Tag Archives: Government

Words of Wisdom from Grover Cleveland

“The friendliness and charity of our countrymen can always be relied upon to relieve their fellow citizens in misfortune. This has been repeatedly and quite lately demonstrated. Federal aid in such cases encourages the expectation of paternal care on the part of the Government and weakens the sturdiness of our national character, while it prevents the indulgence among our people of that kindly sentiment and conduct which strengthens the bonds of a common brotherhood.”

– Grover Cleveland

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Is Healthcare a Right??

A great piece by Walter E. Williams in A MINORITY VIEW.

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‘No verse about “deeming” in Schoolhouse Rock’

THE FOLLOWING IS A GREAT OPINION PIECE FROM THE WASHINGTON EXAMINER.  I think the author, David Freddoso makes a GREAT POINT!

As a subtle rejoinder to those whining about health care and the filibuster as if it somehow overturns what we learned in civics class, Republican Study Committee Chairman Tom Price, R-Ga., sends a short e-mail on the so-called “Slaughter Solution,” by which House Democrats avoid a vote on health care and simply “deem” it passed in a House rule:

We’re pretty sure there’s no verse about “deeming” in Schoolhouse Rock. It begs the question: why vote on anything at all? Instead of going to the polls next November, Americans can just deem who will represent them in Congress.

UPDATE: The American Prospect’s Tapped blog offers up Democratic Party talking points defending this parliamentary trick.

via Update: ‘No verse about “deeming” in Schoolhouse Rock’ | Washington Examiner.

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Intervention and Economic Crisis by Thomas Woods

Intervention and Economic Crisis by Thomas Woods.

No supporter of the market economy could have been surprised when the recent financial crisis was inevitably blamed on “capitalism” and “deregulation.” The free market, we were told, was a recipe for financial instability. “Advocates of the free market must confront the fact that both the Great Depression and the current financial chaos were preceded by years of laissez-faire economic policies,” wrote Katrina van den Heuvel, editor of The Nation, and author Eric Schlossel, in September 2008.

It is not enough to call this a distortion of the truth. It is a grotesque distortion, worthy of the Soviet politburo. The crisis is in fact the altogether predictable fruit of massive government and central-bank distortions of the economy. That may be why the free-market economists of the Austrian School were practically the only ones to have seen it coming.

There has been much discussion on right-wing radio and in the conservative press about Fannie Mae, Freddie Mac, and the Community Reinvestment Act (CRA), which have been described as forms of government intervention that contributed to the financial crisis. To a certain extent that is all well and good: Fannie and Freddie enjoyed special government-granted privileges, along with an implicit bailout guarantee, that allowed them to become much more substantial actors in the secondary mortgage market than would have been possible in a free market. Furthermore, politicizing the lending process and cajoling banks into abandoning traditional standards of creditworthiness cannot make a positive contribution to the health of the banking industry.

But although there is no question that those factors exacerbated the problems that led to the crisis, they are not the primary culprits. Britain has also experienced a housing collapse, even though there is no British analogue of Fannie, Freddie, and the CRA. Moreover, no matter what encouragements these and other institutions may have given to home purchases, where did all the money come from to buy all those houses and drive up their prices so high so quickly?

We should instead focus on the Federal Reserve System, an institution few Americans know much about but which, in addition to systematically undermining the value of the U.S. dollar — which has lost at least 95 percent of its value under the Fed’s supervision — gives rise to the boom-bust business cycle.

A business-cycle primer

Economist F.A. Hayek wanted to understand why the economy moved in a boom-bust pattern — why there was, in the words of the British economist Lionel Robbins, a sudden “cluster of error” among entrepreneurs. Why should the people the market has rewarded in the past for their skill at anticipating consumer demand suddenly commit serious errors and all in the same direction?

Hayek won the Nobel Prize for his answer.

Building on the insights of Ludwig von Mises, who first began to develop what is known as Austrian business-cycle theory in his book The Theory of Money and Credit in 1912, Hayek pinpointed the central bank’s artificial creation of credit as the nonmarket culprit in the business cycle. (Economist Jesús Huerta de Soto applies Austrian business-cycle theory to cycles that occur in countries that have lacked a central bank in his treatise Money, Bank Credit, and Economic Cycles.)

To understand Hayek’s point, which exonerates the free market, consider two scenarios.

Scenario 1. Consider what happens when the public increases its savings. Since banks now have more funds to lend (namely, the saved funds deposited by the public), the rate of interest it charges on loans will fall. The lower interest rates, in turn, stimulate an expansion in long-term investment projects, which are more sensitive to interest rates than short-term projects are. (Think of the difference in the decline in monthly payments that would occur between a 30-year mortgage and a 1-year mortgage if interest rates came down by even 2 percentage points.)

Lower-order stages of production are those stages closest to finished consumer goods: retail stores, services, and the like. Wholesale and marketing are examples of higher-order stages. Mining, construction, and research and development are of still higher order, since they are so remote from the finished good that reaches the consumer. When people’s consumption spending contracts, it is a perfect time for higher-order stages of production to expand: because of people’s additional saving, there is relatively less demand for consumer goods, and the resulting contraction of lower-order stages of production will release resources for use in the higher-order stages.

Scenario 2. Government-established central banks have various means at their disposal to force interest rates lower even without any corresponding increase in saving by the public. (For more on this, see The Mystery of Banking, by Murray N. Rothbard, or his shorter classic, What Has Government Done to Our Money?) Just as in the case in which public saving has increased, the lower interest rates spur expansion in higher-order stages of production.

The difference, though, is a critical one and guarantees that these artificially low interest rates will not yield the happy outcome we saw in Scenario 1. For in this case, people have not decreased their consumption spending. If anything, the low interest rates encourage further consumption. If consumption spending is not constricted, the lower-order stages of production do not contract. And if they do not contract, they do not release resources for use in the higher-order stages of production. Instead of harmonious economic development, there will instead ensue a tug of war for those resources between the higher and lower stages. In the process of this tug of war, the prices of those resources (labor, trucking services, et cetera) will be bid up, thereby threatening the profitability of higher-order projects that were begun without the expectation of this increase in costs.

As the workers in the newly expanded higher-order stages of production begin to spend their incomes, they spend according to the same saving-to-consumption ratio they did in the past. Their desire to save, and thereby to sustain all this long-term investment, turns out to be not as great as the distorted structure of interest rates led entrepreneurs to believe. It becomes ever clearer that society is not prepared to support the expansion of time-consuming higher-order stages of production. They do not wish to save enough resources to make the completion of all the new projects possible. The lower-order stages will win the tug of war. Expansion in the higher-order stages will have to be abandoned. Some of the resources deployed there will be salvageable; others will have been squandered forever or will be of little to no use in later stages of production.

Preventing correction

The economywide discoordination that reveals itself in the bust is not, therefore, caused by the free market. To the contrary, it is intervention into the free market, in the form of distortions of the structure of interest rates — which are crucial coordinating mechanisms — that causes the problem.

As the boom turns into bust, the economy tries to readjust itself into a configuration that conforms to consumer preferences. That is why it is so essential for government to stay entirely out of the adjustment process, because arbitrary government behavior can only delay this necessary and healthy process. Wages and prices need to be free to fluctuate, so labor and other resources can be swiftly shifted away from bloated, bubble sectors of the economy and into sustainable sectors of the economy where consumers want them. Bailouts obstruct that process by preventing the reallocation of capital into the hands of firms that genuinely cater to consumer demand, and by propping up instead those firms that have deployed resources in ways that do not conform to consumer preferences. Fiscal and monetary stimulus do nothing to address the imbalances in the economy, and indeed only perpetuate them.

Most observers cheered in the months following 9/11 when it seemed as if Alan Greenspan had successfully navigated the economy through the dot-com bust at the cost of only a relatively mild recession. The man the New York Timesidentified as “the infallible maestro of our financial system” had lived up to the expectations of those who treated him with a distinctly creepy reverence. But all he had done was hold off the inevitable recession, and make the current downturn all the worse. The recession of 2001 was the only one on record in which housing starts did not decline. Thus people drew the false conclusion — amplified by the alleged experts, including Fed economists — that the housing sector is robust through thick and thin, housing prices never fall, a house is the best investment someone can make, and so on.

Because Greenspan would not allow the full correction to take place, clearing out entrepreneurial errors caused by his previous intervention, market actors persisted in their errors for years thereafter. With the economy having continued along its unsustainable trajectory all that time, the bust that inevitably came was that much worse. Although market decisions were distorted in countless areas of industry, it was housing whose disproportionate growth was most obvious in the most recent boom. Easy money by the Fed, combined with government regulations that made mortgage loans especially easy and attractive, gave rise to a housing bubble — in other words, an array of prices that were unsustainably high. Housing is a durable consumer good generally purchased with long-term financing, so it fits in perfectly with the Austrian analysis that artificially low interest rates give undue stimulus to long-term projects.

Moral hazard

There has been much discussion of moral hazard in connection with the flurry of bailouts that began in 2008. “Moral hazard” refers to people’s readiness to act with an artificially elevated level of risk tolerance because they believe that any losses they may incur will be borne by other people. Hence the bailouts will tend to make major market actors even less likely to behave prudently in the future, since if they believe they are likely to be considered “too big to fail,” they have more reason than ever to believe that they will not be allowed to go out of business, and therefore that they may continue to make risky bets.

This critique is correct as far as it goes, but it overlooks the related problem that the very existence of a central bank such as the Federal Reserve aggravates — indeed, institutionalizes — moral hazard. Since there is no physical limitation on the creation of paper money, firms know that no natural constraint exists on the power of the central bank to bail them out of any serious trouble. (Even if the supply of paper should be exhausted, the monetary authority can always add zeroes to existing notes.) In our own case, financial commentators spoke of the “Greenspan put,” the implied promise that the central bank would intervene to assist the financial sector in the event of a serious downturn. No one has a right to be surprised when market actors behave accordingly.

Arguments over regulation and deregulation by and large miss the point. According to Guido Hülsmann, in his valuable book The Ethics of Money Production,

The banks must keep certain minimum amounts of equity and reserves, they must observe a great number of rules in granting credit, their executives must have certain qualifications, and so on. Yet these stipulations trim the branches without attacking the root. They seek to curb certain known excesses that spring from moral hazard, but they do not eradicate moral hazard itself. As we have seen, moral hazard is implied in the very existence of paper money. Because a paper-money producer can bail out virtually anybody, the citizens become reckless in their speculations; they count on him to bail them out, especially when many other people do the same thing. To fight such behavior effectively, one must abolish paper money. Regulations merely drive the reckless behavior into new channels.

One might advocate the pragmatic stance of fighting moral hazard on an ad hoc basis wherever it shows up. Thus one would regulate one industry after another, until the entire economy is caught up in a web of micro-regulations. This would of course provide some sort of order, but it would be the order of a cemetery. Nobody could make any (potentially reckless!) investment decisions anymore. Everything would have to follow rules set up by the legislature. In short, the only way to fight moral hazard without destroying its source, fiat inflation, is to subject the economy to a Soviet-style central plan.

Since 2007 the typical pattern has unfolded before our eyes: a financial crisis whose ultimate cause is the government’s own central bank is blamed on anyone and everyone else, while the central bank itself is portrayed as our savior rather than the culprit. This version of events is then used to justify still more expansions of government power.

It is urgently necessary for Americans to inoculate themselves against the relentless propaganda in behalf of the government’s version of the story. That’s why I wrote my book Meltdown earlier this year: to set forth a persuasive free-market explanation of the crisis that laymen can understand and use. It spent ten weeks as a New York Times best-seller, but the Times has refused to review it. That, in turn, is about the best endorsement I could have asked for.

Thomas E. Woods Jr. is the author of nine books, including (most recently) the New York Times bestseller Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, a free chapter of which is available atwww.TomWoods.com.

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We’ve traded liberty for ‘safety’ -by: John Stossel

People suffer and die because the government “protects” us. It should protect us less and respect our liberty more.

The most basic questions are: Who owns you, and who should control what you put into your body? In what sense are you free if you can’t decide what medicines you will take?

This will be the subject of my Fox Business program tomorrow night.

We’ll hear from people like Bruce Tower. Tower has prostate cancer. He wanted to take a drug that showed promise against his cancer, but the Food and Drug Administration would not allow it. One bureaucrat told him the government was protecting him from dangerous side effects. Tower’s outraged response was: “Side effects – who cares? Every treatment I’ve had I’ve suffered from side effects. If I’m terminal, it should be my option to endure any side effects.”

Is your doctor well-informed? Read “What Your Doctor Doesn’t Know About Nutritional Medicine May Be Killing You”

Of course it should be his option. Why, in our “free” country, do Americans meekly stand aside and let the state limit our choices, even when we are dying?

Dr. Alan Chow invented a retinal implant that helps some blind people see (optobionics.com). Demonstrating that took seven years and cost $50 million dollars of FDA-approved tests. But now the FDA wants still more tests. That third stage will take another three years and cost $100 million. But Chow doesn’t have $100 million. He can’t raise the money from investors because the implant only helps some blind people. Potential investors fear there are too few customers to justify their $100 million risk.

So Stephen Lonegan, who has a degenerative eye disease that might be helped by the implant, can’t have it. Instead, he will go blind. The bureaucrats say their restrictions are for his own safety. “There’s nothing safe about going blind,” he says. “I don’t want to be made safe by the FDA. I want it to be up to me to go to Dr. Chow to make the decision myself.”

Read the rest here:  We’ve traded liberty for ‘safety’.

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Controller: Labor-Backed Pension ‘Reform’ Would Cost City $13.2M Per Year – San Francisco News – The Snitch

​We’ve reported a bit on Supervisor Sean Elsbernd’s attempts to save the city a modest bundle via pension reform, and the SEIU’s attempts to amend the plan via Supervisor Eric Mar.

While Mar claimed his amendments wouldn’t cost the city any additional money, Elsbernd disagreed — and, now the city’s number-crunchers can quantify why. Peg Stevenson, director of the city’s performance group, has calculated that the labor-crafted Mar amendments would cost the city $13.2 million annually. Since the point of “pension reform” is to save money — and not spend more — this is a somewhat incredible development.

Here’s why the Mar amendment would cost the city millions:

With the exception of a few minuscule unions, the SEIU is the only city union that doesn’t pay into its own pension plan; the city has in the past agreed to do it for them in lieu of raises. The SEIU — via Mar — is now offering to make a trade: The union members will pay the 7.5 percent pension costs in exchange for a 7 percent pay raise. This, Mar said earlier this month during a Rules Committee meeting, was a cost-neutral exchange.

Stevenson’s calculations, however, reveal it’s not nearly so simple. The dollars San Francisco pays into SEIU workers’ pensions are untaxed; 100 percent of those payments go just where they should. Yet money paid out in salary costs is different: The city would now be on the hook for drains such as Social Security, Unemployment, and Long-Term Disability.

When you do the math, Stevenson says, the city must spend $1.16 for every dollar it pays toward workers’ salaries. Ay, there’s the rub.

It also stands to reason that if you give city workers raises, they’ll eventually be eligible for higher pensions. Stevenson said she isn’t yet able to calculate those costs — but doesn’t think it’ll change her numbers “by any order of magnitude.”

The full Board of Supervisors debates both Elsbernd’s original plan and Mar’s “labor-friendly” amendments on the 23rd. It will be interesting to see how that discussion pans out — and if the concept of pension “reform” costing the city millions in even the short-term is as ludicrous to our elected officials as it is to the rest of the civilized world.

via Controller: Labor-Backed Pension ‘Reform’ Would Cost City $13.2M Per Year – San Francisco News – The Snitch.

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A Less Perfect Union

It was three years ago today that, amidst tremendous hope and anticipation, Barack Obama announced his presidential bid. “In the face of a politics that’s shut you out,” Obama said, “that’s told you to settle, that’s divided us for too long, you believe we can be one people, reaching for what’s possible, building that more perfect union. That’s the journey we’re on today.”

Mr. Obama ended his speech this way:

And if you will join me in this improbable quest, if you feel destiny calling, and see as I see, a future of endless possibility stretching before us; if you sense, as I sense, that the time is now to shake off our slumber, and slough off our fear, and make good on the debt we owe past and future generations, then I’m ready to take up the cause, and march with you, and work with you. Together, starting today, let us finish the work that needs to be done, and usher in a new birth of freedom on this Earth.

Now every presidential campaign begins with expectations that are too high and goals that cannot be achieved. But Obama and his team did more than any other campaign in our lifetime to promise changes of almost biblical proportions, ushered in by a person some of his supporters took to be almost a demi-god (during the campaign his advisers referred to him as the “Black Jesus”). And now, just a year into his presidency, it has all come crashing down around them.

The nation is more divided under Obama than it was under his predecessor. Cynicism is on the rise while confidence in the government is on the descent. The president’s signature domestic initiative is on life-support. His party members have suffered crushing losses and are beginning to turn on him and on one another. Liberals are increasingly unhappy with Obama even as independents are fleeing him in particular and the Democrats in general by 2-to-1 margins.

The Republican Party is back, sooner and stronger than anyone could have imagined just a year ago. The mid-term elections are shaping up to be an epic rebuke of Obama, his agenda, and his party. And Obama himself seems lost at sea, unsure on how to proceed. He is desperately trying to recapture the magic of his campaign, hitting on themes that once served him well, yet seemingly unaware of the fact that his golden moment is lost and gone. For an increasing number of Americans, including many who voted for him, it is a distant, bitter memory.

It’s hard to think of any person who has inflicted more damage to himself and his party at this stage in his presidency. His journey so far has been, on almost every front and by almost every measure, a failure.

Barack Obama still has time to right the ship. But nothing he has done as president would lead one to have confidence that he will. Under his stewardship, we are a less perfect union.

via A Less Perfect Union – Commentary Magazine

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