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 […]
A president stands disgraced. Congress is scattering. Bureaucrats are baffled. Pundits are reaching. Industry is scared. Politicians are scrambling to do something, anything, to make it better. One political party is in meltdown and the other loving every minute of it, hoping to ride the calamity to electoral gains.The so-called Patient Protection and Affordable Care […]
Given the enormous role that the welfare-warfare state plays in American life, it is always easy for libertarians to find deprivations of liberty, such as coerced charity, drug war incarcerations, the IRS, torture, surveillance, and assassination. Infringements on fundamental rights and liberties have become such an integral part of daily life that many Americans have […]
The great battle since 2008 has pitted the ghosts of F.A. Hayek against John Maynard Keynes.
Team Keynes dictated the policies we know too well: more government spending, flood the economy with money, prevent liquidation. This team predicted a recovery that still hasn’t come.
Meanwhile, Team Hayek has had a different set of predictions. This would not boost recovery. It will forestall it, even make everything worse. We’ll pay an even higher price later on.
As the failure of Team Keynes has become clearer, the battle has become brutal, a real war of words, some of which have been flung at our very own Robert Murphy, who serves on the Advisory Board of the Laissez Faire Club.
Naturally, we’re coming to his defense.
Hayek and Keynes — the great opponents in the struggle over how government should manage recessions — were social acquaintances. They disagreed profoundly on nearly everything. Still, they had respect for each other’s professional accomplishments.
For this reason, in 1946 Hayek asked Keynes the burning question. Did Keynes worry about whether his followers would use his theories and invoke his name on terrible policies? Keynes said “no” because he would simply step up and correct them, distancing himself from whatever contradicted his core values.
A few weeks later, Keynes died.
He left hundreds and thousands of economists — many generations now — to claim to speak for him. And what they have said and done is really quite terrible. And most of these terrible policies have been an extension of what Keynes himself suggested in the 1930s and 1940s.
Would Keynes have repudiated them? Maybe or maybe not. Keynes had a long record of randomly changing his mind depending on the political need at the time.
So it is with his followers. The two most prominent and politically engaged Keynesians today are Berkeley’s Brad DeLong and Paul Krugman of MIT and the New York Times. Since 2008, they have been the leading voices in in defense of endless rounds of stimulus. However much money Congress spends, it’s never enough. However much money the Fed creates, it should create more. No matter how low interest rates are, they should be lower.
For five years, they’ve engaged in an unrelenting rhetorical ploy. When there’s good economic news, they say: look how government intervention worked! When there’s bad economic news, they say: we told you that there needed to be more government intervention!
It’s pretty clear that no existing reality will ever shake their faith in the power of government to cure all ills through regulations, inflation, spending, and taxation. It’s an infallible doctrine.
It’s been fascinating to watch mainly for one reason. Those of us with a non-Keynesian understanding of economic processes knew all along that the post-2008 stimulus would not fix the problem and would actually end up doing more damage. The proponents like DeLong and Krugman — two among multitudes — said repeatedly that only government measures would cure the problem.
Team Hayek knew better. We knew that artificially low interest rates would only break the system, that more spending would only divert resources, that more regulation would only gum up the works of enterprise, and that more debt would only crowd out private investment.
You might think that DeLong and Krugman should be held to account. Well, one of the most effective interlocutors has been our own Robert Murphy. He has tracked their predictions carefully for five years and shown repeatedly that they have been consistently wrong. More substantially, he has shown why they have been wrong. Their simple mechanical models are too aggregated to capture the complex pricing signals of the market.
Murphy has repeatedly challenged Krugman to a debate, and even raised $81,000 to go to a charitable cause if Krugman agrees. But neither DeLong nor Krugman have shown any willingness to engage Murphy in a debate or closely discuss Murphy’s “Austrian” views on the great economic problems of our time.
Then at year’s end, both blew a gasket.
DeLong went first. He called out Murphy on his prediction that we would see 10% price increases by 2013, and further drew attention to a $500 bet that Murphy made with economist David Henderson on this point. Then Krugman jumped in too, further flogging Murphy. Both said that Murphy needs to apologize to his readers and rethink his entire worldview.
Talk about chutzpah, huh? The Keynesians are the ones who have been “completely, comprehensively, unmistakably, fundamentally, fatally, totally wrong” (to use DeLong’s words) about the stimulus. After all, if stimulus #1 worked, there would not have been a need for #2, #3, #4, and #5 unto infinity. It’s never enough. Even the little progress they can point to, such as a slightly lower unemployment rate, is compromised by the dramatic fall in the workforce itself. It’s hardly progress that millions have simply decided to give up on ever finding suitable employment.
It was Murphy that has been 100% right about the big picture: Keynesian policy has not done what it is supposed to have done, and this is for all the reasons that the Austrian-Hayekian model would predict.
But what about Murphy’s own inflation prediction? After all, wasn’t Murphy wrong here and didn’t he lose? Yes, he was wrong. But note: he obviously believed in it enough to put his own money on the line, which is saying something in a world of punditry without accountability.
Moreover, being wrong on this one empirical matter says nothing about the Austrian model itself, which is a not a model designed to predict inflation but a model to account for the business cycle itself and how not to try to cure it.
The mitigating factors that Murphy overlooked make a fascinating study in themselves. The European meltdown dramatically increased the market for dollars overseas, blunting inflationary effects at home. Money velocity has also taken a dramatic fall, reducing upward price pressure all around.
Above all else, Bernanke’s zero interest rate policy has broken the banking system and made it less effective in creating the credit that it might have in the past. In other words, Murphy had assumed that prevailing institutions would keep working as they had. But they stopped working and therefore didn’t react as one might expect.
(I’m also among those who had expected dramatic increases in prices, and admit that I too was wrong. My attempt to account for why appeared in Laissez Faire Today under the title “The Great Disconnect“).
There is nothing unusual about this. Recessions often signal troubled bank balance sheets and a broken system of credit expansion. In fact, he years 2008-2013 closely parallel the years 1930 to 1932, when the Fed was busy trying to create new money through the banking system but the banking system would not cooperate. Reserves ballooned (just like today) but money on the street did not.
Murray Rothbard tells the story in America’s Great Depression, the definitive Austrian account of the onset of the crisis. He shows how the Fed kept trying to expand money and credit through low rates and bond purchases, but they were unable to achieve their goals.
Following the stock market crash, “in 1930, the government instituted a massive easy money program. Rediscount rates of the New York Fed fell from 42 percent in February to 2 percent by the end of the year…. Despite this increase in reserves, the total money supply (including all money-substitutes) remained almost constant during the year,” while “production and employment kept falling steadily.”
Then in 1931: “The Federal Government had tried hard to inflate, raising controlled reserves by $195 million — largely in bills bought and bills discounted, but uncontrolled reserves declined by $302 million, largely due to a huge $356 million increase of money in circulation…. The inflationary attempts of the government from January to October were thus offset by the people’s attempts to convert their bank deposits into legal tender.”
Again: “The Federal Reserve tried its best to continue its favorite nostrum of inflation — pumping $268 million of new controlled reserves into the banking system (the main item: an increase of $305 million in bills discounted). But the public, at home and abroad, was now calling the turn at last…. the will of the public caused bank reserves to decline by $400 million in the latter half of 1931, and the money supply, as a consequence, fell by over four billion dollars in the same period.”
And then 1932: “Despite this great inflationary push, it was during this half year that the nation’s bank deposits fell by $3.1 billion; from then on, they remained almost constant until the end of the year. Why this fall in money supply just when one would have expected it to rise? The answer is the emergence of the phenomenon of ‘excess reserves.’ … Naturally, the banks, deeply worried by the bank failures that had been and were still taking place, were reluctant to expand their deposits further, and failed to do so.”
Rothbard summarizes the paradox with a general principle: “In a time of depression and financial crisis, banks will be reluctant to lend or invest, (a) to avoid endangering the confidence of their customers; and (b) to avoid the risk of lending to or investing in ventures that might default. The artificial cheap money policy in 1932 greatly lowered interest rates all-around, and therefore further discouraged the banks from making loans or investments. just when risk was increasing.”
As a result, money supply was flat or fell just as the Fed was inflating.
Sound familiar? Absolutely. It’s just like today. But get this: Rothbard is a thorough practitioner of the Austrian theory, a man from whom Murphy’s learned economics. His book is the main Austrian account of the Great Depression.
In other words, it is the Austrians who have best accounted for our current plight, and that includes the phenomenon that Murphy himself had mispredicted only because he underestimated how much the downturn plus Bernanke’s policies would wreck the credit system. Other than this point, Murphy has been more accurate in his forecasts than any economist of the non-Austrian variety.
It is very much to Murphy’s credit that he was chosen by the two leading spokesmen for Keynes today as the great enemy that they have to slay. He is indeed. He is young, smart, and he knows his stuff. He has argued consistently that the Fed’s policies will create new forms of distortions. We might yet see price inflation but even in its absence, the distortions in the bond market and capital structure are real and highly dangerous for the future of economic growth.
They attacked him on a small point on which he was vulnerable in order to distract from the bigger point on which he has been completely correct and they have been completely wrong.
I’m also very happy to announce that Murphy will be first up in an exciting new series of seminars run by the Laissez Faire Club. In the course of three lectures with questions and answers, he will discuss the current economic stagnation and the correct theory that accounts for it. He will present to readers the ideas that have granted him such prescience in a time when the Keynesians have been so consistently wrong.