Those promoting libertarian ideas today are bent on neutralizing, not using, political power and on empowering those who say they want to be left alone. Millions of Americans are fed up with being told by political elites and their allies what they are to think, say, and do. FULL ARTICLE by Jeff Riggenbach
Source link: http://archive.mises.org/12936/the-new-libertarian-generation/
The New Libertarian Generation?
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Good critique, Jeff, but I think you missed one important point. Lilla employs that favorite straw man argument against libertarianism: that it amounts to “atomistic individualism.” He doesn’t use that phrase specifically, but that is his argument when, for instance, he writes that libertarianism “appeals to petulant individuals convinced that they can do everything themselves if they are only left alone…”
No, no, no! Libertarians are the world’s most principled and articulate advocates of the division of labor. Statism is the enemy of this ideal, with its wars, embargos, tariffs, travel restrictions and myraid other strangulations of marketplace transactions. Furthermore, libertarianism is perfectly compatible with family, community, church, charitable organizations and all other forms of voluntary, private association. In fact, these forms of association tend to flourish as state power diminishes.
What libertarians don’t want is to be coerced under threat of violence into following orders. This sentiment ought not to be difficult to understand. Why should one adult have life-or-death power over the choices made by another adult? It’s absurd. As Bastiat wrote, the social engineers must believe they are made of a finer clay than the rest of mankind. This belief is unfazed by the reality that their management of human affairs has produced one unmitigated disaster after another.
Took the words right out of my mouth. Libertarianism isn’t about self-reliance, it’s about freedom of choice of who you associate with. There’s a clear difference between rejecting forced association and supporting total individual isolation.
Very well said, Robert.
It’s very interesting to see how libertarian views are understood, and misunderstood by those on the ‘other side’. I think Robert is right that Lilla seems to believe that libertarians favour some form of hermetic lifestyle, confusing the idea of individual choice with individual action. Without coercion, individuals are free to associate with whomever they wish, however they wish, to attempt to achieve whatever goals they wish. Any bureaucratic intervention in these decisions overlooks the subtle information that formed these decisions under the presumption that bureaucrat ‘knows best’.
A flat hierarchy permits much more information to flow than a rigidly structured one, many modern businesses can attest to this. Just because an individual CAN go it alone, does not mean they will. What’s more, if they do decide to, other individuals may join them and diversity springs forth.
One more item I just couldn’t pass up.
“Now an angry group of Americans wants to be freer still—free from government agencies that protect their health, wealth, and well-being; free from problems and policies too difficult to understand; free from parties and coalitions; free from experts who think they know better than they do; free from politicians who don’t talk or look like they do (and Barack Obama certainly doesn’t).”
Could he be more condescending? Gotta love those “government agencies that protect [our] health, wealth, and well-being.” Hahaha! Oh, and government policies are too difficult for you silly people to undertand — they aren’t just stupid, counterproductive and malicious. Pay your taxes and let the smart people decide what to do.
Is Lilla the guy who made that “Government is Good” website? Might as well be.
“Pay your taxes and let the smart people decide what to do.”
Have the tax parasites work their asses off, 12 hours a day, on a farm. Let’s see if they still think the same way after a season.
Indeed. These people believe they are entitled to manage our lives, and be lavishly compensated for it. I dream of the day when, in the name of justice, they are parted with their ill-gotten fortunes, and the system of legalized theft and slavery by which they had acquired their power and wealth is dismantled. Imagine the shock they would feel, and the looks on their faces, upon learning that they have to get real jobs.
Fill it up regular, Bernanke. And double bag those groceries, Barack.
Is saying “they think entitled to manage our lives” akin to “why does the dog feel entitled to jump on my bed and make himself comfortable”? You don’t want the dog on the bed but you didn’t do anything about it to make the dog ever think that he wasn’t entitled to the bed either.
Hi, Robert– Just wondering whether you’ve ever looked at the structure of American life this way. We have opposing forces at work, each trying to undo the work of the other so they can control everyone and everything of value. One is “the system”– the government, plus those “educated elites — politicians, bureaucrats, reporters, but also doctors, scientists, even schoolteachers” who are “controlling our lives”. The other consists of the forces of concentrated money: large corporations and the players who sit atop the financial world. For ease of discussion, let’s call the two teams ‘the System’ and ‘Money’.
Suppose we were able to somehow neutralize the forces of the System, putting their people out of work. Do you think the forces of Money, suddenly set free, would create a world where everyone then had access and opportunity to avenues of wealth and fulfillment? I’m guessing you do.
So in that new, unchained lottery, do you think the brightest, most dedicated people pulled ahead, while others just naturally fell behind? Again, I think you do.
So how many among us do you think would benefit from this system? Obviously not everyone. Half of us? Ten percent? One percent? You personally?
What would happen to all the others? Condemned to low wage work, as the clearing price for wages approached zero in that sea of humanity (no longer employed uselessly as teachers, reporters, bureaucrats, etc)?
And my question is, how would this make our situation better? For the most part, in my view, not much would change. There’d still be that tiny sliver of very rich recipients of the benefits of the system, about one-half of one percent, at the top. And there’d still be a small managerial class below them, to administer their fortunes and run their companies. But below that, the shapeless rabble. Some vendors, trying to cater to the tastes of a small moneyed class. Hustlers of all varieties. Plus the badly employed and the unemployed. Call them the criminal class.
Plus, of course, all those layers of security forces. I’ve been in places that already have little effective government.. where capitalism is already pretty much in charge of everything. The middle classes were all poor, living in genteel poverty but threadbare nonetheless. The people with jobs were largely army, state police, municipal police, state militia, private security guards, alarm service technicians, dog patrol companies, burglary prevention consultants and semiprivate security people of all stripes. Every store had a patrolman with a large-caliber riot gun posted in front, to prevent armed smash-and-grabs. The government? Other than state security it was a perfunctory kind of a thing. No one took it at all seriously.
So I’ve seen the future. Tell me what’s wrong with that picture.
Michael, whatever unjust power is wielded by corporate and financial elites comes from “the system” which you seem to believe is keeping them in check. They are, in reality, an integral part of “the system.” Much of the evil done by governments is done on their behalf. All the more so when the government claims to be acting against them.
If you snapped your fingers and made the government disappear, all else being the same, some other gang of crooks would likely seize power, probably not before duking it out with the other wannabe rulers. I am under no any illusions regarding this fact. Just the same, the state is a gang of crooks. Whether or not it can be done away with, and how, is a separate question.
I am against murder, robbery and fraud, regardless of whether or not these are inevitable among humans. That’s not a controversial position to take, and nobody should ask, “How would society manage without murder, robbery and fraud?” or “With what would you replace those?” And yet, it is controversial to oppose the state, which is nothing but institutionalized murder, robbery and fraud, whitewashed by a very expensive PR operation paid for by its victims.
Right now, the masses believe in the mythology of the state. This mythology is supported by false economic theories, official history and news, fearmongering and other forms of propaganda. It is no surprise, then, that what the state fears most is the truth taking hold in the minds of the public.
The state loves violent “enemies,” and courts them, for they provide a justification for its existence. It does not fear elections and votes — on the contrary, they legitimize its power. But look at how the American state is very much threatened to the point of hysteria by a little web organization called WikiLeaks, because it has revealed some of the ugly truth regarding U.S. foreign policy, and might reveal still more. Pentagon thugs are hunting the founder of WikiLeaks in a bid to shut him up. They say this is for “national security,” which is literally true, because the security of the nation state depends on people believing its constant stream of lies.
Robert– I agree totally with every statement in paragraphs one through five. You’ve nailed it.
So why then do I not vote with you all to upset the status quo and bring down a world economy based on unrealistic expectations that credit extended can ever be repaid? Only because it would make everything much worse, for a very long time, for ordinary people.
Elsewhere I’ve noted my observation that Austrian theory has been tested many times, in the form of structural adjustment programs imposed on deadbeat countries by the IMF or World Bank. And the results are the same every time. Sudden and protracted depression, in which everyone below the top strata loses their life savings, their insurance, their retirement and their jobs. To me, this approach is something less than a Magic Bullet.
So be it resolved: the almighty State is an evil thing. But let’s keep it alive and try to improve it. Because once it dies something even worse takes its place.
Just my opinion. Those I see cheerleading for the destruction of the worldwide banking system here all agree that the destruction will be general, deep-reaching and extremely painful for just about everyone. But I suspect they all secretly feel they are smart enough to jump aside when the wreckage occurs, leaving the fools to drown.
Nice of them. I vote nay.
Robert,
I concur with your every comment. I would like to take it a bit further. First of all Lilla is a socialist and I don’t think he is aware of his condition. Socialism is a process that takes time to fester and in the future if it is allowed to continue we could be confronting the ever present Stalin mentality. Lilla talks of people like they are possessions of the state. If that is the case then the state can do whatever they wish for the common good. Stalin murdered at minimum 20 million people. He had a flaw exhibited by humans that James Madison understood and Lord Acton spoke of in his famous quote: “Power corrupts and absolute power corrupts absolutely.” I always knew the greatest invention of the past 100 years was the internet. When the emperor has no clothes we can find out about it and see it on You Tube. The sorry thing about Lilla is that he does not understand his thinking is a recipe for evil but as a normal individual trying to get all us deviants back into the fold.
I laughed so hard at this moron Lilla. If this person doesn’t cement the fact that there is no such thing as an intelligent socialist. The scary part is that he is not the only person confused and naive about the libertarians. Lilla is caught in a 60′s time warp. He actually believes that there was no history prior to that decade. (Oh, I forgot they don’t teach history in public schools anymore) This country was founded on indiviual rights not majority rule. Does Lilla really think that a majority of Americans ever trusted the government? James Madison and Thomas Jefferson didn’t trust government why should anyone else?
This type of article can only be issued by the New York Times. The readership sat down on a Sunday morning and drank their Latte’s at Starbucks and probably couldn’t control themselves in agreement. How many Gulag’s do we need before people truly understand what liberty is all about.
The U.S. was founded on propertied rights not individual or majority rights per se. Besides Jefferson can’t have thought too badly of the government – he became President and made an unConstitutional land grab.
Jefferson didn’t make the land grab. The deal was made behind his back in France and paid for long before he ever got word of it.
I think it all comes down to whether you think buying land to prevent war is moral. Jefferson thought they were just negotiating to buy New Orleans because the French had closed it to traffic on the Mississippi. The surprise was that Napoleon sold them the whole territory.
Jefferson said, “While the property and sovereignty of the Mississippi and its waters secure an independent outlet for the produce of the western states, and an uncontrolled navigation through their whole course, free from collision with other powers and the dangers to our peace from that source…”
I’ve always wondered about this, and, of course, heard people say time and time again that Jefferson was really a big government guy after all. He talked the talked, but didn’t walk the walk. Is there something (book, article, etc.) on Mises about this?
Gil,
I think your speaking to the choir per se. I don’t see any difference between individual rights and property rights. To me they fall under the same umbrella.
Ayn Rand said it best when speaking of rights knowing that the founders of this country established something that has not been witnessed in this world since the beginning of time. They established a Constitution Republic that limited government powers. They sowed the seeds of a Capitalistic social system that was moral and respected individual rights. Her definition of Capitalism was right on: Capitalism is a social system based on the recognition of individual rights, including property rights, in which all property is privately owned.
Specifically pertaining to property rights she said: The right to agree with others is not a problem in any society, it is the right to disagree that is crucial. It is the institution of private property that protects and implements the right to disagree–and thus keeps the road open to man’s most valuable attribute: the creative mind.
I apologize for not knowing that people didn’t understand that individual rights and property rights are one and the same. Without these rights we are all slaves.
Dear Joe,
I don’t believe Gil was saying there is a difference between individual rights and property rights. In fact, Gil’s reply didn’t even mention property rights. He said “propertied rights.” I interpreted Gil’s comment as meaning this: “The government of these united states was founded not for the preservation of the natural rights of the individual, not for the promotion of truly libertarian principles, but rather for the preservation of power amongst property-owning white males.” I interpreted Gil as holding the view that it would have been a good thing had this new world been a domain in which property rights were respected, but that the historical reality was that property rights were consistently violated by the colonial governments and later the states, and that no true advocate of free markets or laissez-faire can justly glorify the founding of this union or of the states therein.
Sincerely,
Alex Peak
Every government that’s ever been has been founded to protect the property from the people. It was no different back when there were just kings and peasants.
Even the Soviet Union was founded to protect state property from the people. The rhetoric they employed didn’t out and SAY so, of course. But you had to belong to the Party to have access to anything.
In fact they used to say this about the two systems, when discussing Capitalism vs Communism: “Under Capitalism, man oppresses his fellow man. Whereas under Communism, it’s the other way around.”
Alex, I will not try to interpret Gil’s reponse to me other than understanding what propertied rights mean. If it means more than owning property and other sercurities he will have to respond to that. As to your purist attitude concerning free markets and founding of this country is almost insane. Do you think that there ever was a perfect system that was created by man and everyone followed it in total? You speak of the history after the establishment of this country. Did you ever read the thousands of years history prior? So you think the white guys just wanted something for themselves and not for anyone else? So the Declaration of Independence was just for the ruling white folk? The only thing I can suggest is to read a book by Rose Wilder Lane called, “The Discovery of Freedom.” This might give you a different perspective. Other than that I give up.
Sorry about the coming rant but I’ve always had the feeling that the libertarian community is self marginalizing. I’m sure you can understand the frustration caused by the interest in change and yet seeing those with the best ideas taking themselves out of the game. So, I’m just curious why you would choose words that make you out to be just as elitist about your cause as Lilla is about his.
“Today’s libertarians — the real libertarians, not the conservatives now so busily slinging insincere, phony libertarian rhetoric — are nonviolent partisans of peace among individuals and among nations, and they favor equality before the law, not forced equality of life result.”
“the real libertarians”? Isn’t this somewhat insulting? I mean what a bunch of phonies.
And excuse me, but isn’t this a bit cynical (as well as not completely true), “The only sense in which the likes of Limbaugh, Beck, Palin, the majority of the tea partiers, and the best known and most representative figures on Fox News may be said to represent the growing libertarian impulse or spirit in the land is this: their employment of a lot of libertarian rhetoric that doesn’t at all match the policies they endorse and proselytize for is in itself a kind of indirect symptom of the growth of the libertarian spirit.” So, when one of these individuals says something ‘libertarian’ that I’ll find it has some diabolical conservative motive?
My point is to wonder exactly what is the point (of this article). What it looks like to me is that you’re using the obvious untenable arguments of a Statist to distance yourself from conservatives by offending them and minimizing them. The real effect is to simply minimize yourself. Too much of that going on in the libertarian community, in my opinion.
“Let me now state what seems to me the decisive objection to any conservatism which deserves to be called such. It is that by its very nature it cannot offer an alternative to the direction in which we are moving. It may succeed by its resistance to current tendencies in slowing down undesirable developments, but since it does not indicate another direction, it cannot prevent their continuance.”"In general, it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not be too much restricted by rigid rules. Since he is essentially opportunist and lacks principles, his main hope must be that the wise and the good will rule–not merely by example, as we all must wish, but by authority given to them and enforced by them. Like the socialist, he is less concerned with the problem of how the powers of government should be limited than with that of who wields them; and , like the socialist, he regards himself as entitled to force the value he holds on other people.”"The common resistance to the collectivist tide should not be allowed to obscure the fact that the belief in integral freedom is based on an essentially forward-looking attitude and not on any nostalgic longing for the past or a romantic admiration for what has been.” Frederick Hayek, The Constitution Of Liberty”Capitalism is not a system of the past; it is the system of the future–if mankind is to have a future. Those who wish to fight for it, must discard the title of “conservatives.” “Conservatism” has always been a misleading name, inappropriate to America. Today, there is nothing left to “conserve”: the established political philosophy, the intellectual orthodoxy, and the status quo are collectivism. Those who reject all the basic premises of collectivism are radicals in the proper sense of the word: “radical” means “fundamental.” Today, the fighters for capitalism have to be, not bankrupt “conservatives,” but new radicals, new intellectuals and, above all, new, dedicated moralists.” Ayn Rand, Conservatism: An ObituaryI thought it would be good to show a different perspective on conservatism. If we are to salvage our freedoms we have to be radicals in the defense of liberty and individual rights. The young people of today must understand there is a moral justification to fight for a representative republic and capitalism as the only social system.
Wow, thanks, I’m convinced, I’ll just become an intellectual and a moralist. And are you saying that I’m a radical fundamentalist too? I didn’t realize.
I suppose there’s nothing wrong with your reply except that it’s boring. Just like most libertarian “intellectuals and moralists”. Where is your call to action? Why would you quote Hayak and focus on only half of what he said? Where is the “common resistance to the collectivist tide” or do you think he’s arguing against open resistance?
I’m not trying to offend anyone, though I do realize that I’m mocking your post pretty hard. I’m just tired of the self marginalizing of the only community that is the keeper of the ideas of freedom and liberty. This must be what happened to the pharisees, you know they don’t exist anymore. They must have come to believe in their rightness so thoroughly that they became self absorbed and less and less influential on the communities around them and they finally disintegrated into small insignificant unrecognizable groups all with their different takes on Judaism. Another form of it is happening now in the protestant churches in the US. Disintegration into smaller and smaller groups each with their own slightly different idea about what a church should be.
But this community, for some reason, chooses to be insignificant. We quote Ayn Rand as if the rest of the world will understand. They don’t. As a matter of fact they’re actively disbelieving. BTW, has a libertarian candidate fro president gotten more than 1 percent of the vote yet? Maybe it’s 1 point something. If you don’t think this matters then why is Ron Paul a republican?
What are we waiting for? A good candidate? Since we can’t win the whole thing we don’t want to play? Cry babies! Isn’t it that Ron realized that if he’s going to influence government at all then a little is better than none?
So, lets have it, are libertarians going to participate or not?
I didn’t think I would elicit such a response. The whole purpose of my boring response was to indicate where I would separate myself from the conservative message. I don’t say that I totally disregard Rush Limbaugh and company. In fact I listen to him all the time. My point is we have to expose the collectivist mind set. We have to let the young people know that the only social system is capitalism and that government should be small to allow free thinking humans apply their individual rights to their life, liberty and pursuit of happiness.
I participate by trying to give reasoned arguments whenever the opportunity presents itself. I try to talk to the younger generation to give them hope and to explain to them why capitalism is the only moral social system. I refer them to authors that speak to freedom and individual rights. It takes time, the socialists have had the public school system for over 50 years.
I believe we both are on the same page, and I know it gets frustrating trying to change peoples minds. I agree about Ron Paul who is a 100% libertarian trying to make a difference in the Republican Party. We need more like him to turn the Republican Party into the Libertarian Party.
Dear Joe,
Ron Paul is more of a 95% libertarian, not a 100% libertarian. That’s not to say I don’t like Ron Paul—quite the contrary, I love the guy. But he does have flaws.
Sincerely yours,
Alex Peak
Dear gooddebate,
I do not believe it is elitist to say that not everyone who calls oneself a libertarian or who occasionally advocates a libertarian position or two is necessarily actually a libertarian. Allow me to make an analogy:
Last week, I was discussing metal with a friend, and how I consider Black Sabbath to be the first band that was truly metal. She said she agreed. I then added that I really disagree with those who say that Led Zeppelin was the first metal band, because as far as I’m concerned, they’re not metal.
Then she played devil’s advocate and gave an argument for why Led Zeppelin might be the first metal band. She pointed out that when she listens to metal from the early eighties, like Iron Maiden, they don’t seem that heavy. “But they were heavy back then,” she said. “So, even if we don’t think Led Zeppelin sound that heavy now, maybe they were metal for their era.”
To this I replied by making the point that, even if we can agree that Led Zeppelin were the heaviest band of the late ’60s, there’s always going to be a “heaviest band of this decade” no matter what decade we’re discussing. Nevertheless, we wouldn’t say that metal has “always been around.” There has to be a first metal band, and I mark Black Sabbath as that band.
I think this analogy works here. Everyone agrees with some libertarian viewpoint on some issue, even most state socialists, even ethical nihilists like Antiphon. But there’s got to be some sort of cut-off point, some point at which a person is too unlibertarian to be considered a libertarian. And I don’t think it a controversial or surprising thing to say that Glenn Beck is too unlibertarian to be considered a libertarian—currently, at least. Beck has certainly, it appears, been moving in a more-libertarian direction. But he’s still, as I see it, on that path toward discovery, that path we’ve all been on—that path we’re all still on, if I must be brutally honest. He’s just not there yet. But that doesn’t mean he never will be, nor does it mean I’m being an elitist for stating what I see to be the truth.
While that’s really all the case I wish to make, I find myself compelled to briefly add that even if it is elitist to hold that Mr. Beck is not yet there, I don’t honestly care. There’s a clear difference, in my view, between viewing oneself as more libertarian than another on the one hand, and on the other, viewing oneself as more properly capable of running the lives of others than said others.
Best regards,
Alex Peak
Jeff, you seem to be a bit of a purist. I’m sure you know that lots of the people dissenting agree with Glenn/Rush on the issues you have a problem with them. I think you are going much too far to claim they are using the rhetoric without believing in making many of the same changes you would want to see made.
Certainly Rush & Glenn both aren’t libertarians in many ways, but on many issues they do have agreements and it’s not fake. The reason you know they aren’t “true libertarians” is that they make their positions on which they disagree with you clear. It’s not like they are lying, but you suggest that they aren’t honest on any points of agreement. Perhaps the reasons for their beliefs aren’t built on the same or correct principles, but the positions on many issues aren’t anti-libertarian.
The reason why many libertarians are purists is because those with a historical memory recall all the back-stabs from the “conservatives.”
Conservatives and liberals alike are amoral nihilists that will say almost anything in order to gain power. Nihilists will always switch ideologies when one set of beliefs weakens and another ascends.
So, for example, when George Bush and “compassionate conservatism” (genocidal war plus Bismarckian socialist policies) is ascends, David Brooks will praise it. When those policies fail and libertarians gain popularity, he swaps sides to make free market noises.
Jeff Sachs will advocate central banking and extreme Keynsian stimulus when it’s popular, but turns in favor of “austerity” when it inevitably fails. That’s actually what the World Bank / IMF does in just about every case in history.
Nouriel Roubini likewise favored Keynsianism in 2008. Now that it’s failed, he’s changed his tune.
Here’s a quote from Roubini from a recent FT article (http://www.ft.com/cms/s/2/2cb543cc-595b-11df-99ba-00144feab49a.html):
“These days he is “centrist” on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called “Austrian school” of economics. “There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.”
Of course, there is no possible compromise between Keynsian/Chicago school economics and the Austrian School. One can’t co-exist with the other.
The Machiavellian always craves power above all else. Most intellectuals are ineffably opposed to the capitalist perspective because the many “policy debates” among liberals and conservatives are predicated on the existence of the central banking system. When you eliminate the Fed, their entire intellectual system dies with it.
Interesting take you have on the Roubini article. You say he “favored Keynsianism in 2008. Now that it’s failed, he’s changed his tune.” But let’s take a second look at what the article actually says:
“These days he is “centrist” on economic issues, since he believes that governments need to spend money in a crisis to support the system, in line with Keynesian economic ideals – but he believes that when a crisis is over, they should revert to free-market approaches, reflecting the so-called “Austrian school” of economics. “There is this big debate between the Keynesian school and the Austrian school. But I am pragmatic and eclectic. It is all about timing.”
But that’s precisely what Keynesianism IS. Have you even read Keynes?
He never advocated just pumping more and more imaginary money into the economy until its seams burst. That’s just the kind of idiocy you read by other people, who want to bring you over to their side. The Keynes school of thinking is to apply more money in times when money is tight, then withdraw it when the party gets rolling again. They’re actually balanced budget types, over the span of a business cycle.
A Keynesian would have started raising interest rates back around 2004-05, to pour cold water on an overheating economy. That would have sent a signal to the real estate industry not to overinflate housing prices. And the bubble wouldn’t have had enough cheap money to form in the first place.
But since you have a different take on things, I’ll ask you. You say “When you eliminate the Fed, their entire intellectual system dies with it.”
How would you eliminate the Fed? Would you just rule it out of existence, burning all its assets in a pile out back? Wouldn’t there be some consequences?
“A Keynesian would have started raising interest rates back around 2004-05, to pour cold water on an overheating economy. That would have sent a signal to the real estate industry not to overinflate housing prices. And the bubble wouldn’t have had enough cheap money to form in the first place.”
Hey, what a great idea. Oh, wait.
Let me see if I have your comment quite right. If ‘Keynesians’ think we should drop the federal funds target rate when times are tough, and people need greater access to capital, and we should raise the rate when everyone’s flush and speculative activities are starting to overheat and form bubbles, how does this approach match the Fed’s activities?
Pretty closely I think, according to the chart you provide. Around the beginning of 2001, when Bush acceded to office, the tech bubble was popping, leading to a great whopping round of deteriorated value (About $7-8 trillion in value, as I recall).
So what did the Fed do? It lowered the target rate. Something like eleven times in a row, right? And didn’t we get out of that recession pretty quickly, and resume a great march forward for several years after? So I think the Fed followed Keynes, and that the strategy was in some degree vindicated.
Then what happened next? Once the party was going good, didn’t they raise the rates, in 2005, 2006 and 2007? They sure did… but a bubble formed anyway. One explanation (or at least one simple one among many complicated ones) was that they didn’t raise rates enough. But I’m thinking you may have another explanation.
And that would be?
At any rate we’re probably agreed on this: as soon as trouble started, they dropped the rates again. And the upper strata of our economic world immediately began to recover.
I will note, that following both the recessions of 2001-02 and 2007-08, we’ve endured a protracted jobless condition. So. Second question. Any cure for that? Or do we just let it go as an intractable problem.
The explanation is that the bubble could not have been formed without the original reduction in interest rates. Increasing those rates even more at the end would have simply made the pain that much bigger for those who bought houses they couldn’t truly afford. How can you deny that???
If the government had raised rates sooner then it would have created a smaller bubble, but it would still have been a bubble making some level of liquidation necessary.
There is no way to not create a bubble by inventing new money out of thin air. Even with gold these kinds of bubbles occur on occasion. The difference is the size and scope. The federal government through the Fed and deficit spending is just so much better at it.
“I will note, that following both the recessions of 2001-02 and 2007-08, we’ve endured a protracted jobless condition. So. Second question. Any cure for that? Or do we just let it go as an intractable problem.”
Michael, reading comments like this makes me think you ignore people here regularly or something. The protracted jobless condition is not permanent, but is a result of government-created bubbles which is sustained over longer periods due to it’s desire to use stimulus (create new bubbles to replace the old) and extend welfare (unemployment).
Without welfare programs like unemployment, etc. people would have to go back to work for what they knew they could get, or find a way to get trained as appropriate. There might be some need for charity locally where people knew the person couldn’t get anything immediately, but this wouldn’t be the kind of government dependency created by the welfare system.
michael,
How about this? The “solution” obviously didn’t work out the way you and the Fed chairman think they should. We can either take that to mean that the Fed didn’t raise rates early or steeply enough, or that the theory behind this solution is dead wrong. From this second option, we can surmise that either the federal funds rate has no effect whatsoever on the economy, or that the effect is there, but it is not the effect that the Fed intends.
Austrian economics goes with this last option. Raising or lowering the fed funds rate does affect the price of money ie. interest rates, which in turn affects investment, production, and consumption. However, these effects are not uniformly distributed throughout the economy, and in fact, are not even uniformly distributed between production and consumption. The distorted signals from artificially lowered interest rates make bad investments, investments into production that does not meet present or future consumer demand, appear to be good. This is an admittedly gross simplification of the Austrian Business Cycle Theory.
Viewed in this light, the apparent contradiction between what the Fed does with rates and what the economy does makes perfect sense. When the Fed lowers rates, money seems to be flowing freely, giving the impression that the economy is healthier and more robust than it actually is. Investment money goes out to a lot of worthwhile business activities, but it also goes into activities that would not otherwise be viewed as profitable if the money to fund them weren’t so cheap. Eventually, the illusion of prosperity comes to an end and we experience a contraction where all of these misspent assets are liquidated.
The actual solution to the problem is to allow the price mechanism to function as it is supposed to. If the Fed stopped manipulating interest rates, then the market could effectively transmit to producers the real market conditions. As it is now, the Fed is always trying to wipe out the corrections resulting from their last screwup with another screw up.
Hi Matt. “Increasing those [interest] rates even more at the end would have simply made the pain that much bigger for those who bought houses they couldn’t truly afford. How can you deny that???”
Low interest rates do have a very distorting effect on residential real estate. This is well known in the industry, but considered to be a good thing. Every time rates are lowered it heats up the market.
Agents get to tell their customers that homes are appreciating, so buy to the limit you can afford. And if you could qualify for a $200K home when mortgage rates were X, you can now afford one at $325K, because the rates have dropped to Y.
When it gets going in a total frenzy, people start bidding crazy prices for homes they’ve never even been inside– there’s no time for that! There’s chum in the water, and the sharks are biting off chunks of their own tails. It’s wild and wet.
Now just let the rates start going back up. Everyone with an ARM (maybe you call it a VRM) is suddenly underwater, paying more for a home he suddenly has less than no equity in. Not much motivation to keep signing those $1900 checks each month, is it?
We can always just say caveat emptor, and these folks should have known better. But that’s a little unfair. What’s happened is that they’ve been conned by Realtors (TM). They’ve made the mistake of believing that the nice lady who’s helping them buy the house, and educating them as to how real estate works, is really on their side. She isn’t. So they follow her advice.
And it’s not as though she’s really lying. Most often she believes the stuff she’s telling them. Historically, real estate has never gone anywhere but up. And price appreciation has always exceeded the general rate of inflation. But if we think about that for a moment, that gives rise to one great systemic instability.
One’s prices can’t always rise faster than the rise in the cost of living. Because one day homes would cost a million. And a couple of years later, fifteen million. And so on. At some point the music has to stop.
Which it did two years ago. I’ll say this– this mass delusion has been good for my business. When housing last went crazy like this (1980) no one could sell their home and get their money back out. So they gave it to me to rent for them. Then, of course, the rental market got saturated and asking rents had to come down.
So you’re right. There’s been a lot of pain. No one knows that better than I, who avoided the pain but managed to prosper in it.
Back to our main topic, though, why then would anyone ever advocate raising interest rates?
A: to cool an overheated economy, and take some steam out of those bubbles beginning to form. And maybe to contract the money supply a little bit, should the Fed want to sell off some of its bond portfolio.
You wouldn’t do it a giant step at a time. You’d hike the rate a quarter point, to see what that did. Then next time you’d decide whether to move it again. Because little moves have big consequences. The day of the first cautious little hike, we’d see the Big Chill descend on the markets.
Your second reply, re why we’re getting jobless recoveries, is not worthy. It’s a guess. I’d very much like to understand what’s going on, other than to say that lenders and others with money are finding more lucrative places to invest than in new job creation.
“Without welfare programs like unemployment, etc. people would have to go back to work for what they knew they could get, or find a way to get trained as appropriate.”
There are certainly those who wait until the last week of their benefits, and then go out to look for work. But they’re certainly not the norm. Most people with families to feed, and mortgages, and car payments, get really panicky when the best they can do is temporarily take in a fraction of what they’ve been earning and spending. The typical ex-employee hits the ground running, networking, distributing resumes to everyone across the nation, and doing all the things one has to do to remain viable.
Are you sure you don’t know about this? Ever found yourself out of work? What did you do about it?
Reminds me of the principles behind the FreeStateProject.org
Very much the “Let’s get together and get govt off our backs” effort.
Either that or a thinly-veiled statist plot like: “Let’s get all the libertarians together in one place so they’re easier to eliminate once the time comes for brown-shirting up the country.”
Vanmind– This kind of thing is unfounded paranoia. The Republicans have no intentions of rounding you guys up to put in their internment camps scattered around the country. (Although they do in fact have such camps, set aside in the event of some hypothetical “national emergency”. They think you can be put to their uses, and turned against their ancestral enemies the Democrats.
And the D’s are hopelessly disorganized. Surely you know that. They can’t execute much of any kind of plan.
So you’re safe, for the moment. In fact if the brown shirts ever do come, they’ll come in Libertarian disguise.
Thank you for the article; I did enjoy it very much!
NM
Aha! Factionalism rears its ugly head. Now people are not just libertarians. Everyone’s rushing to be further toward the extreme than the next guy in the funny hat. Terms of disparagement run riot. Oh, he’s just a conservative. Oh yeah, what are you– some big-L Libertarian? Are you a “real libertarian”? Or just one of those “conservatives now so busily slinging insincere, phony libertarian rhetoric”?
But that’s only to be expected, when by definition the Tea Party is composed of individualists. No surprise, then, that no two are alike. And that in such a crowd many will think of this author as being a lefty. (Note: he does seem kind of left to me in his methods of analysis.)
And how far to the right can you go? I see (above) where we went wrong when we made the Louisiana Purchase. Or rather, the “unConstitutional Land Grab”. There’s an officeholder out in Arizona who doesn’t like trees. They’re “stealing our water supply”. She’s also sponsoring a bill to waive safety training requirements and background checks for applicants for concealed carry permits. How can you get further out on the edge than people like this?
There’s only one thing to do. Test the hypothesis. Arizona would be the perfect spot for a Tea Party takeover. For one thing it’s already so messed up there’s not much left to destroy. And the TP is already teetering toward a majority. I say, let them have it. See if they can do anything with it. Anyone not wanting to take part in the experiment could easily move away to someplace better.
And I think we’d all learn something from the experience. Until the TP has a whole state to work with, everyone will always wonder whether they might not have been able to do a better job than the traditional politicians. Who knows? I say, bring it ON.
New Hampshire’s doing fine under the influence of the Free State Project.
Tube– Not sure I approve of the carpetbagger tactic. That means a bunch of people move in who don’t see eye to eye with the locals and take the place over by force of numbers. Be prepared, if that ever comes to pass, for the End of Reconstruction.
Much more practical to just rise to power out in Arizona. Most everyone already agrees with you. Not too many folks out there who aren’t either TP-ers, Latter Day Saints or assorted independent-minded wingers. And the government, conveniently, is already collapsing from the strain. It hardly even needs a small push to give way and crash to the ground.
New Hampshire, on the other hand, still has a viable government. And so far as I recall, locals who are willing to stand by it, as reflecting their small-d democratic principles.
The FSP also strengthens anti-libertarian positions everywhere else in the country (more libertarians moving out means more statists remaining). Hell, some FSP members claim that things are “really changing” in NH for the better, and maybe they are, so stop calling for ever more people to keep moving there if the threshold has already been reached — point Americans instead toward other areas, get numerous “cells” going on instead of encouraging a mass gathering of libertarians in one geographic area that would make “cleansing” a lot easier for tomorrow’s despots.
Those of us already living in states that might be the object of such Libertarian intentions get a little worried when we hear of plots to pack our electorate with strangers who have some sinister national plan for us.
Try to put yourself in our place. Imagine that some state, your state, is seeing a sudden influx of Communists. And imagine that you look at their website and find The Plan. First take over one state… then the next…
They say sunshine is the best disinfectant. I think this FSP of yours should be getting a lot more publicity than it’s been getting.
Factionalism is a valid complaint when, in fact, we’re dealing with different factions of the same thing. Here, we’re dealing with people who believe the Obama administration is evil because its not killing enough Aye-rabs.
As usual, I quite enjoyed Mr. Riggenbachs’ podcast. For those that haven’t done so already, I recommend listening to every one of his podcasts, starting from the first one.
Cheers!
Alex
More Americans are more so Minarchists than Libertarian, although a great number of Conservatives, Independents and even JFK type Democrats can appreciate a wide variety of Libertarian opinions with in the sphere of American political definitions of varying ideological mindsets. One thing that I have personally been fascinated with, is the fact that several varying ideological mindsets seem to never be enraged by Libertarian ideas as they can get with one another from time to time on different topics and issues with in politics. I believe that the core reason of the typical American open mindedness to Libertarian ideas is based upon the fact that most Libertarian ideas are central to common sense, which means that it is extremely difficult for an individual to have a strong negative reaction towards such a non intrusive, non overbearing and non threatening core value belief system. Libertarianism is a streaking belief system that better follows mans most primitive desires, which is to live well, to find peace and to coexist with others during an individual pursuit of happiness, while not being alone in an over all cultural pursuit. Human beings naturally gravitate towards and extremely desire genuine true liberty. This would easily explain why throughout American political history, Libertarian values have cris crossed through the Left and the Right ideological spectrum’s at different points of time. Now how on Earth could any human being really be against that? To be so, would almost not be human!
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