Liberty Forged

the State has no money of its own, so it has no power of its own. ` Nock

Posts Tagged ‘policy’

National Taxpayer’s Union on Spending

Posted by Jesse on February 6, 2008

When you have financial obligations that need to be taken care of what do you do?
You economize and pay down your debt, right? Which presidential candidate will do that?

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Nicholas von Hoffman has a few words about Ron Paul, the economy, and our current monetary policies.

“He is the only candidate who brings up what is happening to our money, which is another way of saying that he is worried about why the cost of buying groceries is going through the roof. While the other presidential contenders are silent on the topic, Paul reminds us that “government officials consistently claimed that inflation is in check at barely 2 percent, but middle-class Americans know that their purchasing power–especially when it comes to housing, energy, medical care, and school tuition–is shrinking much faster than 2 percent each year.”

Paul is the contender who seems to understand that the Federal Reserve Board is not the Vatican and that its chairman, Ben Bernanke, is not the pope. It’s a fixed practice by our politicians to treat whoever is the chairman of the Fed as though he were endowed with infallible powers.

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On Wall Street, the sharper ones know better. They understand that lowering interest rates every time the stock market swoons will eventually, or even a lot sooner, bring a world of pain down on us. As it is, thanks to the Fed, interest rates are lower than the rate of inflation. This anomalous condition is called “negative interest,” and for savers it means that their money is disappearing even as it rests safely tucked away in certificates of deposit.

For people who understand that their money is evaporating in front of their eyes there is a mighty incentive to rush out to the mall while that money is still worth something. For the moment a stampede to the stores by inflation-spooked people may please the economic pooh-bahs because current theory has it that people will buy lots of stuff, which in turn will create lots of jobs. But after they’ve spent their retirement money, then what?

Then people can spend their economic stimulus money. Left undiscussed is how the government is going to get the money it plans to hand out to anybody who has a pulse. Maybe Uncle Sam can borrow it from the Chinese or the Arabs–although both groups are losing enthusiasm for making loans to be paid back in ever-shrinking dollars.”

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Ron Paul in 2003

Posted by Jesse on January 18, 2008

It’s a long article, one that he gave on the House floor, September 5, 2003
Read the rest here

[Who else of the candidates can speak about this subject with such accuracy and clarity]

Artificially low interest rates deceive investors into believing that rates are low because savings are high and represent funds not spent on consumption. When the Fed creates bank deposits out of thin air making loans available at below-market rates, mal-investment and overcapacity results, setting the stage for the next recession or depression. The easy credit policy is welcomed by many: stock-market investors, home builders, home buyers, congressional spendthrifts, bankers, and many other consumers who enjoy borrowing at low rates and not worrying about repayment. However, perpetual good times cannot come from a printing press or easy credit created by a Federal Reserve computer. The piper will demand payment, and the downturn in the business cycle will see to it. The downturn is locked into place by the artificial boom that everyone enjoys, despite the dreams that we have ushered in a “new economic era.” Let there be no doubt: the business cycle, the stagflation, the recessions, the depressions, and the inflations are not a result of capitalism and sound money, but rather are a direct result of paper money and a central bank that is incapable of managing it.

…………..The two conditions that result from fiat money that are more likely to concern the people are inflation of prices and unemployment. Unfortunately, few realize these problems are directly related to our monetary system. Instead of demanding reforms, the chorus from both the right and left is for the Fed to do more of the same – only faster. If our problem stems from easy credit and interest-rate manipulation by the Fed, demanding more will not do much to help. Sadly, it will only make our problems worse.

……………It’s no coincidence that during the period following the establishment of the Federal Reserve and the elimination of the gold standard, a huge growth in the size of the federal government and its debt occurred. Believers in big government, whether on the left or right, vociferously reject the constraints on government growth that gold demands. Liberty is virtually impossible to protect when the people allow their government to print money at will. Inevitably, the left will demand more economic interventionism, the right more militarism and empire building. Both sides, either inadvertently or deliberately, will foster corporatism. Those whose greatest interest is in liberty and self-reliance are lost in the shuffle. Though left and right have different goals and serve different special-interest groups, they are only too willing to compromise and support each other’s programs.

Posted in antiwar, Constitution, Current Events, economy, healthcare, Mises, old right, Politics, Pro Market, Ron Paul | Tagged: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments »

Recession or Depression? by Rockwell

Posted by Jesse on January 18, 2008

You can find the article here.

Many people are finally saying the R word: Recession. The fundamentals don’t look good. The externals are even scarier: dollar and stocks skidding, gold and other prices (particularly producer prices) rising. But what has tipped the psychological scales is the statistic no one has cared much about in many years: unemployment.

The actual rate is very low by any historical standard: 5%. What matters here is the direction of change. It jumped from 4.7%. In the old days, unemployment rates of 5% and 6% were considered “full employment” in the Keynesian models. If government attempted to push employment below that level (and it is absurd to think that anyone in Washington can control the economy in that way), it would risk setting off inflation, or so it was believed.

If the actual unemployment rate is low, why this wave of pessimism? All data in the postwar period of American economic history consistently show that an increase in the rate has coincided with the onset of recession. The parallel between the two is the most consistent feature of the business cycle. See the NBER list: 2001, 1990–91, 1981–82, 1980, 1973–75, 1970, 1960–61, 1957–58, 1953–54, and so on. In each case, unemployment begins to rise at the onset.

Now, keep in mind that the link between rising unemployment and recession is largely true by definition only. In other words, those charged with defining what is and what isn’t a recession put a huge weight on rising unemployment. So of course it appears that weak labor markets are what push an economy into recession.

This is sheer fallacy, and a particularly dangerous one. Rising unemployment is a symptom of a recession, not its cause. If the critical problem of recession is unemployment, policy makers are tempted to address this one area to the exclusion of everything else.

Already, Bush administration spokesmen are talking about a “fiscal stimulus” to counter this trend. But why isn’t this laughable on its face? Perhaps if Bush had been a famed penny pincher, you could see how a stimulus would make some sense on the surface. But it is hard to imagine a more fiscally profligate regime than the Bush administration. We can confidently say that more spending is not the answer.

The view that unemployment causes recession was one of the great errors of the New Deal and the Great Depression. The government looted the private sector and transferred it to visible jobs programs. It forced business to maintain high wages precisely when the market was attempting to equilibrate them downward. It increased the costs of hiring just when the costs needed to be lower.

None of it did any good; in fact, it delayed recovery for many years. Lionel Robbins, in his classic book The Great Depression, wrote this in 1934: “If it had not been for the prevalence of the view that wage rates must at all costs be maintained in order to maintain the purchasing power of the consumer, the violence of the present depression and the magnitude of the unemployment which has accompanied it would have been considerably less…. A policy which holds wage rates rigid when the equilibrium rate has altered, is a policy which creates unemployment.”

Writing in 1931, in his book Causes of the Economic Crisis, Ludwig von Mises explained that there would be no involuntary unemployment in a free market. There will always be some unemployment in a market in the same way that there are houses that are empty and not selling and resources that are not being used for production. This isn’t due to market failure but to individuals who have the freedom to lower their asking price, provided they are permitted by policy to do so and businesses are free to negotiate wages freely.

What, then, is the solution to unemployment? “The determination of wage rates must become free once again. The formation of wage rates should be hampered neither by the clubs of striking pickets nor by government’s apparatus of force. Only if the determination of wage rates is free, will they be able to fulfill their function of bringing demand and supply into balance on the labor market.”

There is an error even more fundamental than seeking an interventionist solution to the problem of unemployment. It is the attempt to seek a solution to the recession itself, as if it were the critical problem. Writing all throughout the 1930s, both Mises and F.A. Hayek tried to explain that the recession itself served a market purpose, in the same way a correction to an inflated stock market serves a purpose. It re-coordinates economic structures that have grown seriously out of balance.

In other words, they urged that we look back before the recession, to the good old days of economic boom, and realize the prosperity of the past was a partial illusion. The recession is the way that the economy tells the truth about the fundamentals. The illusion itself is caused by errors in monetary policy. Interest rates are driven down by the Fed, and this causes widespread errors in the investment sector. These investments are unsustainable over the long term. The recession is the time of cleansing out errors and reestablishing economic soundness.

The housing boom and bust is only a symptom of a wider problem. If the economy has indeed fallen into recession, we can know with certainty that recession is precisely what the economy needs the most. It is the equivalent of the drunk who needs time on the wagon.

The rap on the Austrian School of the 1930s is that they counseled a do-nothing policy on the depression. That is not true. There are many things that government can do but they all amount to doing less, which is a positive action of sorts. It must not attempt to prop up and raise wages. It must stop taxing business so heavily and raising the costs of investment. It must cut regulations that are hampering recovery. It can cut spending dramatically as a way of returning resources to the private sector where they can do some good.

What government cannot do without causing even more problems is take positive action against symptoms, such as falling stocks or housing prices, rising unemployment, business failures, and falling incomes. This is precisely what caused the Great Depression to get its name instead of being called what it might have been called: the recession of 1929–1931.

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Thomas Jefferson

Posted by Jesse on March 28, 2007

“The policy of the American gov’t is to leave it’s citizens free, neither restraining them nor aiding them in their pursuits.”

George Bush:
“Our enemies are innovative and resourceful, and so are we. They never stop thinking about new ways to harm our country and our people, and neither do we.”

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