The Market Fundamentalist

http://reason.com/blog/printer/130475.html

Link from Reason.com blog, HIT AND RUN

Sometimes, in order to understand how large social organizations work, it is illuminating to examine a relatively trivial example of the dynamic and gain insights into the more complicated large scale organization.

In Oregon, car dealerships, who are facing hard times, are asking the state government to PASS A LAW forbidding car sales on SUNDAY.

Of course, they will say that Sunday is a religious day, and large scale commerce should be banned for religious reasons.

This is a perfect example of the Baptist and Bootlegger paradigm in “rent seeking activity”. (RENT SEEKING is the PUBLIC CHOICE school of economics term for using the state to gain competitive advantages in the market)

The Baptists would be the evangelicals and others who would welcome the State of OREGON to ban car sales on Sunday as a religious gesture of the importance of the SABBATH.

The Bootleggers, in this case, are the CAR DEALERSHIPS who want to cut down their expenses in a sagging economy and try to squeeze more sales out of the Saturdays they are open.

The KICKER is that the dealerships do NOT just want to close on their own. Why? Because PRIVATE CARTELS do not last long, that is why. Even OPEC has its internal discipline problems. If all the current dealerships decide to close down on Sundays voluntarily, why some one might change their mind, or an UPSTART new guy from Nevada might see an OPPORTUNITY FOR PROFIT and open a dealership that is closed on MONDAYS, but open on SUNDAYS, when frustrated weekend shoppers might be willing to close the deal.

Ok, Ok this is small potatoes. What is the point you were trying to make about major issues?

Well, since we have numerous liberals on this list, let’s look at JIM CROW laws.

OMG, he’s talking about RACISM in economic terms! How dare he analyze the relationship between HUMAN BEINGS in anything but purely humanitarian calls for equality?

Well, because, like it or not, we live in a world of scarcity, and with limited knowledge, and those are the conditions that economics is geared to analyze.

Consider that in the DEEP SOUTH, the majority of the white people were racists and wanted to keep blacks down. What would their strategy be? Well, the majority of white people is STILL not the majority of all people. Some whites are not racist, and the blacks might even outnumber the whites.

So, what organ of power would you try to focus your attentions on? Controlling the free market? Not likely, because the free market is well, free. Too many variables.

So, how about controlling the STATE! Yes, that’s the ticket! Concentrate on controlling the STATE!

So, make it harder for blacks to vote. Sure, that is important. Then, the majority of racist whites can elect RACIST governments, willing to pass and uphold JIM CROW LAWS.

Then, be sure the District Attorney is racist, and the judges. Easy to do when justice is a MONOPOLY controlled by the state. Make sure juries are all white.

Then violence and intimidation against blacks will go unpunished, and any uppity blacks will be prosecuted to the “full extent of the law”.

Now, this is most important: Pass laws that state that EVERYONE MUST DISCRIMINATE. No exceptions. Every business must be all white, or all black. No one can move to the South , no big corporations can move in, without obeying the JIM CROW laws.

No white liberals can gain a competitive advantage (like being open on Sundays in Oregon) by being willing to serve both whites and blacks.

There you have it. Jim Crow was a function of the state controlling business, not vice versa.

Free markets in the South would never have supported JIM CROW, because segregation does not make MARKET SENSE. You would have to have two of everything: two locker rooms, two bathrooms for each gender, two lunch rooms, etc. The costs of doing business would be prohibitive. Not to mention the constant racial tensions in the workforce.

That is why when the black man Plessy dared to sit in a whites only railroad car in the 1890’s and was arrested , the RAILROADS paid for his defense all the way to the Supreme CT., which did not uphold his right, or the rights of the railroads either (government regulated, you know) to conduct their business in a PROFIT MAXIMIZING WAY.

So, large corporations usually avoided investing in the JIM CROW south. The south did NOT become prosperous until JIM CROW ended.

Now, what about the civil rights movement? Was it the best solution?

Not necessarily. Sure, the power of the state was crushed. But, the power of individuals to think and act in a private capacity was crushed as well.

Does passing laws saying NO ONE CAN DISCRIMINATE an ethically better option than laws saying EVERYONE MUST DISCRIMINATE?

Given that those who wish to discriminate will face market losses and pay for their discrimination, and that free markets will not sustain large scale discrimination, was it worth attacking private property rights and free speech and free thought to “stamp out” all discrimination?

Those who believe in political correctness, favor forced busing, believe that the government must constantly intrude into the lives and businesses of citizens to enforce “equality” certainly do.

Those of us who are skeptical of government intrusions, and are willing to tolerate private behavior we do not agree with so that the overall freedom of association (and non association as well) is protected, do not.

Barry Goldwater did not vote for the Civil Rights Act, because he thought it would indeed lead to the PC culture we indeed have today.

Was he right?

Brendan

http://reason.com/blog/show/130478.html

Finally, an HONEST POLITICIAN!

No, not honest in the sense of truthful and ethical, but honest in the sense that Gov Rod Blagovetch’s frank ramblings about how much a Senate seat was worth to him on the open market caught by the FBI wiretaps is relevant to several threads we have pursued on our lists.

Like my friend Dennis would say, now we know why they spend millions to get a 100,000 dollar a year job.

Like Chris would say, sure there are some really honest, hard working politicians (most of them Democrats, I would think he would say) but Blagovetch’s blatant admissions underscore what I have said:

1. The worst monkeys climb the greasy pole of politics to the top (FA Hayek)
2. Public choice economics reveals to us that politicians are NOT selfless individuals dedicated to the “common good”, but ambitious pikers driven by self interest, and WITHOUT the competitive checks and balances one finds in the market.
3. As the economist in this blog points out, with all this bailout mania, what we will see is influence peddling writ large, as hundreds of politicians cloak their inner Blagovetch with high sounding words about “saving jobs” or “helping little people keep their homes” or “building a greener world” or just “change” as the corporations line up for favors that will surely be repaid in full down the road.
4. The polticians (ie, the state) ARE the real center of power. They are NOT owned or controlled by corporations or some hidden elite. They ARE the elite, they HAVE THE GUNS, and they dispense the favors that only power can bestow according to THEIR whim.

Brendan

t is the lie that Herbert Hoover was a “laissez faire” do nothing and FDR was a “strong leader” who “created the middle class” through government interventions that has fed the media frenzy for the bailout this last week.

Neither myth is true. Herbert Hoover was no laisez faire ideologue. He was a dyed in the wool Progressive who believed in the Progressive myths of an enlightened elite that would manipulate the economy and society through scientific principles applied through civil service bureaucracies. He was an engineer who had done good work in bringing relief to famine stricken areas of the world but it was a big mistake to believe that his engineering background could successfully manipulate a free society or a complex economy.

Hoover created the FCC, and nationalized the new radio broadband spectrum, giving us the unconstitutional distinction between freedom of the press and government censorship of the airwaves. He was instrumental in creating other big government bureaucracies, including the FAA.

When the stock market tanked, he refused to allow the markets to weed out the bad investments by letting the bad malinvestments fail. There would be unemployment, although probably only for months, not years, if Hoover had let the markets work. Instead, he called on big business leaders to keep wages and therefore prices high, and resist cutbacks. He raised taxes,and pushed through the Smoot Hawley tariff. The tariff, designed to protect American workers from foreign competition in order to “save jobs”, instead spread the depression around the world as countries retaliated by raising their tariffs, and trade ground to a halt.

Roosevelt followed the same protectionist, big government strategy as Hoover, only he went further by imposing fines, creating the fascist NRA (declared unconstitutional after a suit by two brave Jewish chicken growers from Brooklyn), useless make work projects that did nothing to increase productivity, keeping prices high by ordering “surplus” meat and grain to be destroyed, confiscating the citizens gold, and ending convertability of the dollar to gold, thereby setting the grounds for the continuous inflation we have lived with since 1932.

None of Hoover’s or Roosevelt’s interventions worked, they all failed, and the Depression dragged on until finally Roosevelt essentially nationalized the economy by entering World War II. That allowed him to impose wage and price controls, which led to the current employer based health insurance system, which plagues us today.

It was only after the war, in the return to normalcy 1950’s, that the economy recovered to be close to what it was in the 1920’s.

But then, Lyndon Baines Johnson gave us the roaring 60’s, and brought big government and soaring inflation back again.

The Federal Reserve’s fiat money pumping is what keeps the boom and bust cycle going, fueled by the same Progressive social engineering that produced the quotas for poor and minority home ownership, the subprime mortgage mess, and the current meldown.

When the American people told Congress not to bail out the banks, that was Main Street common sense. When the bailout happened, spurred on by mainstream media know nothings and establishment economist know it alls, that was the ugly spectre of Hoover and Roosevelt raising its “do something quick” big government ugly head.

Are we in for another ten year depression? If we continue to allow these interventions, we may be.

But, thanks to Ron Paul, and the internet, we have much more knowledge of the harmfull effects of government intervention. We are already involved in two wars, so mobilizing the country for war is not going to help us forget our problems. We have a chance to bury the ghosts of Hoover, Roosevelt, and big government interventions, including the Federal Reserve, if we act decisively in the months ahead.

Brendan

Much ink being spilled over the bailout from all sides as they scramble to dissociate themselves from the unpopular vote.

Governments all over the world are attempting a similar bailout scheme, and not allowing normal bankruptcy proceedings to sort things out.

I fear a great depression is in the works. The state is continuing the same failed interventions it always does, trying to avoid the inevitable price deflation through more inflation.

Hold on to your assets, the shit is going to hit the fan!

When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble.

Paul Krugman, 8/8/05

Even serial statist NY Times columnist Paul Krugman understood how zoning drives up the cost of housing.

Houston absorbed 100,000 Katrina refugees, and housing prices did not go up. Houston, the fifth largest American City, has no Zoning. Other areas with little or no zoning (such as Raleigh Durham, NC) experienced no housing bubble.

But, even though Krugman recognized the problem 3 years ago, is he calling for land use de-regulation? No, his voice is silent.

Only CATO and HERITAGE think tanks are calling for an end to zoning and the anti sprawl, anti automobile hysteria that helped fuel the housing bubble.

Brendan

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON
(Thanks to Mike Holmes)

Rush Limbaugh says that no Republican is really standing up to the bailout.
Well, maybe he is right. Ron Paul is really, “NO REPUBLICAN” like any of the
rest.

CNN has realized that Ron Paul speaks for a large audience, and they have
given him an OP ED on the financial crackup.

It seems the rest of the Republicans have their fingers in the air, trying
to see which way the wind is blowing. Cheney is coming down to the house. Is
he bringing cash? Threats? Pictures and videos? No one knows for sure, but
when the godfather comes calling, you gots to show some respect.

Then vote against the Bailout!

Ron Pauls commentary on CNN.com:
By Ron Paul
Special to CNN

Editor’s note: Ron Paul is a Republican congressman from Texas who ran for his party’s nomination for president this year. He is a doctor who specializes in obstetrics/gynecology and says he has delivered more than 4,000 babies. He served in Congress in the late 1970s and early 1980s and was elected again to Congress in 1996. Rep. Paul serves on the House Financial Services Committee.

Rep. Ron Paul says the government’s solution to the crisis is the same as the cause of it — too much government.

(CNN) — Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve’s loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.

This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners — in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers — builders and other sectors connected to real estate that suffer setbacks.

The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government’s actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.

The opinions expressed in this commentary are solely those of the writer.

And this blogger as well!

Strange Bedfellows indeed.

The social justice crowd
and
The financial sector.

This should really not be that surprising. Those who seek power from the state often find strange bedfellows. Like the Sierra Club and T-Bone Pickens, for example. Political scientists who have studied Public Choice Economics (The branch of economics that studies government with the same analytical tools that it uses on the rest of the economy) have come to call this confluence of divergent interests seeking favors from the state the alliance of “Baptists and Bootleggers”.

In the case of the Sierra Club and T Bone, for example, the Sierra Club would be the Baptists, the true believers in the redemptive power of government to change reality to a more beatific plane, without hurting anyone in the process. (Or at least, anyone truly righteous.)

TBone is the bootlegger. He is in it for the money, pure and simple. If he can put a gloss on his greed, and say his whiskey is really medicine, so much the better. But deep down, he really doesn’t care about the religious beliefs of the Baptists. He just wants the state to guarantee him a nice profit.

In the current crisis, it is apparent that the subprime crisis is the result of the confluence of interests between do gooder politicians at the Housing and Urban Development Department, who just wanted a little social justice, and banker and mortgage interests, who just wanted a little guaranteed profit. . Andrew Cuomo , head of HUD from 1997 to 2001, is the primary Baptist, but he had fellow religious zealots from both sides of the aisle in his choir. They just wanted to make housing affordable for everyone, no matter what their actual ability to pay, based on their credit rating, was. It was a matter of social justice, you see. Why should po’ folks not have a house? Aren’t we all entitled to a nice house, even if we have no money for a down payment?

The bootleggers of course were the bankers and mortgage lenders. They were quite willing to pay lip service to the Baptists, so long as there was real money to be made. Regulations were relaxed to take away the risk, and the government stood ready to bail them out if anything wrong happened.

And that is essentially the marriage made not in heaven, but in some other, hotter place that has snowballed into the mess we have today.

There were other players, to be sure. The Federal Reserve happened to be lowering and then raising interest rates just at this time, first creating the financial climate that favored the subprime mortgages, then just as quickly pulling the rug out from beneath them. And the regulations on lending were also relaxed, allowed for the securitization of these mortgages, pyramiding the debt to really, no one knows where now. The Fed is always a player in the financial regulation game, because it is the Fed that determines how much reserves banks must carry, the interest rate, the amount of currency in the system, and so on. In a truly free market, there would be no Federal Reserve, and these things would be determined not by central planners like Ben Bernanke, but by the individual banks and their customers.

But if anyone on this list wants to blame deregulation, Fannie May and Freddie Mac are regulated by the Housing and Urban Development Administration. Not Wall Street. The problem lies with trying to do good while doing well, an old American Tradition that goes back as far as the Quakers of Ben Franklin’s day. Sometimes it works well, but when you get the power of the state to do your good works for you instead of peaceful voluntary charity, there can be repercussions. And we are all facing them now.

I am urging anyone who reads this post to contact your Congressman and Senators and urge them to vote against the proposed Bailout.

As Ron Paul has said, voting against the Bailout is not necessarily voting to do nothing. There is plenty more that can be done.

Stop the wars in Iraq and Afghanistan and bring the troops home. Savings of a trillion a year.

Allow drilling in Anwar and offshore. Bring gas prices down.

Allow Ron Paul’s financial reforms of the monetary system and the Fed to be passed. Restore Sound Money.

Cut spending.

Cut taxes accross the board, not just for specific industries or classes.

Let the markets sort out this problem, not the former CEO’s and Bankers and their lackeys in Treasury and Wall Street.

Do not turn America and the world into a fascist, centrally controlled economy!

Paul Krugman is the Democrats’ court economist.

Trouble is, like the Democrats programs, he is outdated. You see, Krugman is the last of the unreconstructed Keynesians.
Keynes theories died in the late 1970’s when we had high inflation, high unemployment, and high interest rates all at the same time. It was called stagflation, or the “days of malaise”….it did more than the Iranian hostage crisis to get Ronald Reagan elected President in 1980. He simply asked “Are you better off today than you were four years ago?” To which America replied with a resounding NO! More to the point, Keynesian theory predicted that if government “stimulated” the economy, these three indices would NEVER, EVER rise together.

To be fair, it was Jimmy Carter who, belatedly, started Reaganomics. It was actually Carter, not Reagan, who started deregulation of oil distribution, airline tickets and trucking. It was actually Carter who appointed a new FEDERAL RESERVE chairman, Paul Volker, to try to do something about stagflation.

Reagan really just followed through and solidified these initiatives, as well as cut taxes in his first term.

Paul Volker decided to listen to the great libertarian economist of the Chicago School, Milton Friedman, and use HIS ideas to get a grip on inflation. It was inflation (remember, it was the last time, until now, that gold was selling for over $800 an ounce) that was determined to be the main culprit in stagflation. It was decided that the best way to attack the threat of high unemployment was NOT through the Keynesian model of printing more money to stimulate aggregate demand; that the best way to attack the high interest rates was NOT to have the Fed lower rates (which they realized was not possible), but to attack inflation the best way possible–to recognize, as Milton Friedman said, that “inflation is always and everywhere a monetary problem.”

If inflation was indeed a “monetary problem”, the best way to attack inflation was to reduce the supply of money. And this is precisely what the new Fed Chairman, Paul Volker, set out to do.

He stopped the printing presses. He said that the FED will stop or at least slow down the rate of growth of the money stocks. At the same time, they would let the interest rates float, or continue to rise.

And, he and President Reagan through his spokepersons told financial markets and the American people that interest rates and probably unemployment would continue to rise in the short run, but in the long run, the economy would stabilize, and the United States would not be like the banana republics of South America, and would NOT suffer real HYPERINFLATION. He told the American people to be ready for short term pain (even higher interest rates and unemployment) but that both would start to come down in a year or two.

They were right. In the next year interest rates and unemployment moved higher, but with the FED turning off the money supply spigot, eventually the economy righted itself, and we began a twenty five year expansion that hasseen some recessions, but no great depression.

Until now, and 2008.
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