Through supporting perverse economic policies such as this pork industry subsidy, politicians prove that they really are as stupid as they seem.
USDA pledges $151 million for pork industry bailout
-The Wall Street Journal
"The Agriculture Department, in a bid to help the ailing pork industry, said Thursday it will buy an additional $30 million of pork in an effort to boost prices. The USDA already has pledged to purchase $121 million of pork this year for government food-assistance programs, but producers continue to struggle." (09/03/09)
Sunday, September 13, 2009
Economist's Need to Change Their Writing Style
Economists need to change their writing style if they are going to have any success educating the public. Call me naive but isn’t that the purpose of their writing or are they just writing for other economists? My hope is that economists will change their style in order to broaden their audience. Why? Economics is so important; it is the study of human cooperation. It involves critical elements of political, cultural, scientific and even spiritual thought. It impacts the very nature of how humans relate to one another and determines how and where a person can make a living. In other words, economics explains how people use their means to achieve their own desired ends. It is most broadly speaking, a subject which looks at how people live as individuals and communities.
In order to communicate more effectively and honestly, I suggest that economists begin writing their articles with their recommendations placed at the beginning of their pieces; admitting right away what their motivations and political biases are. In the remainder of their papers they can support their conclusions with economic fundamentals and historical illustrations.
By stating their concluding points first, economists reveal their personal biases. For example, they will show whether they believe that business cycles are natural market phenomena which are optimal responses to changing circumstances, or whether they are the result of institutional or political flaws. These different perspectives on the causes of business cycles represent very important disagreements which exist between competing schools of economic thought. I could go on about this topic forever. I wrote my honors thesis on competing free market schools of thought and how they each explain the causes of business cycles in their own unique way. It was a fascinating topic to write about.
All the best,
Betsy
In order to communicate more effectively and honestly, I suggest that economists begin writing their articles with their recommendations placed at the beginning of their pieces; admitting right away what their motivations and political biases are. In the remainder of their papers they can support their conclusions with economic fundamentals and historical illustrations.
By stating their concluding points first, economists reveal their personal biases. For example, they will show whether they believe that business cycles are natural market phenomena which are optimal responses to changing circumstances, or whether they are the result of institutional or political flaws. These different perspectives on the causes of business cycles represent very important disagreements which exist between competing schools of economic thought. I could go on about this topic forever. I wrote my honors thesis on competing free market schools of thought and how they each explain the causes of business cycles in their own unique way. It was a fascinating topic to write about.
All the best,
Betsy
Friday, August 14, 2009
The Mark-to-Market Accounting Issue is a Scapegoat!
If you are a dedicated reader of the financial papers you may have fallen for the line that mark-to-market accounting rules are a major contributor to the financial crisis. I caution you to examine that argument with a great deal of skepticism. Mark-to-market accounting rules did make things worse in the financial markets, but this ill-conceived rule was not the primary cause of the crisis.
Otherwise known as Federal Accounting Standard (FAS) 157, the mark-to-market accounting rule requires banks, securities firms and insurers to periodically reassess the value of their securities, portfolio or account, so that the most current and accurate value of these assets are reflected in a firm’s financial statements. Though this accounting standard has been used voluntarily or through SEC mandate for a number of years in different industries, it became more widely used when the FASB made the rule effective for all banks, securities firms and insurance entities with fiscal years beginning after November 15, 2007.
This rule has been blamed for causing an uncontrollable collapse in the markets throughout the past two years. Many claim that if the rule had been repealed earlier we would not have seen such chaos and panic in the markets. Steve Forbes is on record as saying that the SEC should have rescinded mark-to-market accounting rules immediately because they “force a bank to show the impairment on its balance sheet from a loss it hasn't taken yet.”
Renowned hedge fund manager, John Mauldin chimed in on the mark-to-market issue more than once over the past year in his weekly newsletter, “Thoughts from the Frontline”. In an issue entitled “The Law of Unintended Consequences”, from March 6, 2009, Mauldin quoted Gary Townsend, a former federal bank regulator:
The Financial Accounting Standards Board has said that it will issue new guidance on the application of FAS 157. That's encouraging, but can anyone recall when the FASB has been timely? The damage from this misguided rule is already huge, widespread, and growing daily. Mark-to-market accounting creates a powerful negative feedback loop. Actual or imputed FAS 157-related losses weaken capital ratios and undermine confidence in the financial system generally, which weakens the economy and adds pressure on loan pricing, causing more FAS 157 losses, and around we go. This cycle needs to be broken. Mary Schapiro? Tim Geithner? Are you listening?
The writers at The Wall Street Journal have also given the mark-to-market rule a great deal of blame for the banking crisis. In an article entitled “Congress Helped Banks Defang Key Rule”, printed on Wednesday June 3rd, 2009, a WSJ reporter boldly claimed: “The accounting issue lies at the heart of the financial crisis”.
The WSJ article and others that take on the mark-to-market accounting issue have given an overly simplistic explanation for the cause of this past year’s market turmoil. They place the blame on stringent accounting rules—forgetting the myriad of additional obnoxious government interventions that deserve to be condemned. It is easy to be led astray by simple arguments that entail reforming one regulation that could act as the magic bullet to bring the banking crisis to an end. Unfortunately, the problems with the banking sector cannot be summed up in a one-liner about a troublesome accounting rule.
Even if FAS 157 had been the root cause of the financial crisis, our regulatory overlords have done a pitiful job of taking corrective action. Of all the many regulatory agencies we have, who should we rely on to push through regulatory reforms in a timely manner? The Federal Accounting Standards Board (FASB)?
Don’t count on it. The FASB runs at a snail’s pace—just as all bloated bureaucratic organizations do. On February 18, FASB said it didn’t expect to complete its examination of mark-to-market accounting standards until late June. This was intolerably slow for Congress, so after intense hounding from legislators and lobbyists, the FASB rushed to make changes to FAS 157. The most recent update can be found in the “Proposed FASB Staff Position”, (FSP) FAS 157-e.
This sorry excuse for reform came on April 2, 2009, after a 15-day public comment period. FASB eased mark-to-market rules so that financial institutions are still required to mark financial assets to market prices but only in a steady market. When the market is “inactive” or too turbulent, the rules do not need to be followed.
The reform simply involves changing the rules so that banks need only follow FAS 157 rules during “normal market activity”. When markets are behaving abnormally, reporting entities are given the freedom to value their assets with their own in-house valuation models. Let’s think about this…what is the probability that a firm’s in-house models would give a more favorable valuation of the assets on its books than the market would? I’d say pretty high.
The FASB’s response is an abysmal excuse for regulatory reform. They are allowing reporting entities to ignore the rule when it is too painful to comply with and muddying the waters further by letting them use their own discretion when valuing assets on their books. Why not abolish the rule altogether instead of making its use conditional? Better yet, leave the rule intact. According to James Chanos, chairman of the Coalition of Private Investment Companies and founder and president of Kynikos Associates LP., “Obfuscating sound accounting rules by gutting MTM rules will only further reduce investors’ trust in the financial statements of all companies, causing private capital—desperately needed in securities markets—to become even scarcer. Worse, obfuscation will further erode confidence in the American economy, with dire consequences for the very financial institutions who are calling for MTM changes.”
The so-called reform of the mark-to-market accounting rule is regrettably not an improvement, to say the least—so much for the FASB being an effective regulatory authority. And where has the SEC been? Under the Securities Exchange Act of 1934, it was given statutory authority to establish financial accounting and reporting standards for publicly held companies. The SEC proved itself to be a lame duck on this issue. It was seemingly incapable of doing anything about FAS 157 before the FASB made its’ feeble attempt at reform.
What is also surprising is that you can’t find anything resembling a coherent argument on the FASB website about the FAS 157 controversy. Accountants frequently joke about how it is nearly impossible to find anything on the FASB website unless you know the exact title or code of the document that you are looking for. This is a real shame. People have been complaining about FAS 157 for more than a year now. You would think that the crisis would have inspired FASB to post highly visible, comprehensive discussions about mark-to-market reform on their website.
To make the FAS 157 issue even more confusing, there is still an ongoing debate about whether mark-to-market accounting should have become a required accounting rule in the first place. The debate was not even close to being settled when FAS 157 was first issued in September 2006. Now we have a regulatory change that was rushed into because: “We had to do something!” How many bad cases of reform have we been given because of this pathetic argument?
Let me conclude by restating the message I wish to convey through this article—the bank’s balance sheets are in terrible shape—no one denies that. Is it due to the fact that banks have to mark their assets to current market prices? Or, is it due to the fact that, thanks to the unsound inflationary policies of the Fed, the banks were seriously overleveraged in the first place? I’m in the overleveraged camp.
This accounting rule is indeed making the situation worse, but it is not the cause of the crisis. The cause is an overexpansion of money and credit by banks. The cure is a return to sound money and banking practices.
Betsy Hansen
Otherwise known as Federal Accounting Standard (FAS) 157, the mark-to-market accounting rule requires banks, securities firms and insurers to periodically reassess the value of their securities, portfolio or account, so that the most current and accurate value of these assets are reflected in a firm’s financial statements. Though this accounting standard has been used voluntarily or through SEC mandate for a number of years in different industries, it became more widely used when the FASB made the rule effective for all banks, securities firms and insurance entities with fiscal years beginning after November 15, 2007.
This rule has been blamed for causing an uncontrollable collapse in the markets throughout the past two years. Many claim that if the rule had been repealed earlier we would not have seen such chaos and panic in the markets. Steve Forbes is on record as saying that the SEC should have rescinded mark-to-market accounting rules immediately because they “force a bank to show the impairment on its balance sheet from a loss it hasn't taken yet.”
Renowned hedge fund manager, John Mauldin chimed in on the mark-to-market issue more than once over the past year in his weekly newsletter, “Thoughts from the Frontline”. In an issue entitled “The Law of Unintended Consequences”, from March 6, 2009, Mauldin quoted Gary Townsend, a former federal bank regulator:
The Financial Accounting Standards Board has said that it will issue new guidance on the application of FAS 157. That's encouraging, but can anyone recall when the FASB has been timely? The damage from this misguided rule is already huge, widespread, and growing daily. Mark-to-market accounting creates a powerful negative feedback loop. Actual or imputed FAS 157-related losses weaken capital ratios and undermine confidence in the financial system generally, which weakens the economy and adds pressure on loan pricing, causing more FAS 157 losses, and around we go. This cycle needs to be broken. Mary Schapiro? Tim Geithner? Are you listening?
The writers at The Wall Street Journal have also given the mark-to-market rule a great deal of blame for the banking crisis. In an article entitled “Congress Helped Banks Defang Key Rule”, printed on Wednesday June 3rd, 2009, a WSJ reporter boldly claimed: “The accounting issue lies at the heart of the financial crisis”.
The WSJ article and others that take on the mark-to-market accounting issue have given an overly simplistic explanation for the cause of this past year’s market turmoil. They place the blame on stringent accounting rules—forgetting the myriad of additional obnoxious government interventions that deserve to be condemned. It is easy to be led astray by simple arguments that entail reforming one regulation that could act as the magic bullet to bring the banking crisis to an end. Unfortunately, the problems with the banking sector cannot be summed up in a one-liner about a troublesome accounting rule.
Even if FAS 157 had been the root cause of the financial crisis, our regulatory overlords have done a pitiful job of taking corrective action. Of all the many regulatory agencies we have, who should we rely on to push through regulatory reforms in a timely manner? The Federal Accounting Standards Board (FASB)?
Don’t count on it. The FASB runs at a snail’s pace—just as all bloated bureaucratic organizations do. On February 18, FASB said it didn’t expect to complete its examination of mark-to-market accounting standards until late June. This was intolerably slow for Congress, so after intense hounding from legislators and lobbyists, the FASB rushed to make changes to FAS 157. The most recent update can be found in the “Proposed FASB Staff Position”, (FSP) FAS 157-e.
This sorry excuse for reform came on April 2, 2009, after a 15-day public comment period. FASB eased mark-to-market rules so that financial institutions are still required to mark financial assets to market prices but only in a steady market. When the market is “inactive” or too turbulent, the rules do not need to be followed.
The reform simply involves changing the rules so that banks need only follow FAS 157 rules during “normal market activity”. When markets are behaving abnormally, reporting entities are given the freedom to value their assets with their own in-house valuation models. Let’s think about this…what is the probability that a firm’s in-house models would give a more favorable valuation of the assets on its books than the market would? I’d say pretty high.
The FASB’s response is an abysmal excuse for regulatory reform. They are allowing reporting entities to ignore the rule when it is too painful to comply with and muddying the waters further by letting them use their own discretion when valuing assets on their books. Why not abolish the rule altogether instead of making its use conditional? Better yet, leave the rule intact. According to James Chanos, chairman of the Coalition of Private Investment Companies and founder and president of Kynikos Associates LP., “Obfuscating sound accounting rules by gutting MTM rules will only further reduce investors’ trust in the financial statements of all companies, causing private capital—desperately needed in securities markets—to become even scarcer. Worse, obfuscation will further erode confidence in the American economy, with dire consequences for the very financial institutions who are calling for MTM changes.”
The so-called reform of the mark-to-market accounting rule is regrettably not an improvement, to say the least—so much for the FASB being an effective regulatory authority. And where has the SEC been? Under the Securities Exchange Act of 1934, it was given statutory authority to establish financial accounting and reporting standards for publicly held companies. The SEC proved itself to be a lame duck on this issue. It was seemingly incapable of doing anything about FAS 157 before the FASB made its’ feeble attempt at reform.
What is also surprising is that you can’t find anything resembling a coherent argument on the FASB website about the FAS 157 controversy. Accountants frequently joke about how it is nearly impossible to find anything on the FASB website unless you know the exact title or code of the document that you are looking for. This is a real shame. People have been complaining about FAS 157 for more than a year now. You would think that the crisis would have inspired FASB to post highly visible, comprehensive discussions about mark-to-market reform on their website.
To make the FAS 157 issue even more confusing, there is still an ongoing debate about whether mark-to-market accounting should have become a required accounting rule in the first place. The debate was not even close to being settled when FAS 157 was first issued in September 2006. Now we have a regulatory change that was rushed into because: “We had to do something!” How many bad cases of reform have we been given because of this pathetic argument?
Let me conclude by restating the message I wish to convey through this article—the bank’s balance sheets are in terrible shape—no one denies that. Is it due to the fact that banks have to mark their assets to current market prices? Or, is it due to the fact that, thanks to the unsound inflationary policies of the Fed, the banks were seriously overleveraged in the first place? I’m in the overleveraged camp.
This accounting rule is indeed making the situation worse, but it is not the cause of the crisis. The cause is an overexpansion of money and credit by banks. The cure is a return to sound money and banking practices.
Betsy Hansen
Will radically different banking plans work?
Not until we abolish legal tender laws.
Until we abolish legal tender laws, all attempts on the part of entrepreneurs to set up gold and silver banking institutions will be labeled as “a tax evasion scheme to hide income”.
If you don’t believe me, ask Franklin Sanders. He is a man who knows first-hand, that when you try to question the government’s role in our monetary affairs, you don’t have a chance. How can one man win in a battle for economic freedom against the government, when the government has vast monetary resources through its control of the printing press and armed attack squads that can use brute force against anyone who challenges government decrees?
Mr. Sanders fought gallantly given the impossible circumstances in which he found himself. He ran a gold and silver bank for more than a decade, serving customers in Mississippi, Arkansas and Tennessee. His hope was to run his business as a truly free bank, such that he would exchange federal reserve notes for gold and silver—and here is the kicker—he tried to do that without charging sales tax on the exchanges. It is true, what Mr. Sanders was doing was entrepreneurial suicide, but you have to give him credit for showing courage and tenacity.
In 1980, he opened his doors for the first time, selling physical gold and silver. According to his fascinating autobiographical essay, available on his website: www.the-moneychanger.com, he did his best to cover his bases with the local authorities:
First thing I did was, write to the Arkansas Attorney General to explain that I thought exchanges of gold and silver money for paper money weren’t subject to the sales tax, since they were exchanges of money for money.
Even though no one chose to respond to him, he continued to contact local political officials to confirm that his business was not violating state law. He even wrote to the Commissioner of Revenue to inform him of what he was doing— to no avail. He never got a response from anyone, at least not until Revenue officers and IRS criminal Investigation Division (CID) agents came to harass him.
During the time he was left alone, his bank did very well. He attracted depositors from all over. The government brought a swift end to his business, however. First, they forced him to move to another state, and then, they scared all of his customers away by requiring that they send records of their exchanges with him to IRS CID agents, threatening to issue subpoenas to whoever refused to comply. After his first dramatic escape from IRS hounds, Sanders opened his doors in another state:
I moved my business to Tennessee, doing the same thing, exchanging gold and silver money for Federal Reserve notes. By this time I had realized that although every American had a constitutional and legal right to gold and silver money, the problem was, you couldn’t use them in everyday business. We had the right to sound money, but no means. We needed an interface between the paper system and gold and silver. So in May, 1984 I opened a gold and silver bank. I attracted depositors like wildfire, but somebody didn’t like my idea.
After years of harassment, Sanders was eventually arrested. As Murray Rothbard repeatedly reminds us, the government reviles anyone that challenges its’ monetary monopoly. The harsh treatment of Sanders illustrates this point. “My bond was set at $150,000, fully secured. For comparison, that same day they arrested a child molester and set his bond at $10,000, not secured.” A powerful quote that accounts for Sanders’ treatment came directly from the agents of the government: “The assistant US attorney here told one lawyer that I was ‘the most dangerous man in the mid-South.’ In a four and a half year investigation the government spent $5-$10 million, maybe more.”
According to Sanders, the government was desperate to claim that he was the mastermind behind a cluster of illicit activities. Foremost among them was “delaying and depriving the state of revenue to which it was lawfully entitled at the time it was lawfully entitled thereto.” The government’s inch thick indictment claimed that a total of 26 people, with Franklin Sanders at the helm, were part of a “conspiracy to defraud the government, willful failure to file, and divers other malefactions. The government claimed that the gold and silver bank was a tax evasion scheme to hide income.”
Sanders tried to use the law in his defense, but his points went unanswered. “On the money issue, the real heart of the case, the court dodged and denied all my arguments.” They obviously had no historical or theoretical background that would open their eyes to the truth of his arguments. If Austrian-Libertarian leaning individuals heard his arguments they would cheer in approval. Take this statement, for example, in which he brilliantly states what Austrian economists have been trying to convey to the public for decades:
They were charging me with not collecting sales tax on exchanges of gold and silver money for paper money. You know—like when you go to the bank, and give the teller a twenty and she gives you back a ten and two fives, less sales tax. What? She doesn’t charge you with sales tax? Of course not, because it’s an exchange of money for money.
He attempted to battle in court for his right to exchange what he considered to be “money for money”. Yet, he was trying to fight a legal battle in “Legal Never-Neverland: monetary law.” In his fiercely direct style, he explains the dilemma that anyone faces when they try to argue with the government over monetary freedom.
neither the state of Tennessee nor any other state can admit that gold and silver coins are money. If they do, they will admit they are operating outside the law. The monetary emperor is naked, and state officials from the Chief Justice of the Supreme Court to the governor to the second assistant tire checker are afraid to tell him. They should be afraid, because the monopoly on money creation is the jugular vein of the American fascist state.
He understands how dangerous and perverse the government’s control over our monetary system is. He tried to battle the government with the best legal arguments he could muster, but since the government’s legal bureaucrats would never address the money issue, he lost his case, after fighting a legal battle that lasted for 15 years. That takes fortitude! To those who would question his sanity for pursuing an obviously unwinnable legal battle, he says:
Why keep on fighting? After 15 years, why not just put down the load and forget it? Because the fiat money system is both the strength and weakness of America’s tyrants. It bleeds the people’s wealth and labor, but it also threatens to collapse under its own weight—or whenever the scales fall off the people’s eyes. With its green engravings of famous Americans, electrons whirling around in bank computers, and loans created out of thin air, it is one vast confidence game.
Franklin Sanders’ story reminds us that the future of private enterprise in money has no chance until we abolish legal tender laws, and remove all forms of taxes on commodity money. This type of change will require a political revolution. Unless we witness a mass political movement demanding monetary freedom, I do not see any way forward for a market driven substitute to the government’s monopoly over money. We have to gather and inspire enough political will to abolish legal tender laws and all taxes on commodity money.
Until we abolish legal tender laws, all attempts on the part of entrepreneurs to set up gold and silver banking institutions will be labeled as “a tax evasion scheme to hide income”.
If you don’t believe me, ask Franklin Sanders. He is a man who knows first-hand, that when you try to question the government’s role in our monetary affairs, you don’t have a chance. How can one man win in a battle for economic freedom against the government, when the government has vast monetary resources through its control of the printing press and armed attack squads that can use brute force against anyone who challenges government decrees?
Mr. Sanders fought gallantly given the impossible circumstances in which he found himself. He ran a gold and silver bank for more than a decade, serving customers in Mississippi, Arkansas and Tennessee. His hope was to run his business as a truly free bank, such that he would exchange federal reserve notes for gold and silver—and here is the kicker—he tried to do that without charging sales tax on the exchanges. It is true, what Mr. Sanders was doing was entrepreneurial suicide, but you have to give him credit for showing courage and tenacity.
In 1980, he opened his doors for the first time, selling physical gold and silver. According to his fascinating autobiographical essay, available on his website: www.the-moneychanger.com, he did his best to cover his bases with the local authorities:
First thing I did was, write to the Arkansas Attorney General to explain that I thought exchanges of gold and silver money for paper money weren’t subject to the sales tax, since they were exchanges of money for money.
Even though no one chose to respond to him, he continued to contact local political officials to confirm that his business was not violating state law. He even wrote to the Commissioner of Revenue to inform him of what he was doing— to no avail. He never got a response from anyone, at least not until Revenue officers and IRS criminal Investigation Division (CID) agents came to harass him.
During the time he was left alone, his bank did very well. He attracted depositors from all over. The government brought a swift end to his business, however. First, they forced him to move to another state, and then, they scared all of his customers away by requiring that they send records of their exchanges with him to IRS CID agents, threatening to issue subpoenas to whoever refused to comply. After his first dramatic escape from IRS hounds, Sanders opened his doors in another state:
I moved my business to Tennessee, doing the same thing, exchanging gold and silver money for Federal Reserve notes. By this time I had realized that although every American had a constitutional and legal right to gold and silver money, the problem was, you couldn’t use them in everyday business. We had the right to sound money, but no means. We needed an interface between the paper system and gold and silver. So in May, 1984 I opened a gold and silver bank. I attracted depositors like wildfire, but somebody didn’t like my idea.
After years of harassment, Sanders was eventually arrested. As Murray Rothbard repeatedly reminds us, the government reviles anyone that challenges its’ monetary monopoly. The harsh treatment of Sanders illustrates this point. “My bond was set at $150,000, fully secured. For comparison, that same day they arrested a child molester and set his bond at $10,000, not secured.” A powerful quote that accounts for Sanders’ treatment came directly from the agents of the government: “The assistant US attorney here told one lawyer that I was ‘the most dangerous man in the mid-South.’ In a four and a half year investigation the government spent $5-$10 million, maybe more.”
According to Sanders, the government was desperate to claim that he was the mastermind behind a cluster of illicit activities. Foremost among them was “delaying and depriving the state of revenue to which it was lawfully entitled at the time it was lawfully entitled thereto.” The government’s inch thick indictment claimed that a total of 26 people, with Franklin Sanders at the helm, were part of a “conspiracy to defraud the government, willful failure to file, and divers other malefactions. The government claimed that the gold and silver bank was a tax evasion scheme to hide income.”
Sanders tried to use the law in his defense, but his points went unanswered. “On the money issue, the real heart of the case, the court dodged and denied all my arguments.” They obviously had no historical or theoretical background that would open their eyes to the truth of his arguments. If Austrian-Libertarian leaning individuals heard his arguments they would cheer in approval. Take this statement, for example, in which he brilliantly states what Austrian economists have been trying to convey to the public for decades:
They were charging me with not collecting sales tax on exchanges of gold and silver money for paper money. You know—like when you go to the bank, and give the teller a twenty and she gives you back a ten and two fives, less sales tax. What? She doesn’t charge you with sales tax? Of course not, because it’s an exchange of money for money.
He attempted to battle in court for his right to exchange what he considered to be “money for money”. Yet, he was trying to fight a legal battle in “Legal Never-Neverland: monetary law.” In his fiercely direct style, he explains the dilemma that anyone faces when they try to argue with the government over monetary freedom.
neither the state of Tennessee nor any other state can admit that gold and silver coins are money. If they do, they will admit they are operating outside the law. The monetary emperor is naked, and state officials from the Chief Justice of the Supreme Court to the governor to the second assistant tire checker are afraid to tell him. They should be afraid, because the monopoly on money creation is the jugular vein of the American fascist state.
He understands how dangerous and perverse the government’s control over our monetary system is. He tried to battle the government with the best legal arguments he could muster, but since the government’s legal bureaucrats would never address the money issue, he lost his case, after fighting a legal battle that lasted for 15 years. That takes fortitude! To those who would question his sanity for pursuing an obviously unwinnable legal battle, he says:
Why keep on fighting? After 15 years, why not just put down the load and forget it? Because the fiat money system is both the strength and weakness of America’s tyrants. It bleeds the people’s wealth and labor, but it also threatens to collapse under its own weight—or whenever the scales fall off the people’s eyes. With its green engravings of famous Americans, electrons whirling around in bank computers, and loans created out of thin air, it is one vast confidence game.
Franklin Sanders’ story reminds us that the future of private enterprise in money has no chance until we abolish legal tender laws, and remove all forms of taxes on commodity money. This type of change will require a political revolution. Unless we witness a mass political movement demanding monetary freedom, I do not see any way forward for a market driven substitute to the government’s monopoly over money. We have to gather and inspire enough political will to abolish legal tender laws and all taxes on commodity money.
Wednesday, June 3, 2009
A Response to the Current State of Economic Education at American Universities
A Message for Armchair Economists
At some point in our intellectual development, we libertarians are naturally drawn to study economics. I think this stems from the fact that we love to explore the forces which drive our world. Economics is, in a broad sense, the study of human cooperation. A solid understanding of economics enables us to see how and why our world looks and behaves as it does.
You might have started studying economics on your own, and are now thinking that it would be great to pursue further study in this field at a university. Not so fast.
When you study economics at a university, especially at the graduate level, you are dealing with a completely different animal. Economics has been technically supercharged. A math-mania has replaced the economic logic we know and love.
How do I know this?
I started studying economics in high school, loved it, majored in economics along with finance at the University of Denver, and now I am on the market for a graduate program in economics. I hope to be one of those “good” economists, seriously in the minority these days, who study the way economies actually operate and are not just apologists for government policies.
I have been looking for the right graduate program for a few years now. I have interviewed professors at a number of departments and the most important message they have shared with me has been that the current focus of economic education at the graduate level is almost solely math based. Given my previous work at the undergraduate level, I somewhat expected this, but the degree to which programs were focused on math surprised me. When do students learn about advanced business cycle theories, money and banking, and the ideological and political influences on economic activity? When do students engage in critical reasoning about previous works that have passed as truth in the economics discipline if they are spending most of their time working math problems?
It is very unfortunate that economists spend so much time applying mathematics to economics because it severely limits the amount of time students spend learning about how the real economy functions. Economic activity is complex and unpredictable, but amidst this seemingly chaotic scenario, there is a beautiful capacity for order and organization. Economics at its best studies how this works by looking at what motivates individuals and how they seek to achieve their desired ends.
Mathematics is not an appropriate means of explaining human action for a number of reasons. A wealth of literature on this subject exists, so I recommend further reading on this topic, but to give you a general idea of what I am talking about, here is a summary of the argument against using math as a means of describing and predicting human action. The following sections come from a brilliant article by Bruno Leoni and Eugenio Frola, published in 1977 in the Journal of Libertarian Studies, Vol. 1, No. 2 pp.101-109.
“The application of mathematics to the human sciences, and particularly to economics, rests on the implicit assumption that mathematics is an appropriate tool for all the sciences. The widespread adoption of this assumption stemmed from the brilliant success achieved by the use of mathematics in physics, consisting mainly of accurate predictions of events taking place under controlled conditions. It is often overlooked, however (particularly by non-physicists), that these successes scarcely imply that every type of prediction of events can be attained by mathematics. In fact, events can only be predicted when the physicist can reduce and simplify them so as to correspond with a mathematical formula, capable of a calculable numerical solution.”
Here is a specific explanation of this problem. Referring to indifference curves and utility analysis, two common concepts in economics where math is used as an illustrative and predictive tool, Bruno Leoni and Eugenio Frola write,
“Both the theories of indifference classes and of numerical utility rest on mathematical concepts that are essentially different from any validly empirical view of utility. The adherents of the mathematical theory of utility have not justified their substitution of a mathematical construct for the processes occurring in the real world. The utility which we have called “empirical” is that which governs the actual behavior of human operators, with perhaps the undoubtedly rare exception of those who purposely commit themselves to following postulates of the mathematical theory. At best, mathematical utility theory will only permit us to predict the behavior of these peculiar operators.”
Murray Rothbard offers further explanation of the inappropriate use of mathematics in praxeology, the study of human action, in an article entitled, “Praxeology: The Methodology of Austrian Economics”. Here he provides the following description of praxeology:
“Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals”…“The praxeological method spins out by verbal deduction that logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act.” (p.58)
He adds that mathematics cannot be used to describe human activity without seriously oversimplifying the reality of how human beings actually act. Bolstering his argument, Murray goes on to say, “as political scientist Bruno Leoni and mathematician Eugenio Frola pointed out,
It is often claimed that translation of such a concept as the maximum from ordinary into mathematical language, involves an improvement in the logical accuracy of the concept, as well as wider opportunities for its use. But the lack of mathematical precision in ordinary language reflects precisely the behavior of individual human beings in the real world…. We might suspect that translation into mathematical language by itself implies a suggested transformation of human economic operators into virtual robots. (p.62)
Rothbard continues, “Similarly, one of the first methodologists in economics, Jean-Baptiste Say, charged that the mathematical economists
have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results. (p.62)
I could give many more explanations of why mathematics is not appropriate for the analysis of human action, but I think you get my point.
Math is used to such an extent because economists are required to understand and create mathematical models which are used to make forecasts, calculate variances, correlations and much, much more. I don’t want to sound too critical here because mathematical models can be effective if the assumptions they are based on are reasonable, but in many economic models assumptions are clearly false. For example, most models used for forecasting purposes need to measure risk in some way. They factor in various market risks and asset specific risks. At first glance, this seems reasonable, but how do you define risk? Risk is very subjective, just as value is subjective. So it should be obvious that a model would not forecast future prices or growth rates if the assumptions about relevant risks are completely wrong. Unfortunately, false assumptions are accepted because they make it easier to build and manipulate mathematical models.
The way I see it, economists have become glorified mathematicians. Of course, statistics and modeling can be very useful, but they are not a means to solving every economic problem. Unfortunately, the economics profession has been hijacked by those who think that economists are most useful when they are trained to run models, versus discussing and developing economic theory and history. This has led to the regrettable demise of history of economic thought courses in graduate programs. There just isn’t enough time, most teachers say, to teach all the necessary math and modeling techniques students are expected to know, as well as cover the history of economic thought.
I spoke with an admissions officer who told me that the math content of their economics programs was so difficult that even math majors had a hard time. And even according to lenient admissions standards, you have no place in graduate economics programs unless you have taken 2 years of Calculus, 1 year of statistics, linear and matrix algebra. This is ridiculous! When the use of mathematics gets this complex, how in the world do students have the time to deal with the study of human action, uncertainty and change? The answer is that they don’t.
What is the problem with academia that they do not have the backbone to stand up to whoever is calling the shots about the graduate economics curriculum? Is this all due to an intentional “scientific” push from economists seeking academic respect from the scientific community? If it is, don’t they realize that they have taken the quantitative focus too far?
When will academics revolt against this obsession with quantitative analysis that runs rampant throughout graduate economics programs today?
Hasn’t the current crisis proven that economists and their models have failed miserably? If anything good comes of this economic downturn, one would think that a thorough reexamination of existing economics programs was in order.
I am not the only one complaining about this problem. I have not met a single professor who is happy about the current state of economics. Many lament the fact that economics has become more or less a math program rather than a study of human actions and economic logic. A huge number of financial and economic commentators are making the same point as well. Here's an excerpt from a speech given by former Fed Chairman, Paul Volcker:
“There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis.”
So there you have it—even Paul Volcker sees that the mathematically driven economic and financial analysis is unsound. Yet, if professors and many in the financial community are so unhappy with the analytical techniques which are taught in economics programs today, why have we not seen much change? I presume that economics departments could adapt if they wanted to, right? Who is influencing the discipline so much, to the point where no one likes it, but they go along with what looks and feels like torture to everyone but math nerds? Is it the government? Our bureaucracy needs lots of bean counters to manage their affairs. I don’t really know. The whole discipline seems like it’s lost its mind.
Thankfully we have the wonderful exception of a few Austrian programs, with the Ludwig von Mises Institute leading the way. Until we see a Mises University that can train and certify economists, I think economics students are forced to make the best of things as they are. Unfortunately, the unseen cost of our poor state of economic education is enormous. Because economics programs are so mathematically focused, many brilliant minds are deciding not to go into that field of study. The opportunity costs our society faces by having mathematicians run economics programs are huge. Society will be worse off because of it.
Betsy Hansen
At some point in our intellectual development, we libertarians are naturally drawn to study economics. I think this stems from the fact that we love to explore the forces which drive our world. Economics is, in a broad sense, the study of human cooperation. A solid understanding of economics enables us to see how and why our world looks and behaves as it does.
You might have started studying economics on your own, and are now thinking that it would be great to pursue further study in this field at a university. Not so fast.
When you study economics at a university, especially at the graduate level, you are dealing with a completely different animal. Economics has been technically supercharged. A math-mania has replaced the economic logic we know and love.
How do I know this?
I started studying economics in high school, loved it, majored in economics along with finance at the University of Denver, and now I am on the market for a graduate program in economics. I hope to be one of those “good” economists, seriously in the minority these days, who study the way economies actually operate and are not just apologists for government policies.
I have been looking for the right graduate program for a few years now. I have interviewed professors at a number of departments and the most important message they have shared with me has been that the current focus of economic education at the graduate level is almost solely math based. Given my previous work at the undergraduate level, I somewhat expected this, but the degree to which programs were focused on math surprised me. When do students learn about advanced business cycle theories, money and banking, and the ideological and political influences on economic activity? When do students engage in critical reasoning about previous works that have passed as truth in the economics discipline if they are spending most of their time working math problems?
It is very unfortunate that economists spend so much time applying mathematics to economics because it severely limits the amount of time students spend learning about how the real economy functions. Economic activity is complex and unpredictable, but amidst this seemingly chaotic scenario, there is a beautiful capacity for order and organization. Economics at its best studies how this works by looking at what motivates individuals and how they seek to achieve their desired ends.
Mathematics is not an appropriate means of explaining human action for a number of reasons. A wealth of literature on this subject exists, so I recommend further reading on this topic, but to give you a general idea of what I am talking about, here is a summary of the argument against using math as a means of describing and predicting human action. The following sections come from a brilliant article by Bruno Leoni and Eugenio Frola, published in 1977 in the Journal of Libertarian Studies, Vol. 1, No. 2 pp.101-109.
“The application of mathematics to the human sciences, and particularly to economics, rests on the implicit assumption that mathematics is an appropriate tool for all the sciences. The widespread adoption of this assumption stemmed from the brilliant success achieved by the use of mathematics in physics, consisting mainly of accurate predictions of events taking place under controlled conditions. It is often overlooked, however (particularly by non-physicists), that these successes scarcely imply that every type of prediction of events can be attained by mathematics. In fact, events can only be predicted when the physicist can reduce and simplify them so as to correspond with a mathematical formula, capable of a calculable numerical solution.”
Here is a specific explanation of this problem. Referring to indifference curves and utility analysis, two common concepts in economics where math is used as an illustrative and predictive tool, Bruno Leoni and Eugenio Frola write,
“Both the theories of indifference classes and of numerical utility rest on mathematical concepts that are essentially different from any validly empirical view of utility. The adherents of the mathematical theory of utility have not justified their substitution of a mathematical construct for the processes occurring in the real world. The utility which we have called “empirical” is that which governs the actual behavior of human operators, with perhaps the undoubtedly rare exception of those who purposely commit themselves to following postulates of the mathematical theory. At best, mathematical utility theory will only permit us to predict the behavior of these peculiar operators.”
Murray Rothbard offers further explanation of the inappropriate use of mathematics in praxeology, the study of human action, in an article entitled, “Praxeology: The Methodology of Austrian Economics”. Here he provides the following description of praxeology:
“Praxeology rests on the fundamental axiom that individual human beings act, that is, on the primordial fact that individuals engage in conscious actions toward chosen goals”…“The praxeological method spins out by verbal deduction that logical implications of that primordial fact. In short, praxeological economics is the structure of logical implications of the fact that individuals act.” (p.58)
He adds that mathematics cannot be used to describe human activity without seriously oversimplifying the reality of how human beings actually act. Bolstering his argument, Murray goes on to say, “as political scientist Bruno Leoni and mathematician Eugenio Frola pointed out,
It is often claimed that translation of such a concept as the maximum from ordinary into mathematical language, involves an improvement in the logical accuracy of the concept, as well as wider opportunities for its use. But the lack of mathematical precision in ordinary language reflects precisely the behavior of individual human beings in the real world…. We might suspect that translation into mathematical language by itself implies a suggested transformation of human economic operators into virtual robots. (p.62)
Rothbard continues, “Similarly, one of the first methodologists in economics, Jean-Baptiste Say, charged that the mathematical economists
have not been able to enunciate these questions into analytical language, without divesting them of their natural complication, by means of simplifications, and arbitrary suppressions, of which the consequences, not properly estimated, always essentially change the condition of the problem, and pervert all its results. (p.62)
I could give many more explanations of why mathematics is not appropriate for the analysis of human action, but I think you get my point.
Math is used to such an extent because economists are required to understand and create mathematical models which are used to make forecasts, calculate variances, correlations and much, much more. I don’t want to sound too critical here because mathematical models can be effective if the assumptions they are based on are reasonable, but in many economic models assumptions are clearly false. For example, most models used for forecasting purposes need to measure risk in some way. They factor in various market risks and asset specific risks. At first glance, this seems reasonable, but how do you define risk? Risk is very subjective, just as value is subjective. So it should be obvious that a model would not forecast future prices or growth rates if the assumptions about relevant risks are completely wrong. Unfortunately, false assumptions are accepted because they make it easier to build and manipulate mathematical models.
The way I see it, economists have become glorified mathematicians. Of course, statistics and modeling can be very useful, but they are not a means to solving every economic problem. Unfortunately, the economics profession has been hijacked by those who think that economists are most useful when they are trained to run models, versus discussing and developing economic theory and history. This has led to the regrettable demise of history of economic thought courses in graduate programs. There just isn’t enough time, most teachers say, to teach all the necessary math and modeling techniques students are expected to know, as well as cover the history of economic thought.
I spoke with an admissions officer who told me that the math content of their economics programs was so difficult that even math majors had a hard time. And even according to lenient admissions standards, you have no place in graduate economics programs unless you have taken 2 years of Calculus, 1 year of statistics, linear and matrix algebra. This is ridiculous! When the use of mathematics gets this complex, how in the world do students have the time to deal with the study of human action, uncertainty and change? The answer is that they don’t.
What is the problem with academia that they do not have the backbone to stand up to whoever is calling the shots about the graduate economics curriculum? Is this all due to an intentional “scientific” push from economists seeking academic respect from the scientific community? If it is, don’t they realize that they have taken the quantitative focus too far?
When will academics revolt against this obsession with quantitative analysis that runs rampant throughout graduate economics programs today?
Hasn’t the current crisis proven that economists and their models have failed miserably? If anything good comes of this economic downturn, one would think that a thorough reexamination of existing economics programs was in order.
I am not the only one complaining about this problem. I have not met a single professor who is happy about the current state of economics. Many lament the fact that economics has become more or less a math program rather than a study of human actions and economic logic. A huge number of financial and economic commentators are making the same point as well. Here's an excerpt from a speech given by former Fed Chairman, Paul Volcker:
“There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis.”
So there you have it—even Paul Volcker sees that the mathematically driven economic and financial analysis is unsound. Yet, if professors and many in the financial community are so unhappy with the analytical techniques which are taught in economics programs today, why have we not seen much change? I presume that economics departments could adapt if they wanted to, right? Who is influencing the discipline so much, to the point where no one likes it, but they go along with what looks and feels like torture to everyone but math nerds? Is it the government? Our bureaucracy needs lots of bean counters to manage their affairs. I don’t really know. The whole discipline seems like it’s lost its mind.
Thankfully we have the wonderful exception of a few Austrian programs, with the Ludwig von Mises Institute leading the way. Until we see a Mises University that can train and certify economists, I think economics students are forced to make the best of things as they are. Unfortunately, the unseen cost of our poor state of economic education is enormous. Because economics programs are so mathematically focused, many brilliant minds are deciding not to go into that field of study. The opportunity costs our society faces by having mathematicians run economics programs are huge. Society will be worse off because of it.
Betsy Hansen
Tuesday, September 30, 2008
Spiritual Inconsistencies
Dear Pro-Government Liberals,
I know you call yourselves progressives and believe that you are operating at a higher level of consciousness than those “dumb Republicans”, right? I was raised by hippies, I know all the New Age ideas about how we are all empowered spirits that have the ability to create our own reality. I’m sure you love that stuff and go to all the seminars that talk about living in a higher state of consciousness. Well, I would like to challenge you to compare your “abundance and power is mine” spiritual philosophy and relate it to your political and economic views.
If spiritually you believe that the universe is entirely composed of all the love and abundance that we need (if only we made ourselves aware of it), then why do you continue to fall for political lies such as the “Two Americas” described by John Edwards. All plans for the re-distributions of wealth are ineffective and morally corrupt. People should give to the poor when they feel inspired to do so with their own resources, it should not be done through forced taxation. That is not charity. It is forced redistribution of wealth, and it is not morally the same as a spontaneous act of charity.
Another important point I wish make is: If everyone should be free to be who they are, because the gift of life “is a chance for us to live out the full expression of ourselves", why do Liberals want the government to have control over so much of our lives?
Furthermore, if you love to celebrate diversity so much, why do you want to have centralized control over education or health care? I thought diversity was good.
And why do Liberals continue to treat the government as the sole power that should control and care for us with more and more stupid programs that we may or may not want? Stop waiting for the government to bail you out or take care of you in your old age. Don’t you realize how pitiful and dehumanizing it is for the elderly to be reliant on massive government programs? It kills their sense of self worth!
Finally, there is a creepy Liberal tendency to act as if the government were a God,"our great protector". If we are ever going to move away from the big brother, big government that we have now, we have to— Liberals especially— have to stop believing that the government is a benevolent caretaker. It’s not! Regulations, taxation, and all sorts of other government controls in our lives don’t add to the health and well-being of our society. They interfere with it. Why? Because people are relinquishing power and control of their own lives to the government. When they hand the government more and more control over their lives, they are making a dangerous and frankly immature decision to pass off the responsibilities that they should be tending to on their own, and demanding that the government take care of them.
Why don’t you take your power back, take responsibility for your life and quit calling for help from the government.
I know you call yourselves progressives and believe that you are operating at a higher level of consciousness than those “dumb Republicans”, right? I was raised by hippies, I know all the New Age ideas about how we are all empowered spirits that have the ability to create our own reality. I’m sure you love that stuff and go to all the seminars that talk about living in a higher state of consciousness. Well, I would like to challenge you to compare your “abundance and power is mine” spiritual philosophy and relate it to your political and economic views.
If spiritually you believe that the universe is entirely composed of all the love and abundance that we need (if only we made ourselves aware of it), then why do you continue to fall for political lies such as the “Two Americas” described by John Edwards. All plans for the re-distributions of wealth are ineffective and morally corrupt. People should give to the poor when they feel inspired to do so with their own resources, it should not be done through forced taxation. That is not charity. It is forced redistribution of wealth, and it is not morally the same as a spontaneous act of charity.
Another important point I wish make is: If everyone should be free to be who they are, because the gift of life “is a chance for us to live out the full expression of ourselves", why do Liberals want the government to have control over so much of our lives?
Furthermore, if you love to celebrate diversity so much, why do you want to have centralized control over education or health care? I thought diversity was good.
And why do Liberals continue to treat the government as the sole power that should control and care for us with more and more stupid programs that we may or may not want? Stop waiting for the government to bail you out or take care of you in your old age. Don’t you realize how pitiful and dehumanizing it is for the elderly to be reliant on massive government programs? It kills their sense of self worth!
Finally, there is a creepy Liberal tendency to act as if the government were a God,"our great protector". If we are ever going to move away from the big brother, big government that we have now, we have to— Liberals especially— have to stop believing that the government is a benevolent caretaker. It’s not! Regulations, taxation, and all sorts of other government controls in our lives don’t add to the health and well-being of our society. They interfere with it. Why? Because people are relinquishing power and control of their own lives to the government. When they hand the government more and more control over their lives, they are making a dangerous and frankly immature decision to pass off the responsibilities that they should be tending to on their own, and demanding that the government take care of them.
Why don’t you take your power back, take responsibility for your life and quit calling for help from the government.
Wednesday, September 24, 2008
US Banks Are Not Monuments Of Capitalism
Everyone, please stop saying that the current financial mess is a result of the excesses of capitalism. We do not have a capitalist economy and the current banking industry is not a monument of capitalist activity. Our current banking system conducts its business as a banking cartel; supported and enforced by the central bank and its regulatory agencies. No one knows or admits to this fact so it makes it almost unbearable for me to read or watch all the so-called experts as they share their opinions about the flaws with capitalism that have lead us to the current mess in the markets. I am most irritated by an article that I read in the Economist which is supposed to be written by some of the leading economic writers in the world. In its most recent issue (Sept. 20th, 2008), the magazine was covering the latest bailouts of AIG, Fannie and Freddie, and the bankruptcy of Lehman Brothers. One article entitled “What next?” characterized the crisis as a clear message that capitalism is a flawed economic structure. It said, “The government of the world’s leading capitalist nation has been sucked deep into the maelstrom of its most capitalist industry. And it looks overwhelmed (The Economist, “What next?” Sept. 20,2008, pg. 19).” The author mistakenly believes that our banking industry is the titan of capitalist industry. This is absolutely absurd!
The real monuments to capitalism are the small businesses and entrepreneurs that make products which meet people’s needs without any government assistance or protection. The central bank and its member banks, the horrendous government monstrosities of Fannie and Freddie and the greedy morons that helped circulate the bad debts were not partaking in free market activity, they were encouraged to act badly because of market interventions by the government and its state backed banking cartel. They were not following normal free market rules that everyone else it required to abide by. Because of the special backing they receive from the government (low interest loans and subsidies), lending institutions convince themselves that they are incapable of failing. So they feel safe to take more and more risk, earning higher and higher returns. They always continue to increase their leveraged, risky bets until their Ponzi schemes are exposed. Then a market crisis takes root as everyone’s confidence in the market evaporates. Eventually a painful but necessary liquidation phase begins as bad debts and assets are cleared out of the market. Unfortunately, the banks’ risks and stupidity hurt the rest of the economy and instead of people realizing that the banking industry is inherently flawed because of the overleveraging that it is encouraged to do when it has the backing of the central bank, people blame the market crisis on capitalism. Now they are saying, “Hey, you capitalist pigs. See what you did to the markets? Now we have to get the government involved even more so it can use its infinite wisdom to fix the problem.” In other words, the author of the article in the Economist made this point by stating: “Capitalism requires people to pay for their mistakes…with the markets reeling, pragmatism trumped principle” (pg. 19). So apparently pragmatism—at least according to writers at the Economist— means turning towards Socialism. But is government control of the financial markets pragmatic? Are we supposed to forget about the fact that government bailouts waste our tax dollars? And, that a rise in the government debt will continue to dilute the value of our money? I suppose it is also considered blasphemy to mention the fact that the government caused the problem in the first place, right? So, what are we to do? Who is responsible for fixing a problem that the government and the banking cartel caused? Are the writers at the Economist right? Do we need to be “pragmatic” and let the government take over the markets so that we can all pretend that the entire financial system is sound? I think not.
Right now, we should be having a really serious discussion about fiscal and monetary policy. We should educate the public about how the central bank contributes to rising levels of inflation and market instability. It will take some time and a great deal of effort but the American economy is going to become even more Socialist than ever before unless we stand up and rail against the government’s increasingly unconstitutional uses of power. Americans are not going to realize how important it is for them to stop supporting big government plans until we boost our resolve to educate people about Libertarian ideals, Austrian business cycle theory, micro economics, and the dangers of central banking and government intervention. I promise that I will use every opportunity that comes my way to inform the public about what is really going on in the economy and what they can do to recover their financial and personal freedoms. I hope you will too.
Times of crisis always provide a ripe opportunity for us to learn from our mistakes. Please don’t make the mistake of blaming capitalism for the current market fallout. Instead, take the time to learn something new. I suggest you start by exploring Austrian economics. This school of Economic thought explains how overleveraged fractional reserve banks cause periodic booms and busts. A great website that contains all the information you need to understand Austrian Economic theory is: www.mises.org. This website is the homepage for the world’s leading free-market think tank, the Ludwig von Mises Institute, located in Auburn, Alabama.
I hope you enjoy learning about how the markets really work as much as I do!
Sincerely,
Betsy Hansen
The real monuments to capitalism are the small businesses and entrepreneurs that make products which meet people’s needs without any government assistance or protection. The central bank and its member banks, the horrendous government monstrosities of Fannie and Freddie and the greedy morons that helped circulate the bad debts were not partaking in free market activity, they were encouraged to act badly because of market interventions by the government and its state backed banking cartel. They were not following normal free market rules that everyone else it required to abide by. Because of the special backing they receive from the government (low interest loans and subsidies), lending institutions convince themselves that they are incapable of failing. So they feel safe to take more and more risk, earning higher and higher returns. They always continue to increase their leveraged, risky bets until their Ponzi schemes are exposed. Then a market crisis takes root as everyone’s confidence in the market evaporates. Eventually a painful but necessary liquidation phase begins as bad debts and assets are cleared out of the market. Unfortunately, the banks’ risks and stupidity hurt the rest of the economy and instead of people realizing that the banking industry is inherently flawed because of the overleveraging that it is encouraged to do when it has the backing of the central bank, people blame the market crisis on capitalism. Now they are saying, “Hey, you capitalist pigs. See what you did to the markets? Now we have to get the government involved even more so it can use its infinite wisdom to fix the problem.” In other words, the author of the article in the Economist made this point by stating: “Capitalism requires people to pay for their mistakes…with the markets reeling, pragmatism trumped principle” (pg. 19). So apparently pragmatism—at least according to writers at the Economist— means turning towards Socialism. But is government control of the financial markets pragmatic? Are we supposed to forget about the fact that government bailouts waste our tax dollars? And, that a rise in the government debt will continue to dilute the value of our money? I suppose it is also considered blasphemy to mention the fact that the government caused the problem in the first place, right? So, what are we to do? Who is responsible for fixing a problem that the government and the banking cartel caused? Are the writers at the Economist right? Do we need to be “pragmatic” and let the government take over the markets so that we can all pretend that the entire financial system is sound? I think not.
Right now, we should be having a really serious discussion about fiscal and monetary policy. We should educate the public about how the central bank contributes to rising levels of inflation and market instability. It will take some time and a great deal of effort but the American economy is going to become even more Socialist than ever before unless we stand up and rail against the government’s increasingly unconstitutional uses of power. Americans are not going to realize how important it is for them to stop supporting big government plans until we boost our resolve to educate people about Libertarian ideals, Austrian business cycle theory, micro economics, and the dangers of central banking and government intervention. I promise that I will use every opportunity that comes my way to inform the public about what is really going on in the economy and what they can do to recover their financial and personal freedoms. I hope you will too.
Times of crisis always provide a ripe opportunity for us to learn from our mistakes. Please don’t make the mistake of blaming capitalism for the current market fallout. Instead, take the time to learn something new. I suggest you start by exploring Austrian economics. This school of Economic thought explains how overleveraged fractional reserve banks cause periodic booms and busts. A great website that contains all the information you need to understand Austrian Economic theory is: www.mises.org. This website is the homepage for the world’s leading free-market think tank, the Ludwig von Mises Institute, located in Auburn, Alabama.
I hope you enjoy learning about how the markets really work as much as I do!
Sincerely,
Betsy Hansen
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