Hudson Valley LP Blog

This week Governor Rick Perry famously suggested that Ben Bernanke may be guilty of treason for his "quantitative easing." Perhaps Perry was lamely trying to appeal to Ron Paul's supporters. In any case, the media erupted in horror, as if Perry were the first politician ever to engage in exaggeration or hyperbole. The response of Ben Stein is particularly interesting. Mr. Stein is a generally conservative man. When his thinking shows the effects of generations of leftist propaganda it is worth noting.

Stein's response in part:

One of the measures the Fed is using is to increase the money supply or what Gov. Perry would call "printing money." Typically this is a helpful move, although not lately. It's not a radical move. It's not anywhere near a "treasonous" move. It is not at all clear that in an economy as weak as ours that creating more money would cause inflation. The idea is to make money cheaper so businesses will borrow and then invest. Frankly, once again, it has not worked so far. But it is an orthodox, classic move. (Emphasis mine)

I wish to call attention to the idea that it is natural or even required that one borrow in order to invest.

If you have ever studied bookkeeping, you may recall that capital is an asset, whereas loans to the firm are liabilities. If the two things are so different on the books, where did we get the idea that one is necessary for the other?

Again, when a firm goes bankrupt, the firm's creditors (lenders) must be paid before any stockholder is paid. It would seem then that anyone who owns stock, and this surely includes Mr. Stein, would be well aware of the distinction between loans and equity.

It is commonplace to advise individuals never to invest borrowed money. This is the reverse of what Stein suggests is the natural course of events. All the more, one never borrows money to gamble; in films this results in capped knees and other mayhem. Again, the distinction used to be part of our culture.

What has happened?

Once upon a time, money was something that one held, saved, hid, invested, and spent. It was property.

Now money is borrowed from the Federal Reserve by banks, at interest. They in turn lend it to us mere mortals, at interest. We must use their money, and only their money, under penalty of law. We never really own this money; we only use it and pay for the privilege. We are encouraged to borrow as much as we dare, and more.

Socialism is ownership of the means of production. By law, the Federal Government owns the means of producing money. It is a total monopoly. We have socialized money. Of course, governments have been doing this for thousands of years. But until recently they were considerably constrained by the expectation that they had to redeem the money in gold or silver. But that was several generations ago, so it is regarded as ancient history. It never occurs to our younger citizens that the demise of this restraining influence plays an important role in our present economic misery.

Today's "economists" (Alan Greenspan for one) gloat about the ease with which the Fed can create money, as if this were a great advantage to the nation. This fallacy should have been buried hundreds of years ago. Instead the fallacy has buried many governments and nations, and we seem eager to follow them.

Most other western nations have been even more profligate than we, so they have regarded our money as safer than theirs. This may account for the fact that our interest rate can be kept near zero even as our annual federal deficit stands at more than twice the total receipts from the individual income tax. The dollar may be risky, but most foreign currencies are riskier still.

Perhaps the strength of the dollar has kept other nations from going under, up till now. If that is so, then our joining them in socialist profligacy may cause us all to fail, a total failure of the west. We must not let that happen.

Suggested Reading:
Rothbard, Economic Thought Before Adam Smith
Audio Version
Rothbard, Classical Economics An Austrian Perspective
Audio Version

Of the many exposés that I have read recently, two stand out so clearly that I would like to call particular attention to them. The first relates to our economic meltdown; the second to public education. These two economic sectors, money and childhood education, are among our several American experiments with socialism. The pieces linked below demonstrate in painful detail how the the aggression of the state makes suckers of us all. The biggest suckers, perhaps, are those "liberals" and conservatives who retain endless faith in the efficacy of force and aggression by the state.

The second link is to a lengthy free online book that I have only sampled so far. But I have been impressed by the author's outrage, dedication and documentation.

Wall Street's Bailout Hustle

The Deliberate Dumbing Down of America

FInally, I would like to thank Eric Sundwall of the NYLP for suggesting the book Against the State by Crispin Sartwell. It stands out among anti-state polemics for its reader-friendly writing style and clarity. It is carried by Amazon, and in an ebook edition by Barnes and Noble.

Normally, we can adjust our thinking at the winter solstice to peaceful thoughts and a kind acceptance of our fellow man. But the U.S. Senate has made it difficult for us this year.

The Senate has proposed a medical care bill dripping with taxes and penalties, touting it as a valuable gift. Young people stand to be big losers if this bill becomes law. They, at the beginning of their careers, are required to carry a substantial share of the costs so that their more well-to-do elders may enjoy subsidized hypochondria. The senate and house bills do nothing to reshape public medicine towards nutrition, wellness, education, personal responsibility, or finding the actual causes of chronic illness. The bills blindly endorse whatever unhealthy practices the medical establishment has acquired over the forty years since medicare and medicaid funds began to pour into the system. With only a few days left until Christmas, the controversy continues. The message of Christmas is rarely heard this year.

Even non-Christians may appreciate that there was something new in the Christian message. It had roots in various philosophies of the time, but whatever the source, it differed from prior moral teaching. To give one prime example, consider the notion of turning the other cheek. That is, the idea that force need not always be met by equal or greater counter-force. It is hard to see how civilization as we know it could have flourished without this idea. Anyone who has raised children knows that patience and understanding are needed in large quantities; force rarely.

Much the same is true in economics. Most of the time we make and follow contracts, or deals. We try to understand our vendor or our customer. Rarely, when contracts are broken, we need to ask some third party to act. One of those bound by the contract may be constrained to compensate the other.

The voluntary basis of economics is vital to its success. As Ludwig von Mises noted in his critique of socialism, a price is determined by the uncontrained preferences of buyer and seller. To the extent that these preferences are not freely expressed but are subsidized, constrained or prohibited, prices become meaningless. They no longer lead to an allocation of goods and services that is optimal. Prices, the foundation of economics, are swept away. We are left to tyranny, poverty and death.

Voluntary choice is equally the foundation of our leisure culture. So long as each person is free to do those things that interest him most, or at which he excels, culture flourishes. When the state intervenes, we are forced to do or support things that we do not value, even things that we regard as detrimental. Life becomes bleak and meaningless.

Thus peace, the absence of war or force, is the foundation of civilization. Libertarianism, properly understood, advocates peace with at most a minimal use of force. We approve force only to resist a prior use of force or fraud. So as libertarians we endorse the sentiments of the Christmas season.

We may, however, use the civilized substitute for force to further our message. It takes money to keep the flame alive. The organizations listed on our link page can make good use of your support.

Currently I am listening to some CD's of Dr. Mary Ruwart: Secrets of Transforming Liberals, Greens, Christians and New Agers into Libertarians. She explains how to peacefully engage others in a discussion that might change their minds, without turning them off in the process. Surely this is a skill that we could all use, if we are to become effective advocates for liberty. Perhaps the peaceful approach toward life and liberty must begin with our everyday individual behavior.

Recently I attended a lecture of CATO's David Boaz at FEE: The Rebirth of Liberty in which he compared the present with the 1930's under FDR. He is another optimistic speaker, unfazed by our current apparent rush to tyranny.

The major treat of my Fall season was to attend a conference of the Mises Institute in Salamanca Spain in October. The idea was to expose the roots of some of the ideas behind modern economics. It seems that a number of key ideas were formulated by Spanish scholastic monks, centuries before Adam Smith. Indeed, they got some things right that Adam Smith botched. One of these was the modern theory of value: the just price, echoed by Mises in his critique of socialism and mentioned above.

These people and organizations are there to bring a little Christmas cheer to us libertarians. The public appreciation of liberty may be at a low ebb, but the flame is very much alive. Happy Holidays!

Links:
Senate Health Bill
House Health Bill

Harry Reid Turns Insurance Into a Public Utility
Why the Personal Mandate to Buy Health Insurance Is Unprecedented and Unconstitutional

Several cases of selective blindness in news reporting have struck me of late. Many commentators pile onto the bond rating agencies for rating what turned out to be junk bonds with AAA ratings. Often this is given as the root cause of the financial crisis. How could the agencies have been so stupid, or corrupt?

Put yourself in the place of these bond raters prior to the crisis. They saw bonds that had been issued by Sallie Mae or Freddie Mac, quasi-governmental organizations established by congress. Surely such bonds would enjoy the full faith and credit of the U.S. Government. Is it really so hard to see how the rating agencies could rate them AAA? After the crisis struck, the government did in fact step in to infuse trillions of dollars in cash and credit to cover the losses. So the AAA rating, villified by the commentators, was vindicated, at least in part.

What is going on here? I see a triple blindness at work. To blame the rating agencies in the first instance, commentators had to overlook the involvement of the government itself in setting up Sallie Mae and Freddie Mac and instructing them, and all other banks, to make very risky loans to would-be home owners. By implication, the rating agencies were expected to pass judgement on government policy, accurately assess its consequences, and lower the ratings accordingly. In fact, the rating agencies did exhibit blindness in this regard. But it turns out that their rosy judgement was far from entirely wrong, a fact that also escaped much notice. Banks were bailed out at unprecedented cost.

Stockholm Syndrome can explain these instances of selective blindness. Once government policy is established, we fail to see beyond its boundaries. We stop arguing the merits of the policy. It suddenly becomes difficult even to imagine a world in which the policy does not hold. Our minds have become imprisoned, fenced in by statutes raised to the status of holy writ. In the end, we come to love our captors, as did the prisoners in the famous experiment.

Another case: it was recently announced that GM was ending the production of the Saturn. This, while it continues the production of massive four-door pick-up trucks, advertised on cable. On the one hand, the government funds a cash-for-clunkers program to get people to drive smaller cars. Yet its own car company stops production of its only really small car, and continues to advertise the sort of car liberals have been deploring for decades. Did anyone notice? Not too many.

Or again. Sixty Minutes had a segment last night on illiteracy in America, in which it was claimed that one seventh of our population is functionally illiterate. During this interesting segment one question was never raised: in a nation with universal compulsory education, how can it happen that one-seventh of our population can't read? I am not amazed that some illiteracy exists, but I do find it amazing that no question concerning the educational experience of those interviewed was asked. My take: since education is a government function, it lies outside the walls of our mental prison. We simply don't see the problem.

The big news of the day is the proposed "overhaul" to our medical care "system". The bills are offered in two versions, a plain language version and a statutory language official version. It seems that no one can understand the official versions, not even the congressmen involved, most of whom are lawyers. Our own DownsizeDC website has long pushed for a Read The Bills Act, requiring congressmen to read bills before approving them. It seems that even this may not solve anything if they can't understand what they read. What appears as blindness in the reader can instead be deliberately cryptic legislative drafting.

Our financial situation remains in doubt. Here it is October again and no investor knows what to expect. Will inflation strike? Will interest rates rise? Will gold remain legal? Will the markets fall? Nothing seems certain as our trusty government remains ready to do whatever it takes to......preserve itself. Uncertainty as to what the government will do produces a blindness concerning the future that poisons the markets.

Liberty has many aspects. Perhaps the mental aspect has been neglected. How can we escape from prison if we fail to see the walls?

Recent reading:

Fed-Acorn Criminality
The Money Monopoly
Learning for Liberty
A Fresh Voice: Star Parker

Often the facts that are least observed are the ones in plain view. The President's health plan is one of the biggest stories this year. Yet, if you go to the White House website and look up his health plan under "issues", you will find a video of his speech before a joint session of congress, a transcript of that speech, a summary of its announced benefits, and a one-page printable pdf file excepted from the summary. For greater detail you would have to go to one or another bill that has been introduced in congress, none of which has the President's endorsement.

This weekend the President provided a media blitz, appearing on every Sunday morning talk show. He seems urgently to seek public endorsement of his "plan". But what plan? He wants the endorsement of the public without presenting congress with a bill to consider, and without having to argue for that bill.

"Let the jury consider their verdict," the King said, for about the twentieth time that day.
"No, no!" said the Queen. "Sentence first-- verdict afterwards."
"Stuff and nonsense!" said Alice loudly. "The idea of having the sentence first!"
"Hold your tongue!" said the Queen, turning purple.
"I won't!" said Alice.
"Off with her head" the Queen shouted at the top of her voice. Nobody moved.
"Who cares for you?" said Alice (she had grown to her full size by this time). "You're nothing but a pack of cards!"

The President's approach, leaving the dirty work to Congress, is but an extension of the approach congress itself uses: off-loading the unpleasant details of rule-making to bureaucrats. Bills are often passed that are simply statements of good intentions, very often conflicting with one another. The agencies charged with enforcing the law are also charged with writing the regulations to be enforced. This relieves congressmen of direct responsibility for what they have done. They can always say that whatever regulation and enforcement resulted was not what they intended, and that (what else) reform is needed.

For example, consider a typical thousand-page bill robbing various Peters to pay various Pauls. It may not be clear from the bill itself just who will be Peter and who will be Paul. Best leave such details for later, after the bill becomes law. Beforehand, everyone is encouraged to think of himself as Paul.

Consider the plight of the poor congressman. His job description is to write laws to restrict people's freedom. He must do this in a nation that views itself as a bastion of freedom. Surely it would be easier to sell refrigerators in Alaska. How can shackles be made to seem desirable? It is an intellectual challenge, but there are always court intellectuals who rise to the occasion; that is a subject for another day.

In the case of health care, as so often happens, some of the biggest losers appear to be the young. The healthy young will be forced by law to buy insurance that they very likely do not need. They must do this while working for the lowest wages of their lives. They already help to pay for the retirement and medical care of their elders through social security and medicare. They have been forced to spend the first twelve years of their education in generally poor-to-mediocre public schools. They risk being drafted into the armed forces. They may be denied employment at low starting wages by minimum wage laws and union shops. If they take government student loans, they will find no escape through bankruptcy. All this while they are engaged in some of the socially most important activities of their lives: education and raising families. If any group should find the status quo wanting, it is our young.

Another group of losers is the medically ignorant. Ours is a culture of specialists. We are encouraged to rely on professionals and experts in most things, particularly in medicine. Yet even today's medical procedures cover a broad spectrum in terms of effectiveness. Now, as ever, surgery can often save one's life. Yet many expensive procedures do little or nothing to reduce mortality, that is, to delay the expected time of death. A recent study found that for those suffering a first heart attack, aerobic exercise produces better outcomes than angioplasty. Another study found that the use of x-rays in cancer detection produces about as much additional cancer as would have occurred without it. In the opinion of some doctors, the use of drugs to treat chronic diseases that are not well understood does more harm than good. A colonoscopy can find cancer, but it can also result in a punctured colon. There are nearly as many deaths from the latter as there are cancerous tumors discovered by the former. Surveys have found that though oncologists make most of their income by administering chemotherapy, most of them would not use it if they themselves developed cancer.

The point is that most medical interventions are a double-edged sword. There is no time in life when the phrase caveat emptor (buyer beware) is more urgent than when you are making medical decisions. Making medical care free at the time of use causes people to use it far more often than is good for them. The result is higher insurance costs and poorer health outcomes.

Hayek justified freedom by observing that information and knowledge are local and broadly distributed. No central authority can know enough, or attain sufficient certainty, to justify making local decisions by force of law. The history of the Soviet Union, Castro's Cuba or Mao's China should make the point. If not, look at the history of urban renewal or public housing in this country.

The only unique product that a government has to offer is force. Small government thus means a minimum use of force. Rather than looking for new roles for government, it would be better to strip government of any roles that do not absolutely require the use of force. Like commerce, banking, education, pensions, medicine....

If voters can ever get their act together, they will find that government is no more fearsome than a pack of cards.