensed that he might be free to speak his mind for the first time in years. He compared the situation in housing to riding a roller coaster blindfolded. “We sense that we’re going over the top, but we just don’t know what lies below.”
But Bernanke intervened to stop all such crazy talk. “I think we are unlikely to see growth being derailed by the housing market,” he said. He assured all present that “the strong fundamentals support a relatively soft landing in housing.”
Ever the pleaser, Geithner agreed. “Equity prices and credit spreads suggest considerable confidence in the prospect for growth,” he said. “Overall financial conditions seem pretty supportive of the expansion.”
Later that summer, Fed Gov. Susan Bies tried again to introduce some caution, pointing out that the banks were all using models that presume falling interest rates and rising home prices. This has allowed many American families to depend on home equity loans more than they should. “It is not clear what may happen when either of those trends turns around,” she cautioned.
Once again, Bernanke smacked down the naysayer. “So far, we are seeing, at worst, an orderly decline in the housing market…As I noted last time, some correction in this market is a healthy thing, and our goal should not be to try to prevent that correction, but rather to ensure that the correction does not overly influence growth in the rest of the economy.”
From the point of view of economic theory, there is an interesting comment made by Dallas Fed president Richard Fisher. He pointed that everyone on the planet was talking about the housing problem, but he cited this as a reason not to be concerned. “If we have not discounted what has been happening in the housing market, we have been living on Mars.”
In other words, he was saying that if something awful were going to happen, it would already have happened. Because everyone was talking about something meant that the awareness of the risk was surely already built into the existing data.
This amounts to a reversal of the old joke about the economist who refused to admit that there is a $20 bill on the ground in front of him on grounds that if the bill were there, someone would have already picked it up. In the same way, if this economist were going to be hit by an oncoming truck, it would have already hit him.
The year ended with Gov. Bies again warning that the risk is much more serious than anyone had yet acknowledged. “A lot of the private mortgages that have been securitized during the past few years really do have much more risk than the investors have been focusing on,” she said. But Bernanke shoots her down yet again: There will be a “soft landing” for the economy.
Look, there is no crime in not knowing the future. No one knows: no palm reader, no philosopher, no economist. You can assemble all the data the world has to offer, but it tells you only about the past. Forecasts are fine, but they are always speculations. The people assembled in the Fed’s meeting room were doing forecasts not unlike what every business in the world does every day. Sometimes they are right, and sometimes they are not.
What is significant here is not that Bernanke did not see the future. The significance is that the power and responsibilities of the Federal Reserve itself are premised on the idea that somehow its managers know something that we do not. They are charged not with planning the past that they can know, but with planning a future that they cannot know. This is the essential error of the central bank’s planning powers.
And there is another problem. The Fed has an institutional bias, and this is clear from the transcripts. It is especially obtuse in taking note of risks and problems that the Fed itself is responsible for creating. In this way, it is just like every other government agency. They all see problems in the world but those that the institution itself caused.
The congratulatory praise of Greenspan at that opening meeting of 2006 is a metaphor for the arrogance and self-congratulatory culture of the entire institution. The Fed imagines itself to be the solution for every problem. The truth is that the Fed itself is the source of a vast number of our problems.