The details.

The Facebook page.

The live webcast.

Be there!

Don’t miss “Lessons from the Great Depression” with Larry Reed next Monday, April 13 at Central Michigan Univesity!

Lessons from the Great Depression
Featuring Lawrence W. Reed

Monday, April 13 2009 at 7:30 PM
Park Library Auditorium, Central Michigan University

SFE is proud to work with CMU Collegiate Forum and Campus Conservatives to bring in noted speaker, author, and thinker Lawrence W. Reed to discuss the Great Depression and its many lessons for us today in the current economic climate.  Reed’s well-known publication “Great Myths of the Great Depression” is as timely today as ever, and we’d be foolish to ignore the lessons of history.

Lawrence W. Reed is the president of the Foundation for Economic Education and President Emeritas of the Mackinac Center for Public Policy, which he founded in 1987.

Reed holds a B.A. degree in Economics from Grove City College (1975) and an M.A. degree in History from Slippery Rock State University (1978), both in Pennsylvania. He taught economics at Midland’s Northwood University from 1977 to 1984 and chaired the Department of Economics from 1982 to 1984. He designed the university’s unique dual major in Economics and Business Management and founded its annual, highly-acclaimed “Freedom Seminar.” In 1982, he was a major party candidate in the general election for the U. S. House of Representatives from Michigan’s 4th district. He moved to Boise, Idaho in 1984 to direct a policy institute there before moving back to Michigan to head up the Mackinac Center in December 1987.

Reed was awarded an honorary Doctor of Public Administration from Central Michigan University in 1994 and in 1998, Grove City College bestowed upon him its “Distinguished Alumni Award.” In 2008 he received a second honorary doctorate, Doctor of Laws, from Northwood University.

In the past twenty years, he has authored over 1,000 newspaper columns and articles, 200 radio commentaries, dozens of articles in magazines and journals in the U. S. and abroad, as well as five books. His articles have appeared in The Wall Street Journal, Christian Science Monitor, USA Today, Baltimore Sun, Detroit News and Detroit Free Press, among many others. Since 1978, he has delivered more than 1,000 speeches in 40 states and 15 foreign countries, including one at Peoples University in Beijing, China.

The event is free and open to all!

Facebook event here.

Tuesday, March 31 2009 at 7:00 PM

Wonders Hall, Room C100, Michigan State University

Littmannomics: The state’s top economic mind on the crisis and the road to recovery

SFE and the Michigan State Young Americans for Liberty are proud to bring Mr. David Littmann to MSU to discuss the current economic crisis, how we got here and how to get on the road to recovery.

David L. Littmann is senior economist with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich., and the largest state-based free-market think tank in the country.

Littmann received his M.A. degree in economics from the University of Michigan in 1967. He holds an S.M. degree in economics from M.I.T. and a B.A. degree in economics from Antioch College, and completed a year of study as an exam student at the London School of Economics and Political Science.

Littmann retired from Comerica Bank in early 2005 as senior vice president and chief economist after a 35-year career in charge of Comerica’s Economics Department and Research Library. He authored a host of business barometers and developed many leading indicators for the local and national economies and from tourism to the auto industry.

Littmann received the 2003 Lawrence R. Klein Award for Blue Chip Forecast Accuracy. This is one of the most prestigious and long-standing awards in the profession. It recognizes the best four-year economic forecast in the nation. In 2004, Littmann was honored by the state Chamber of Commerce as Michigan’s man of the year for outstanding leadership and contributions. His research articles on the causes of inflation were published in Business Economics, the professional journal of the National Association of Business Economists.

More on Littmann here.

Facebook event here.

Live webcast here.

The event is free and open to the public!

Tuesday, March 31 2009 at 7:00 PM

Wonders Hall, Room C100, Michigan State University

Littmannomics: The state’s top economic mind on the crisis and the road to recovery

SFE and the Michigan State Young Americans for Liberty are proud to bring Mr. David Littmann to MSU to discuss the current economic crisis, how we got here and how to get on the road to recovery.

David L. Littmann is senior economist with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich., and the largest state-based free-market think tank in the country.

Littmann received his M.A. degree in economics from the University of Michigan in 1967. He holds an S.M. degree in economics from M.I.T. and a B.A. degree in economics from Antioch College, and completed a year of study as an exam student at the London School of Economics and Political Science.

Littmann retired from Comerica Bank in early 2005 as senior vice president and chief economist after a 35-year career in charge of Comerica’s Economics Department and Research Library. He authored a host of business barometers and developed many leading indicators for the local and national economies and from tourism to the auto industry.

Littmann received the 2003 Lawrence R. Klein Award for Blue Chip Forecast Accuracy. This is one of the most prestigious and long-standing awards in the profession. It recognizes the best four-year economic forecast in the nation. In 2004, Littmann was honored by the state Chamber of Commerce as Michigan’s man of the year for outstanding leadership and contributions. His research articles on the causes of inflation were published in Business Economics, the professional journal of the National Association of Business Economists.

For three decades, Littmann was a featured columnist for the Detroit Regional Chamber. The Wall Street Journal, The Detroit News and dBusiness Magazine continue publishing his editorials, and his book reviews appear in Ideas On Liberty, the journal of the Foundation for Economic Education.

Littmann served as chairman of the Economic Advisory Committee of the American Bankers Association in Washington, D.C., where he met regularly with governors of the Federal Reserve Board. Over his working career, Littmann held positions at all levels of government, served as a director of Nixdorff-Krein Industries in St. Louis, MO., and was a trustee of the Bloomfield Hills School District.

His contributions to the economics profession and public policy are now archived in the Bentley Historical Library collection on the University of Michigan campus.

More on Littmann here.

Facebook event here.

Live webcast here.

The event is free and open to the public!

Mackinac Center Senior Economist David Littmann will discuss how the economy reached such a low point and will highlight what Michigan and the nation must do to regain a stable footing in a speech at Michigan State University on March 31. The event begins at 7 p.m. in Wonders Hall Room C100.   (Details here)

Littmann will discuss how the natural forces of recovery are working overtime and will right the economy if permitted. The interference of policymakers in the market is delaying the recovery, which Littmann fears may lead to a depression. He points to Michigan’s economy as proof of what happens when government intervention is unchecked.

Littmann retired from Comerica Bank in early 2005 as senior vice president and chief economist after a 35-year career in charge of Comerica’s Economics Department and Research Library. He authored a host of business barometers and developed many leading indicators for the local and national economies and from tourism to the auto industry.

Littmann received the 2003 Lawrence R. Klein Award for Blue Chip Forecast Accuracy, which recognizes the best four-year economic forecast in the nation. In 2004, Littmann was honored by the state Chamber of Commerce as Michigan’s “Man of the Year.” His work has been widely published, and he appears regularly on state and national news and business programs. He received a B.A. in economics from Antioch College and graduate degrees in the same field from the University of Michigan and M.I.T.

The event is sponsored by the Mackinac Center’s Students for a Free Economy and the MSU chapter of Young Americans for Liberty. It is open to the public and free of charge.

Tuesday, March 31 2009 at 7:00 PM

Wonders Hall, Room C100, Michigan State University (Map)

Littmannomics: The state’s top economic mind on the crisis and the road to recovery

Featuring David Littmann

SFE and the Michigan State Young Americans for Liberty are proud to bring Mr. David Littmann to MSU to discuss the current economic crisis, how we got here and how to get on the road to recovery.

David L. Littmann is senior economist with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich., and the largest state-based free-market think tank in the country.

Littmann received his M.A. degree in economics from the University of Michigan in 1967. He holds an S.M. degree in economics from M.I.T. and a B.A. degree in economics from Antioch College, and completed a year of study as an exam student at the London School of Economics and Political Science.

Littmann retired from Comerica Bank in early 2005 as senior vice president and chief economist after a 35-year career in charge of Comerica’s Economics Department and Research Library. He authored a host of business barometers and developed many leading indicators for the local and national economies and from tourism to the auto industry.

Littmann received the 2003 Lawrence R. Klein Award for Blue Chip Forecast Accuracy. This is one of the most prestigious and long-standing awards in the profession. It recognizes the best four-year economic forecast in the nation. In 2004, Littmann was honored by the state Chamber of Commerce as Michigan’s man of the year for outstanding leadership and contributions. His research articles on the causes of inflation were published in Business Economics, the professional journal of the National Association of Business Economists.

For three decades, Littmann was a featured columnist for the Detroit Regional Chamber. The Wall Street Journal, The Detroit News and dBusiness Magazine continue publishing his editorials, and his book reviews appear in Ideas On Liberty, the journal of the Foundation for Economic Education.

Littmann served as chairman of the Economic Advisory Committee of the American Bankers Association in Washington, D.C., where he met regularly with governors of the Federal Reserve Board. Over his working career, Littmann held positions at all levels of government, served as a director of Nixdorff-Krein Industries in St. Louis, MO., and was a trustee of the Bloomfield Hills School District.

His contributions to the economics profession and public policy are now archived in the Bentley Historical Library collection on the University of Michigan campus.

More on Littmann - http://www.dbusiness.com/DBusiness/July-August-2008/July-August-2008-Interactive-Issue/

The event is free and open to the public!

Facebook event here.

The event will be simulcast LIVE here.

From Mike Winther for the Mackinac Center:

It is increasingly difficult to write about a political or economic issue without invoking some reference to our faltering economy and the increasingly enormous government bailout expenditures. These economic circumstances represent an excellent opportunity for teaching the principles of good government.

By now, everyone is familiar with the massive amounts of money involved in the various bailouts, including billions for domestic automakers. There are several things that every American needs to know about these events.

First, the sub-prime mortgage collapse is primarily — if not exclusively — a result of government fiscal policies and Federal Reserve Bank monetary policies that created loose credit and cheap money. “Another failure of the free market,” we are told. But neither the government nor the Federal Reserve Bank represents anything close to the free market. No one in their right mind could claim that the forced collective actions of a government were a mechanism of a free market. (A free market, by definition, is an economy that operates free of government intervention.) Nor could any politician or economist justify that a central bank with a government-granted monopoly on money creation and credit was somehow a part of a free market.

The second thing every American needs to know about the current situation is that the present proposed “solutions” to these problems violate a number of ethical standards. Here are five critically important ethical considerations that every American needs to understand.

Principle #1: Inconsistency

Inconsistency is always and everywhere the fruit of relativism. The philosophy of relativism teaches that there are no absolutes, or if there are, they are not universal to all people. In a relativist world, all decision-making is circumstantial and pragmatic.

An inconsistent government can never be a just government. It is the duty of good government to treat all of its citizens equally. We often talk and hear about “equal protection under the law.” If our government policies are to be consistent, we should never provide a financial bailout to one failing business unless we are prepared to provide the same benefit to every failing business. To do otherwise would be tantamount to removing the blindfold from Lady Justice’s eyes, giving our government the mandate to show partiality. How can we bail out a few select large businesses and then refuse to do the same for the thousands of smaller businesses that have identical circumstances? As it turns out, many struggling businesses will be forced to pay more taxes and suffer inflation so that their competitors can get a special privilege at their expense.

Principle #2: Theft

Today, we have modern artisans of deceit who have almost perfected their craft at the expense of our civilization. Among these craftsmen are the wordsmiths who effectively manipulate language to make evil appear good and good seem evil. These wordsmiths take evil practices or concepts and hide them with elegant euphemisms that obscure the ugly truths. They take the concept of theft and describe it as “stabilization,” “support,” “loans,” “guarantees,” and an endless array of similar platitudes. Regardless of how they are packaged, though, these government actions are the forced redistribution of wealth from one company or individual to another. Those who pay the bill for these bailouts are not paying to receive a legitimate government service like national defense, courts or police. They are paying only so that someone else can receive.

Principle #3: Socialism

There are only two economic systems in the world, and all economic philosophies fall into one of these two systems. These two economic systems are generally described as “the free market” and “socialism.” From the first European settlements on this continent to the present day, there has been an ongoing battle between the proponents of these two economic systems. Although it would be hard to find any time in our nation’s history where we had a truly free market, much of America’s history would show that we tend more toward the free market than socialism.

Socialism is characterized and defined by either of two qualities: Government ownership or control of capital, or forced pooling and redistribution of wealth. Either of these situations indicates the presence of socialism, and by logical extension, the absence of a free market.

Socialism is ethically wrong because it cannot exist without the forced sharing of resources. Government cannot own, control or regulate the capital of a nation without taking away a portion of the owner’s value. Similarly, government cannot redistribute resources without taking these resources away from their owners. Since socialism cannot exist in the absence of theft, it is somewhat redundant to have socialism as a separate point on this list, but I have done so because it is important to understand both the small picture of theft and the bigger picture of socialism as both apply to public policy.

Although America has not had a genuinely free market for many decades, the current bailout could be described as “super-socialism” because it involves every possible component of socialism: the forced redistribution of wealth, increased government control of capital, and even the extreme of socialism, which is government ownership of capital. Our federal government is not content to just regulate the markets (capital), but is also taking the next step of purchasing ownership interest in previously private companies.

Principle #4: Violation of the Constitution

We need to remember that our founders created a Constitution of enumerated powers — that is, a document that limited our federal government to only those actions expressly listed in the document. Congress has no authorization to pursue any other actions. With this in mind, we should ask ourselves where these bailout powers are enumerated in the Constitution. The answer, of course, is that these powers are nowhere granted to our federal government.

Principle #5: The triumph of pragmatism over principle

Among the carefully forged tools of our big government wordsmiths is the new expression, “too big to fail.” According to our politicians and media, some businesses are so big that the potential consequences of their failure would be so widespread that the government must act to prevent such a failure. Even if we ignore the fact that it was unconstitutional meddling in the economy that caused these problems in the first place, we cannot ignore the obvious conclusion that our government is committing an ethical and constitutional crime - and then justifying it with a pragmatic argument.

Fortunately, we don’t yet allow the masked bank robber to justify his crime based on a pragmatic argument. He is either not guilty or guilty of the crime, regardless of the pragmatic benefits of his action. Unfortunately, the only difference between the run-of-the-mill bank robber and our political leaders is that one has a mask and the other has a nice office and a government pension.

A pragmatic argument for any action should never trump the consideration of ethics. All decision-making should first ask if the action being considered would violate any ethical or moral standard. Pragmatic considerations should come into play only after we determine that the considered action passes ethical muster.

Conclusion

The evils described above (inconsistency, theft, socialism, violation of the Constitution and pragmatism) manifest themselves in many of our government policies — not just in the current bailout debacle. So, what should we do? First, we must study these principles and learn to apply them to all aspects of government policy. Second, we must go beyond cursing the darkness — we must begin to light the candles of truth and good government. We must educate our friends, family and neighbors in these truths, and then further, we must demand that our elected officials govern by these principles. If our elected representatives fail to follow these principles, we must work tirelessly to replace them in the next election. Only by these actions can we preserve our liberty and restore our standard of living.

(I cannot fail to mention here our excellent event on the nature and causes of the crisis March 31 at MSU)

An excellent “Open Letter to my Friends on the Left” by economist Steven Horwitz on the fact that there was no free-market in place to cause the crisis, and that the very regulations which brought it about cannot end it.  The letter was written at the beginning of the crisis in late 2008 and addresses the first $700 billion bailout under the Bush administration, but it is very applicable now as well.

It provides an excellent blow-by-blow recap of the true primary actions which led to the crisis.  It’s not that long, so read it all.  Excerpt:

“In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.”

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.

One of the biggest confusions in the current mess is the claim that it is the result of greed. The problem with that explanation is that greed is always a feature of human interaction. It always has been. Why, all of a sudden, has greed produced so much harm? And why only in one sector of the economy? After all, isn’t there plenty of greed elsewhere? Firms are indeed profit seekers. And they will seek after profit where the institutional incentives are such that profit is available. In a free market, firms profit by providing the goods that consumers want at prices they are willing to pay. (My friends, don’t stop reading there even if you disagree - now you know how I feel when you claim this mess is a failure of free markets - at least finish this paragraph.) However, regulations and policies and even the rhetoric of powerful political actors can change the incentives to profit. Regulations can make it harder for firms to minimize their risk by requiring that they make loans to marginal borrowers. Government institutions can encourage banks to take on extra risk by offering an implicit government guarantee if those risks fail. Policies can direct self-interest into activities that only serve corporate profits, not the public.

Many of you have rightly criticized the ethanol mandate, which made it profitable for corn growers to switch from growing corn for food to corn for fuel, leading to higher food prices worldwide. What’s interesting is that you rightly blamed the policy and did not blame greed and the profit motive! The current financial mess is precisely analogous.”

Read the rest.

This and other bits of wisdom from the state’s top economic mind.  David Littmann. Wonders Hall, Room C100, Michigan State University. March 31. 7:00 PM.  Facebook event here.  Don’t miss it.

No, not because it’s ‘magic’; because the faucet, out of which the water appears to be flowing, is really sucking up the water from the same bucket it’s supposed to fill.

*The metaphor isn’t perfect because it would lead one to believe that the stimulus is not beneficial or harmful, as it merely recirculates resources.  This is not true.  The stimulus takes resources from people (and future people) who would have used it on things they valued most, and instead spends it on things the political class values most - taking such action results in a real loss of value to society.  If someone takes $100 from you and replaces it with what they consider to be goods of equal worth, who wins?  If you believe the political class can spend your money better than you, by all means, throw a little extra in your tax return this year.

PS - There’s another great illustration by David Friedman near the end of this post.

(HT:JPM)

Don Boudreaux writes a great opposing viewpoint in USA Today about keeping banks private.  First, it is a little sad and rather shocking that keeping banks private is the “opposing” view.  Second, it is a bit inaccurate to say “keep” banks private.  The U.S. banking system is hardly a completely private system - the Fed determines reserve requirements, manipulates rates and makes all kinds of other rules in addition to screwing up market incentives by acting as the “lender of last resort”.  That said, it’s more free now that what it would be under many proposed full-scale nationalization plans.  The less private an operation, the less efficient, period.

Likewise with workers. To survive over the long haul, private firms must operate efficiently — which means having no agenda when hiring and firing workers other than staying competitive.

Inadequate or inappropriate attention to the future haunts private owners in the form of falling capital values of their firms today.

To some, this system seems cruel. But it has given us the highest standard of living in human history. By obliging firms to plan for tomorrow in ways that provide maximum customer satisfaction, private ownership continually promotes innovation, raises worker productivity and releases resources.

Nationalized firms, in contrast, are not impersonal. They are political. That is a tremendous downside that argues against the current call for the government taking over ailing banks.

Politicians’ incentives differ radically from those of private owners. Few politicians look past the next election or beyond the familiar interest groups whose support is crucial. If a nationalized bank would best serve consumers — and its bottom line for taxpayers — over time by scaling back its current workforce today, politicians will likely resist the move if well-organized workers mobilize against it.

Also, government-owned companies are more prone than private ones to follow political fads. If, say, green technologies catch the public’s fancy, nationalized banks would be pressured to fund them even when doing so fails reasonable cost-benefit tests.

A world-class economy is impossible if its businesses cannot look past upcoming elections and must heed lobbyists’ pleas and agitators’ cries. Because banks are so critical at channeling savings into investments that build the future, political say in banks’ business decisions will sacrifice that future to political expediency.”

With all the talk about the horrible stimu-less and other current developments in the financial crisis, it would be too easy to forget the very recent history of the previous administration.  The former President, Treasury Department, the Fed, and Congress all deserve monumental blame for the unprecedented and incredibly harmful ways in which they manipulated the market for political and personal gain.  We have not yet suffered the consequences of all of these actions, but we need to remember what’s happened lest we get suckered into the political class’ game of blaming their abysmal failures on non-existent “unregulated markets”.

Here’s an excellent article detailing what happened in the waning months of the Bush administration.  Exceprt:

“The eagerness of Ben Bernanke and Hank Paulson to substitute their own judgment for the dispersed judgments of a freely competitive financial market may reflect simple intellectual error. Or, less innocently in the case of former Goldman Sachs CEO Paulson, it may be error compounded with partiality. In an open letter to Congress on the eve of the bailout bill’s passage, John A. Allison, CEO of the large and successful regional bank BB&T, pointed out that “There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street.” The bailout seemed designed, in his view, to benefit a select group of Wall Street firms: “The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley.. . . [T]his is primarily a bailout of poorly run financial institutions.” This design, Allison continued, was not an accident but the result of partiality in the designers’ interests and perspective: “Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore they cannot be relied on to objectively assess all the implications of government policy on all financial intermediaries.””

SFE student and blogger Vincent Patsy hits another home run with his recent column in the Michigan Daily.  It’s so good, I’m posting it in its entirety. (HT: Jonny Slemrod)

Vincent Patsy: A free market solution
The Austrian Theory’s answer to gov’t inerference in the market.

Pundits on CNBC often take for granted that our current economic crisis is part of the traditional boom and bust cycle of capitalism. It is treated as a natural blight, like an earthquake or flood, which originates somewhere within the capitalist system and must be combated. But there exists another school of thought that places the blame not on capitalism but rather on intervention into the market by the federal government. The Austrian Theory of the Business Cycle not only explains the current crisis more completely than any other theory, it can also be used to explain all other previous crises.

Every business cycle theory must explain two facts. One, why is it that entrepreneurs, who are trained in understanding the market, are suddenly making a cluster of grave errors? Two, why is it that goods used in production (capital goods such as machine tools, land, raw materials) rise in price faster during the “boom” and fall faster in the “bust” relative to consumer goods (final products that are consumed in usage, such as toys, computers, etc.)?

To think about the first question, imagine a situation where for three or four weeks, most National Football League quarterbacks throw four touchdown passes per game. Then, for the next two or three weeks, most quarterbacks suddenly throw three interceptions per game. I do not believe, and I think most people would agree, that it would be accurate to say that this cycle of many touchdowns followed by many interceptions is a “product of the NFL system” or somehow natural conditions of the game would be a sufficient explanation. It seems that the game fluctuations would be caused not by some mystical actions of the game of football, but rather by rule variations from an outside source like more or fewer players allowed on defense or outlawing of certain types of defenses. Placing the blame on the capitalist system rather than outside interference would be equally wrong.

The second fact with every business cycle theory is that capital goods (such as land, stocks, machine tools) rise in price during the boom much faster than consumer goods (bubble gum and coffee). This is because prices, whether the market is free or not, are determined by supply and demand. Whenever an institution sets a price above or below the market price, there will be surpluses or shortages. The more important effect here is not the actual shortage or surplus, but rather that resources are being diverted away from where the market wants. If a price ceiling is imposed on wheat at $1 per bushel, for example when wheat would normally be sold at $2 per bushel, a shortage would develop. Fewer people would harvest wheat or become farmers.

Prices deliver information to investors and capitalists on the wishes of society, when and where people want to spend money. When the Federal Reserve sets interest rates, it imposes a price control. When it lowers the interest rate below the market rate, it sends signals to the market that do not reflect the wishes of society. In any other sector of the economy, this would cause a shortage of funds available to invest. However, in the banking system, the Federal Reserve can create money from thin air so that the shortage is never noticed and certain industries are given more loans.

Since saved funds lead to a lower interest rate, this implies that a lower interest rate reflects society’s desire to save more for the future. This makes investments in capital goods production (machine tools, land or stocks) more profitable than they were before, and thus these projects are undertaken. But when the interest rate is lowered by the Federal Reserve and not by an increase in savings, the investments made in capital goods are very unprofitable. So when the Federal Reserve is forced to raise interest rates and contract the supply of credit, a recession begins.

If artificial credit expansion were really the path to prosperity, we could print money all day and not have to worry about working — but, sadly, it is not. The problem with lowering interest rates is that society does not want the goods being produced with this newly-created credit. And when the interest rate is raised, this becomes starkly revealed as a waste of resources and the price drops.

How does this look in the real world? Look at housing prices. The Fed lowered interest rates to one percent, causing an unsustainable boom in housing and creating unprofitable investments. Housing prices are falling not because there is some wicked force out there causing failure. They are falling because the Federal Government and Federal Reserve, through misguided policies, caused an unnatural rise in housing prices.

The business cycle is not caused by some mystical problems in the capitalist system that can only be solved by government, but rather is caused by government and can only be solved by free markets. If anyone is angry at the current system and wondering why it has failed, they should look into the nearly irrefutable policies of Austrian Economics.

The constant banter about a trillion dollar government pork bill has everyone lining up at the trough like it’s the day of Don Corleone’s daughter’s wedding.

David Boaz details just a few of the groups fighting of a piece of the action, which the political class is so generously taking from us and giving away like candy at a parade.  And why not get on the dole?  If government is giving away a trillion dollars of our money regardless, why not try to get some and cut your losses, or maybe even gain something out of the deal? (See the ad below from Facebook)

Spending sprees like this create an attractive nuisance - they inevitably result in grovelling, corruption, and bitter fights between noble causes.  Politics can take two groups of people who are perfectly amicable in the marketplace, rob them of their money and then hold it up like a pinata and watch them fight over it (after taking a cut for themselves of course).

But what’s the big deal?  There are no tax increases accompanying this package, so why do I keep saying “we” are paying for it?  I remind you, government produces nothing.  Anything government has it gets from citizens.

If the pork is paid for with borrowed money, where will government get the money to pay off the loans and interest?  Current, or more likely future, taxpayers.

What if it’s paid for with newly printed money?  When inflated dollars start circulating and the price of everything rises as the purchasing power of the dollar falls every dollar you earn, save, invest and spend is worth less - it’s been taken from you and the value transferred to government.

Inflation taxes and taxes on the future to pay off borrowed money also carry some particular negatives.  They create more uncertainty in the market.  Should you make that big purchase, or investment, or business venture now, or later?  Will the tax rates go up and when?  Where will the dollar be?  Uncertainty makes people hold on to their resources rather than take risks with them - the very risks that are needed to innovate and grow the economy.  Uncertainty about government actions can be just as damaging as the actions themselves.

Whether it’s a direct tax today, a tax on future generations or an inflation tax, the money’s coming from we the people.  Oh, and it’s not just being given to us now and paid for by us later in some kind of net-zero transaction. (Don’t forget we’re paying principle and interest on the spendthrift governments of the past too) The money lost in the bureaucratic maze and to political favors plus the uncertainty and accompanying economic “slowth” and the burden of future payments with interest make this a raw deal.

David Friedman described this kind of government activity well with a little story:

“Special interest politics is a simple game. A hundred people sit in a circle, each with his pocket full of pennies. A politician walks around the outside of the circle, taking a penny from each person. No one minds; who cares about a penny? When he has gotten all the way around the circle, the politician throws fifty cents down in front of one person, who is overjoyed at the unexpected windfall. That process is repeated, ending with a different person. After a hundred rounds everyone is a hundred cents poorer, fifty cents richer, and happy.”

Let’s not act like fools and run around bragging about what we got from the stimulus.

Russ Roberts has a column in the Boston Globe about different economists take on the stimulus:

“There is an underlying presumption in this debate that if the spending package doesn’t stimulate the economy, then tax cuts or monetary policy are better. But maybe we simply don’t have the knowledge to repair the economy from Washington. The economy is complex and the interaction between the financial sector and the real economy - between Wall Street and Main Street - is not well understood.”

I saw and ad on Facebook saying something like, “Obama gave me $12,000. Get yours!” I curiously clicked on it. It seems the stimulus HAS in fact spurred new business ventures, or at least it encouraged this one guy to start a website where people pay him a few bucks to find out how to get a chunk of the bailout pie.

Reason magazine’s Hit and Run blog notes (and reposts Butler Shaffer on) the amazing rescue in the Hudson River of flight 1549, where all 155 passengers survived.  The amazing part, and something I did not know until I read the post, is that the rescue was entirely unplanned, spontaneous and private.  State, local and federal government “first responders” were actually last on the scene and, though they got most of the credit in the news coverage, the rescue was all but over when they arrived.

“[T]he only seen presence of government at the site of the U.S. Airways emergency landing involved police helicopters interfering with rescue efforts by keeping the water around the plane churned up. These helicopters were of value to the state, of course, as a visual symbol of its superintending presence above a scene in which its practical role was nonexistent. Like a president or state governor flying over an area hit by a tornado or flooding, such an aerial presence reinforces the vertically-structured mindset upon which political authority depends. After rescue efforts were substantially completed — with no loss of life — New York and New Jersey police officials arrived (those whom the New Jersey governor incorrectly described as the “first responders”).

The real work of rescuing passengers and crew members was left to the sources from which the only genuine social order arises: the spontaneous responses of individuals who began their day with no expectation of participating in the events that will henceforth be high-water marks in their lives. After the airliner came to a stop, one private ferry-boat operator, sensing the danger of the plane’s tail submerging, began pushing up on the tail in an effort to keep it elevated. Other private ferry-boat operators — whose ordinary work involved transporting people between New York and New Jersey — came to the scene in what became a spontaneously organized rescue under the direction of no one in particular. Photos of the area show the plane surrounded by ferryboats on all sides.”

Free and self-interested individuals are incredibly adept at handling situations and adapting to crises with speed and dexterity.  The amazing rescue of 1549 should stand as a reminder of the ability of free individuals to handle adversity and overcome difficult and unexpected situations.

(The financial crisis is not so different from physical crises, and it too will be resovled by free individuals, not by centrally directed rescue plans.)

Stephen Moore writes a great piece in the Wall Street Journal today about the current financial fiasco - bailouts, nationalization and all - and how eerily similar it all is to Ayn Rand’s Atlas Shrugged.

We’ve pointed out the similarities here at the SFE blog in the past as well.

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.