The Free Market Radical

Cash for Clunkers Success

2009-08-26T12:57:00.000-07:00

Cash for Clunkers Generates 700,000 new car sales...

And in related news the window making industry is rebounding.

Seriously...I thought we had moved passed this ignorance.

Government Regulation is a "Pandora's Box"

2009-03-17T16:40:00.000-07:00

The following quote from a World Net Daily article reveals the fundamental flaw in the small government conservative philosophy:

"We need somebody to watch over us when we're eating food that comes from thousands and thousands of miles away. We need some help there," he said. "But when food comes from our neighbors or from farmers who we know, we don't need all of those rules. If your neighbor sells you something that is bad and you get sick, you are going to get your hands on that farmer, and that will be the end of it. It regulates itself."

What this individual does not understand is that opening the door to any regulation is a slippery slope. There is no clear or natural line at which regulation should begin and end. It is completely at the discretion of legislators under the influence of special interests. And once people have given the government the power to regulate part of their lives, the only remaining question is "to what degree should government regulate?" The only two points of equilibrium are 0% and 100%. And once we have passed 0%, it is a steady march to 100%.

Frugality and Hard Work is the True Stimulus

2009-03-17T16:12:00.000-07:00

In an article about how families are becoming more frugal in the face of economic hardship, an AP journalist quotes Beth Rogers, a Fayetteville, Arkansas homemaker:

"I think that's the hardest thing, just knowing that I'm not helping the situation. I know I need to be supporting the economy and keep it going, but I just can't."

It is almost criminal how big government Keynesians have duped so many individuals into this false sense of obligation.

Beth, you are helping the situation. You are supporting the economy. Keep up the good work!

Global "Super-Currency"... and so it begins

2009-03-15T20:15:00.000-07:00

Finance ministers from the G20 meeting this week 'supported "unconventional measures" such as quantitative easing."'

What is "quantitative easing" you may ask? The subtitle from an article in Friday's Telegraph is informative:

The International Monetary Fund is poised to embark on what analysts have described as "global quantitative easing" by printing billions of dollars worth of a global "super-currency" in an unprecedented new effort to address the economic crisis.

Here's a sincere quote from one of the IMF's former economists:

"The principle behind it is that everyone would get bonus dollars and instead of the Federal Reserve having to print them, everyone gets them. The objective is to create a windfall of cash. However if everybody goes out and spends the money it could be very inflationary."

Bonus dollars?!? These guys have absolutely no understanding of capital theory. Global currency - here we come.

And Here's a Link to Schiff's book

2009-03-13T13:03:00.001-07:00

Peter Schiff - Crash Proof [How to Profit From the Coming Economic Collapse]

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Here's a link to Hazlitt's book

2009-03-13T12:53:00.001-07:00

Economics In One Lesson by Henry Hazlitt

Publish at Scribd or explore others: Business eBooks Business-Economics Economics

Lew Rockwell's New Book...

2009-03-13T12:49:00.000-07:00

The Left, The Right, and The State

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Chuck Norris on Glenn Beck

2009-02-26T20:18:00.000-08:00

I gotta say, I'm a big fan of the Chuck Norris jokes:

Free Market Solution to Violence in Mexico

2009-02-26T19:36:00.000-08:00

Excerpt from CNN.com article:

Such dire problems call for a new way of looking at the situation, some say.
"The unthinkable is happening," Birns said. "People are beginning to discuss decriminalization and legalization. ... There's only one thing that can be done: Take the profit out of it."
Pastor calls the problem in Mexico "even worse than Chicago during the Prohibition era" and said a solution similar to what ended that violence is needed now.
"What worked in the U.S. was not Eliot Ness," he said, referring to the federal agent famous for fighting gangsters in 1920s and '30s. "It was the repeal of Prohibition."
That viewpoint has picked up some high-level support in Latin America.

At least free market ideas are being given a little bit of press.

Intro post to "Crash Proof - How to Profit from the Coming Economic Collapse"

2009-02-21T15:07:00.000-08:00

Is there anyone else out there who reads more than one book at a time?

This is the introductory post to Peter Schiff's best seller Crash Proof. Mr. Schiff has been making the rounds lately, and with increasing frequency, on the financial networks due to his extremely accurate economic predictions made in this book. Here's a great video of his predictions over the last few years. Better still are the reactions of the "experts" to his predictions.

In the preface to his book, Mr. Schiff mentions how the attitudes to the Trade Deficit have unfortunately softened over the years, especially in the business press and political circles. His argument is that the trade deficit is a bad thing. I agree with him because I also agree with his premise that is a little lost in the argument. So let's clarify it:

Question: Are trade deficits bad?

Answer: It depends.

Question: On what does it depend?

Answer: It depends on what the deficit is spent on.

A trade deficit occurs when imported goods exceed those that are exported. Now the only reason the rest of the world would give the U.S. more goods than it gets in return during a specific period of time is under the expectation that it will get that wealth back in the future plus a return on its investment. So what did America do with those extra goods it received? Well, if it had combined those extra goods into a form that increased the productive capacity of the country then there might be increased productivity with which to pay back the deficit with interest at some point in the future. Unfortunately, that is not what happened. Instead, it consumed those goods. Mr. Schiff likes to say that Americans, rather than investing this loan from the rest of the world into additional productive capacity, bought SUVs and plasma TVs instead. When this "debt" is spent on consumption rather than production, and when no additional productive capacity is built, the only way to pay off the previous loan and interest is to issue a bigger loan (here's the most famous practitioner of this system).

The introduction to the book is entitled "America.com" - obviously an implication that the rest of the world has bid up the price of the American economy to unsustainable levels in a speculative bubble much like the dot-com bubble of the late 1990s. In it Mr. Shiff begins with a quote from Alan Greenspan's 1966 article Gold and Economic Freedom, a lucid and logically sound defense of economic freedom, which also throws into sharp relief the tragic path taken by one of the free market's rock stars. Anakin, I mean, Alan Greenspan sadly chose the darkside later in his career - becoming the State's favorite monetary socialist and inflationist. Although he correctly diagnosed in his article the causes of what we now know as the Great Depression of the thirties, he made the same mistakes as Fed chairman - only on a greater scale - in the run-up to our current situation.

The next chapter - The Slippery Slope: Consumers, Not Producers

Bastion of Capitalism turns its back on the Free Market

2009-02-21T11:49:00.000-08:00

This article from the alma mater proves that the Austrian School is the last hold-out of the free market. This entire generation of academics has been bottle-fed on Keynesian economics. Their entire career has been invested in this economic rabbit trail. Unfortunately, the cognitive dissonance that would result from seeing the light is enough to keep them from ever having a "Road-to-Damascus" moment. Hopefully, this next generation will pick up the slack.

Fred Thompson on the Economy

2009-02-21T11:25:00.000-08:00

Although I'm sure I disagree with him on many other topics, Fred Thompson does a great job of illuminating the inconsistencies of Keynesian intervention...

"The Blessings of Destruction"

2009-02-17T16:08:00.001-08:00

Nothing could be more intuitive than recognizing that if something is destroyed then it must also be someone's loss. Even a child understands this when he sees his tower of playing cards come tumbling down like so many investment banks from the recklessness of a sibling; or when a remote control airplane becomes irreparable after one too many nose dives into the pavement. Destruction can be nothing else - no more than down can also be up.

But it seems that at some greater magnitude of destruction the rules change. Maybe down can be up - as long as the down is very very large. And perhaps down can be up - as long as those advocating for this definition are sufficiently "educated" or influential. Indeed, it has been academics and politicians who have led the charge against logical economic thought in favor of illogical economic thought - from Keynes and FDR to Krugman and Obama.

Destructionomics has influenced policies like crop burning and provided an illusory silver lining to wartime annihilation. And lest you think this illogic is relegated to the distant past, think again. Of course, as Hazlitt points out, destructionomists only see half of the truth. They only see the jobs created to fill the need caused by the destruction. They do not account for the jobs that were destroyed or the jobs that would have been created.

Hazlitt further illuminates the fallacy of confusing need for demand. But before addressing this, a quote by that superfluous man, Albert Jay Nock, will serve to set the stage for a more complete dissection of this fallacy:

"The general preoccupation with money led to several curious beliefs which are now so firmly rooted that one hardly sees how anything short of a collapse of our whole economic system can displace it. One such belief is that commodities—goods and services—can be paid for with money. This is not so. Money does not pay for anything, never has, never will. It is an economic axiom as old as the hills that goods and services can be paid for only with goods and services; but twenty years ago this axiom vanished from everyone's reckoning, and has never reappeared. No one has seemed in the least aware that everything which is paid for must be paid for out of production, for there is no other source of payment."

It is true that the need associated with the devastations of war are real. But to equate need with demand is to presume that the need can be filled by production. However, as Nock explains, the lack of productive gains eliminates this possibility. Instead, destruction actually decreases the amount of goods and services in society. Therefore, if structures previously destroyed are built once more, it is only because goods and services in some other part of the world were destroyed in order to do it, or goods and services that would have come to market were never allowed to. Destruction is always a "net negative" for society. The added complication of money is simply resolved. Money is merely an intermediary. It is simply the atmosphere through which goods and services travel from one owner to another. An atmosphere ideally suited to its purpose and better than any other yet invented. But only this and nothing more.

Hazlitt further explains how thinking of purchasing power in terms of money can lead to faulty economic reasoning, especially in the presence of a fiat money system that is prone to inflation by the monetary authority. He called this the "monetary illusion" and the "monetary veil." That is, people tend to see the rising nominal value of wages and confuse this with a greater degree of purchasing power. "That which is not seen" is the decreasing real wage rate - the relative values between one's labor and the goods and services purchased with that labor. Note that this perspective eliminates money in the calculation; effectively relegating it to its proper position - a medium of exchange.

Hazlitt's next chapter is "Public Works Mean Taxes." Can government spending save us?

"The Lesson" and "The Broken Window"

2009-02-15T17:22:00.000-08:00

Note: this book is organized as "The Lesson" (Chapter 1) and as "The Lesson Applied" (All remaining Chapters).

In the first chapter (The Lesson) Hazlitt writes that the fallacies so abundant in economic thought are a result of two phenomena: 1) the "special pleading of selfish interests," and 2) the "fallacy of overlooking secondary consequences."

Let me address them in reverse order. Recounting Frederic Bastiat's famous work, That Which is Seen, and That Which is Not Seen, Hazlitt claims that the "Broken Window" fallacy, or the tendency to see only the immediate effects of a policy on a specific group at the expense of seeing the long-term effects on all groups, is to blame.

In chapter two (The Broken Window) Hazlitt explains how a young vandal throws a rock through a business owner's window. And while the crowd of on-lookers grows many of them begin to see the silver lining. After all, a new window will provide work to the window maker. In fact, if windows were never broken many window makers would be forced out of a job. Their conclusion is that this whole event turned out to be a benefit to society-at-large rather than a cost.

Why is this line of thinking fallacious? Let's use Robinson Crusoe to illustrate the consequences of property destruction (as Murray Rothbard most famously used him to illustrate the rights to property). Crusoe has just washed up on his island, and so he begins to prioritize his efforts in such a way as to maximize his probability of survival. If he attempted to build a permanent shelter first he may very well die of thirst before he got the chance to look for water. In other words, certain productive efforts can only be realized after other, more basic and more necessary tasks have been completed and realized.

Let's assume Crusoe has effectively prioritized and that he now has 1) water, 2) a fire, 3) a temporary shelter, and 4) a store of food. He begins to imagine a more permanent structure to provide him shelter and a greater degree of comfort. But before he begins to build, his store of food is ravaged by a pack of wild beasts. Now, for Crusoe to begin to build his house before he replenished his food would be folly. This is why destruction (of a window or anything) is always a loss to society. A community cannot advance to greater and greater levels of sophistication if it is continually repairing its capital base. In fact, if windows could be made that would never break, this would be a great advance in productivity. Yes, the window making industry would significantly contract, but now all that labor is free to move on to produce more advanced and more useful goods and services.

If the fallacy of "overlooking secondary consequences" is the cause of bad policy, it is the "special pleading of selfish interests" that determines who benefits at the expense of whom. This brings up the idea of the concentration of benefits and the diffusion of costs. If the benefits of a certain policy are concentrated into a group that can effectively organize itself, a lobby may develop to advocate for policy in their favor. Conversely, if the costs of this policy are concentrated in a group that can also organize itself, the first group may find its efforts frustrated by an equally influential counterparty. However, if the costs are spread out among many groups and the cost to each individual is minimal, the former group will likely take advantage of the latter.

The rest of the book consists of illustrations of the broken window fallacy in current (as of the writing of the book) policy. I'll try to add some more current illustrations.

Intro post to Economics in One Lesson by Henry Hazlitt

2009-02-15T16:30:00.000-08:00

This book is a must-read for anyone interested in making sense of the political-economic environment. Hazlitt's teachings are timeless. I venture to say that at any point in time since people began to transact with each other one would be able to find examples of the economic truths illustrated in this book.

He is one of the most easy-to-read writers on economic theory in history. And not only is his clarity world-class, his logic is unrelenting - almost dizzying. The mind of a mere mortal, as it follows the trail that the writer is blazing, is often naturally enticed down rabbit trails that lead to fallacious conclusions. However, Hazlitt always brings the reader back to the straight and narrow - even at the expense of whiplash.