Listening the NPR in the car yesterday I caught a story about the Made-off scandal. They detailed how Made-off had kept his $50 billion Ponzi scheme going for years and how the agency whose sole job it is to “protect” us from things like this, the SEC, completely missed it. (And ignored tips, signs and evidence of Made-off’s corruption for 16 years. I’m sure it had nothing to do with his personal connections at the agency). Then, after detailing how bad government failed, they turned to a congressman to tell us what we need to do. I almost messed my pants.
“So, Mr. politician, all the things you in government have done to protect us have costs us billions and failed miserably. All your promises about what you’d protect us from turned out to be a sham. Please re-assure us and tell us how you’ll save us next time”.
Predictably, the politician’s fix was more money and power for government. Reward failure. As it is, the SEC has grown in staff and budget every year since Carter. Sorry GWB, the data doesn’t lie. You have been as hostile to free-markets as any politician since LBJ.
Robert Murphy describes the absurdity of the political responses to Made-off:
“In the private sector, when a firm fails, it ceases operations. The opposite happens in government. There is literally nothing a government agency could do that would make the talking heads on the Sunday shows ask, “Should we just abolish this agency? Is it doing more harm than good?”[...]
“The pattern plays out perfectly with the SEC and the Madoff bombshell. Suppose a few years ago, I told a group of MBAs to imagine the worst screwup that the SEC could possibly perform, something so monumentally incompetent that members of Congress might openly question whether the agency should continue. I think that at least half of the class would have come up with something far less outrageous than what has happened in fact.”
Don’t be fooled. It’s not a party thing. It’s not a Made-off thing. It’s not an SEC thing. It’s not a financial sector thing. It’s a political class thing.
The political class (elected officials, government employees and benefactors, and everyone whose job is made easier by big government - including reporters - fit this class) will always seek to grow. They will always seek to reward failure with more power and money. They will blame you, private citizens, for their own failures. Don’t let them. Don’t take them seriously. We should all laugh out loud every time we hear a politician offer solutions to government failures if those solutions are anything other than a reduction in the size, scope and power of government.
Suggested reading: The chapter titled “Why Bureaucracy Grows” from the book America by the Throat.
Our site’s been having some back end problems, hence the dearth of new posts. We’re on it. Meanwhile, here’s a great article by Robert Stewart at Mises.org on the crisis in ten points. The first three points should whet your appetite:
“1. For almost 100 years, the US government has not felt constrained to match its expenditure with its revenue. This policy was given intellectual justification by the writings of John Maynard Keynes who argued in the 1930s that, during periods of slow economic growth, active and purposeful government policies would allow the economy to spend its way out of recession. It was simply a matter of time before citizens aped the financial habits of their governments by living beyond their means.
2. The Federal Reserve System (the Fed — created in 1913) has accommodated government’s policy of spending to excess by inflating the money supply and keeping interest rates artificially low. Today’s dollar will buy what in 1913 would cost less than a nickel. This easy-money policy has not only led to inflation but has resulted in investments taking place that would not be justified had the money supply been constrained, and had interest rates more clearly reflected economic reality.
3. Since the 1960s, politicians parroting the suspect theories of Keynes have fed the public’s naïve belief that government can provide ever-increasing living standards by means of its monetary and fiscal policies. Pulling a fiscal lever here and pushing a monetary button there meant that constraints on spending were old fashioned, and living standards would forever improve. The limitations imposed by the laws of economics had been repealed if you voted for politicians who promised to provide you with something for nothing. Fiscal prudence was simply a capitalist lie.”
Two little and disturbing stories concerning bailouts and potential bailouts:
First, a Connecticut lawmaker is begging for taxpayers to foot the bill for the unprofitable newspaper in his small town because he thinks it’s really cute and wonderful (and it probably endorsed him). Apparently residents don’t agree enough to pay for neccessary subscriptions and advertising, but according to this arrogant politician, all of you should be forced to pay anyway. Besides the immorality and economic stupidity of more bailouts, this one has particularly dangerous implications for free speech. If newspapers are forced to answer to bureaucrats they could lose the freedom which makes them even a little relevant. Government papers would be more boring and shoddy than private papers too. Do you prefer PBS to CNBC, CNN, ABC, CBS, FOX, etc.? The Post Office to FedEx, UPS or DHL?
Second, the bailout hungry U.S. automakers and the unions that work for them (or is it the other way around?) have been defending themselves and blaming their troubles on others, no surprise here. But a funny little fact has emerged about the UAW - they have a money-losing “public” luxury golf course as a perk to union members. No word about selling it. Auto exec’s apparently have to hide their jets in order to steal our money, but union bosses don’t have to forgo their country club. The sad part is that we’re even having this conversation. Get ‘em off the public dole, remove the unfair legal advantages and it’s no longer anyone’s business what the UAW does with their money. But so long as they get special favors at our expense, everything they do is subject to public scrutiny.
Get the government out and treat everyone equally under the law and you will find that people really get along pretty darn well. Start dolling out the favors and we start to tear each other apart.
And no, I’m not even talking about the Lions. Their 0-16 season looks heroic compared to the pan-handling, rent-seeking, name-calling, self-pitying and grovelling coming from Detroit pundits, auto execs, union bosses and politicians. Some of the most ludicrous things are flying about day after day in defense of a massive money grab (aka: redistribution, theft) by the big three. Rather than realizing their tough situation, rolling up their sleeves and setting about the difficult task of righting their respective ships, they’ve chosen to blame others who are more successful, to whine, to grovel, and to plead before no-nothing pompous politicians. Have some dignity Detroit! At least Rod Marinelli didn’t beg for money from Washington.
“The Union is squaring off against the South again. This time it’s Detroit’s union — the UAW — partnering with the auto manufacturers, politicians, and media supporters of the domestic auto industry to wage warfare against the entire South.
“The problem here centers on certain southern states — Mississippi, Louisiana, Georgia and, in particular, Alabama — where certain bone-headed senators seem to have forgotten that the Civil War ended, with the appropriate outcome, almost 150 years ago.
What’s more, these Alabama representatives argued that they and other southern states had plenty of automotive manufacturing capacity to take up the slack and keep the country’s economy going if Detroit was to go belly up. Specifically, Alabama’s Republican senator Richard Shelby called Detroit a ‘dinosaur’ and said bankruptcy was a better solution to the problems facing U.S. carmakers. The state’s other senator, Jeff Sessions, also a Republican, said Detroit’s collapse would “not be the end of the world. We have a very large and vibrant automobile sector in Alabama.”
That’s Detroit News columnist John McCormick, who labeled Southern politicians opposing the bailout “good old southern boys.”
Detroiters continue to embarrass themselves by placing the auto industry collapse into an us-versus-them framework. In the midst of all the whining and begging for a bailout, the South has been declared the new enemy, along with the foreign-car manufacturers who are producing cars — in Southern plants — that consumers want to buy. The army of politicians and opinion columnists in Michigan who lay the groundwork for resuscitating this fading industry don’t bother to acknowledge that it is in the best interests of any public company to maximize quality for its customers and efficiency of production and profits for its shareholders.”
And…
“Getting back to John McCormick’s limp line of reasoning, he ends his column by implying that Michiganders should boycott Alabama — especially the retirees and warm-weather family vacationers. As always, the little guys are told to give up their way of life to preserve the high-paying jobs of corporate and union executives — along with the jobs of people who make cars no one wants to buy. But what’s in it for them? National pride?”
I can’t handle this shameful display of prideless whimpering and excuse-making for ineptitude any longer, I’m gonna go watch the Lions game on my DVR as a reprieve.
Great observation by Don Boudreaux in a letter to the editor of the New York Times:
“Like many people, Ben Stein was assured that Bernard Madoff “never lost money” (”They Told Me That Madoff Never Lost Money,” December 28). Unlike many people, Ben Stein wisely understood this assurance to be nonsense.
Americans should apply Mr. Stein’s wisdom to the greatest Ponzi scheme going: Social Security. Many pols and pundits assure us that this program is a great financial deal for ordinary Americans. But in principle Social Security is identical to Mr. Madoff’s fraudulent scheme: rather than generate wealth through productive investments, both schemes transfer wealth from newer ‘investors’ to older ‘investors.’ As long as a sufficient number of newer ‘investors’ keep coming aboard - either by being duped a la Mr. Madoff or by being coerced a la Social Security - such schemes appear brilliant. This appearance, however, is a dangerous apparition.”
Fascinating illustration of what innovators can do to find solutions no bureaucracy could think of. Here’s an excerpt from the story by Briggs Armstrong at Mises.org:
Mr. Farber was faced with a dilemma felt by teachers across the country. His supplies budget was cut by the district, which meant that if Farber wanted to give his students the much-needed practice tests that would prepare them for later placement tests, he would have to find funding elsewhere. Many teachers either would have paid for the additional expense out of their own pocket or deprived their students of the requisite practice tests. Farber estimated that, had he paid for the copies out of pocket, it would have cost him almost $200.
Unwilling to shortchange his students or to pay for the copies himself, the visionary teacher found an alternative: he began to sell advertisements on his test papers. According to USA Today, he charged $10 per ad on quizzes, $20 per ad on chapter tests, and $30 per ad on semester finals. Within a few days he had over 75 email requests for ads! Farber has already generated $350 in ad revenue. The article also states that approximately 67% of the ad sales are inspirational messages, paid for by parents. Others are from local businesses.
There are always more ways than one to skin a cat. This is just the tip of the iceberg. Were it not for the government education monopoly and the stifling regulations and taxes which support it, one can only begin to imagine the kind of innovation, imagination, diversity and creativity we’d see in the education market. If something as basic and crucial as food can be completely provided in the free-market, offering a dizzying array of options, levels of quality shapes, sizes and shopping experiences, why can’t education, less important than food though still very important, be trusted to the same free-market?
A recent Mackinac Center study reveals, unsurprisingly, that Michigan is losing population again. With all the people always coming in and going out, Michigan ended up netting a negative 46,000 residents between July ‘07 and July ‘08. That means 46,000 more people went out than came in, translating to a 0.5% population loss, the highest in the nation and one of only two states to have a net loss.
“The Pacific Research Institute just published the third edition of its economic freedom index, which is an attempt to measure the economic freedom of the 50 states and rank them accordingly. The index includes 143 variables ranging from state tax policy to regulations to a state’s judiciary. High tax and regulatory burdens, for instance, translate into less economic liberty. In PRI’s first index in 1999, Michigan ranked 27th among the 50 states in economic liberty. By 2004, we had tumbled to 34th.
This year’s ranking places Michigan at 43rd. It is probably not a coincidence that during these years Michigan’s per-capita personal Gross Domestic Product — an important measure of state economic health — has tumbled from an all-time high of 16th among the 50 states to 41st through 2007. As we became less economically free our economic fortunes declined.
After ranking states in terms of economic freedom, PRI then examined the migration patterns of the American people. They found that the “net migration rate” for the 20 freest states in their index was 27.4 people per 1,000 while the 20 least-free states saw net migration of just 1.2 per 1000. In other words, people have been voting with their feet, and they voted against Michigan and other similarly situated states.”
In the frenzy over what state and local government should do to handle their “‘fiscal crises”, the alternatives seem to always be presented as very simple: let government tax, borrow, inflate, regulate and spend more or let the world go to hell.
It’s not surprising that politicians would view a reduction in government revenue as an apocalyptic event, but what about the rest of us? What’s the big deal?
According to a recent survey by Wayne State University being proudly touted by the Michigan State University Land Policy Institute, more respondents preferred tax hikes than cuts in services or government staff levels or compensation. I haven’t looked at the details of this survey, but if this is in fact true, what does it say about us? Are we really buying all the scary rhetoric we’ve been fed for years about what would happen if, heaven forbid, the government golf course had to be sold off to greedy private golfers?
Try to remember when analyzing proposals before you during an fiscal “crisis” that none of the options offered by government account for the unseen. That is, they see the world as business-as-usual or else we all die horrible nasty deaths. They have no imagination, creativity or belief in the ability of free people to overcome problems and solve things. They forget or ignore the power of the market. The don’t realize or don’t mention that if there is a true need for something - garbage pickup, golf courses, etc. - it has been, can be and will be met, even in the absence of government. Probably much better.
Let’s not pretend like the options are bailout-tax-borrow-inflate-spend-regulate or die. They’re not, and it’s childish, closed-minded and backward to pretend they are. We’ll be OK, even if every government in the land is forced to reduce thier spending dramatically.
[Caution: The link above shows photos of snowcaps atop the pyramid at the Luxor casino and may tend to shake the faith of those who buy into certain strains of pseudoscience.]
Then again, maybe the earth is responding instantly, the way the market does when Ben Bernanke speaks, to Chrysler’s announcement that they will stop producing CO2 emitting vehicles for a month. Imagine how cold it might get if the big three went under altogether? Maybe the bailout will keep us warm for a few more months.
Today we’re going to do an economic experiment with music.
You may have heard of Keynesian economics. To summarize, it’s a bunch of economic ideas espoused by the British economist John Maynard Keynes that offer more government and consumer spending as the solution to economic slow-downs. Keynes saw saving as a “leakage”, particularly during slumps, and thought government needed to borrow, tax, inflate and do anything it could to spend, spend, spend. It should also do anything in its power to “stimulate” consumer spending.
Anyone really interested in studying it from a theoretical standpoint will find ample evidence both from neoclassical economists like Milton Friedman and other Chicago School types, as well as from Austrian School economists like Ludwig von Mises and F.A. Hayek that Keynes’ ideas don’t hold up.
As for the ideas in practice, I’m not content with the massive record of history that Keynesian policies are a terrible mess. Bush’s “stimulus” check and the bailouts as recent examples (and Obama’s FDR style public works projects as future examples) aren’t enough to put the nail in the coffin. They’re too far removed from me. That’s why I’m launching, with your help, an experiment to test Keynes’ theories.
We all need to go to iTunes and buy the new single from the liberty-loving and funky-fresh band Major Maker. “Funky Lady” is not only a great single (why do they call it a single when it has two songs?), but it will help us test Keynesianism. If we all go out and buy the single (only $1.98!) for ourselves and as gifts for as many people as possible, we can bring the economy back; that is, if Keynes was right. The only way to know is to try.
The good news for you is that even if Keynes turns out to have been wrong and your purchase of “Funky Lady” doesn’t make the stock market leap and your home value soar, you still have a great MP3 in your collection. Unlike government attempts to test Keynsianism, you walk away with a valuable asset in the end, even if the experiment fails.
In fact, by the time we see the results and judge whether or not our Keynesian consumption test was a success your new Major Maker MP3 asset may be worth MORE than the $1.98 you spent, due to inflation. Then you could trade or sell “Funky Lady” for a nominal profit. You may want to buy lots of “Funky Lady” singles, just like people buy lots of gold and commodities when inflation is expected; Major Maker songs may become a default currency if the dollar becomes too unstable.
So, everyone go to iTunes, buy Major Makers new single “Funky Lady” and know that you’re not only supporting an awesome liberty-loving band, getting some sweet and super hip tunes, but also engaging in a massive empirical test of Keynesian economic theory AND investing in a stable commodity to hedge against monetary inflation.
Who new rocking sweet songs could be so freaking educational.
New York felt that last year’s $120 billion budget was not enough (that’s about 3 times Michigan’s bloated budget to put it in perspective with another big spending state). So this year, in a time of financial crisis, they decided they could only increase the budget by $1,000,000,000. (That’s a billion dollars.)
To do so called for “desperate measures“. The governor, probably speaking from a his mansion or maybe on his private plane, undoubtedly felt for the sacrifices everyone would have to make for the state government employees, lawmakers, bureaucrats and political schemers to keep earning a decent living.
Among new sources of revenue New York imposed taxes on MP3 and other internet downloads, soda (or as we say in MI, “pop”), beer, wine, cigars, massages, sporting events, cab rides, college tuition, cable TV, satelite TV, clothing purchases under $110 (previously exempt) and more. There were 88 new taxes and fees in total.
Apparently, they don’t know about the Laffer Curve in New York. Apparently they’ve never heard of New Jersey either. I can only imagine the nightmare that enforcement will be. How will they enforce the tax on internet downloads?
I guess it means New York will have a growth sector next year in the collections department of the treasury.
I’ve had the privilege of attending the Institute for (classical) Liberal Studies summer seminar in rural Ontario, Canada the last two summers. We’ve taken a carpool of SFE students to this great event and had a blast. Whilst there, the excellent music of Canadian artist Lindy was enjoyed in live performances. Lindy has “hit it big” as they say both as a solo artist and as front man for the band Major Maker. Besides having great music, it’s fun to know a musician who’s not a squishy-headed socialist, and Lindy is a hard-core fan of liberty!
Major Maker’s new single just hit iTunes, and as good capitalists I encourage you to purchase it. (If you’re a Keynesian, all the more reason…wouldn’t want consumption to fall!) It’s cheap (thank you competition) and makes a great gift for any music afficianados on your list. Now’s the time to get it, and later you can be one of those people who says, “Oh, Major Maker? Yeah, I was into them WAY before they become so huge.”
Peter Schiff, president of Euro Pacific Capital Inc. and a study of the Austrian School of economics debates Don Regal on the bailout in the video immediately below. But more interesting still…below that a clip from over two years ago where Schiff predicts with a great deal of accuracy our current economic situation. (HT: Trying Liberty).
If you’re a student and you love liberty, you should definitely apply for the second annual Students for Liberty Conference in Washington D.C. on Feb. 20-22. (If accepted, let SFE know - we’re working on some travel arrangements from Michigan).
This post will serve two purposes: 1) to promote the awesome new MichiganVotes2.0 site and 2) to vent my frustration with a problem I had buying a few beers.
My hope is that someone can find out when and why a really, really stupid law went into effect, and MichiganVotes may help get it done, though after a cursory look I couldn’t come up with the answer.
My wife and I were at BW3’s last night using a gift card I recently won. When we used it to pay for the bill, which totaled more than what was on the card, the server brought back the card and some change and said, “there’s still $3 left on the card”. I was confused as to why she didn’t use up the entire card first and then the cash. She explained, “it’s against the law to buy alcohol on a gift card.”
I was at a loss. What on earth would posses anyone to prohibit the purchase of alcohol with a gift card? I can buy it with cash anyway, and either way I have to show my I.D. I thought perhaps that it was simply a BW3 policy and not actually a law and the server was just confused. Nope. The back of the gift card explicitly says, “…including alcohol, except where prohibited by law”.
I know that our dumb legislature already violates the rights to privacy and contract by forcing consumers and retailers to agree to specific gift-card expiration date policy, but no alcohol? What purpose could this possibly serve?
The only thought I had (cynically) was that, as is often the case, the restaurant industry lobbied to have the restriction placed on itself. All consumers assume gift cards will cover a brew, and many people buy a drink with their food regardless, so prohibiting the gift card from covering my beer means I’ll spend more in the long run. I now have $3 left on my BW3 card, so I’ll go back and use it. (And when I go I’ll probably buy a beer in addition to whatever government approved expenditures I put on my the card.) Had I been able to put everything on the card, I probably would not go back to BW3, or at least not as soon. Now when choosing a place for a bite, BW3 will be disproportionately appealing since I have a $3 credit.
I have no idea if this is what actually happened, but I know for a fact that things like this happen all the time. The Restaurant association and every other trade group love to lobby for laws that they believe favor them but make government the bad guy if customers are unhappy. If businesses want to enact a policy that they think will help them out but customers hate it, competition prevents them from doing so. But if they get together and hire a lobbyist to wine and dine lawmakers and convince them it’s in the “public good”, the policy can become law and customers cease to have a choice. There are no competitors allowed to better meet the customers needs as all businesses must comply with the policy.
I’d like to know the actual story behind this stupid, stupid law. What created the impetus (I’ve never heard public outcry over the great evil of beer bought on gift cards - have you?), when did it pass, how many states have similar laws and what the heck were the arguments made for it? (and did anyone argue against it?) I’d like to think it was not an industry ploy, but either way it’s stupid.
