The recent financial crisis has been a source of new hope for those who despise capitalism. The Democratic presidential candidate has gone out on a limb by declaring that the current crisis is the result of deregulation during the Bush presidency.According to Jacob Weisberg, the current crisis is the result of the lack of new regulations rather than the shredding of old regulations. While Weisberg is not as obviously wrong as Obama, his claims are unsubstantiated, poorly argued, and false. FULL ARTICLE
Source link: http://archive.mises.org/8864/has-libertarianism-ended/
Has Libertarianism Ended?
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I agree that it’s silly to think deregulation was the problem, but let’s consider the “mainstream” view for the sake of argument. They say the problem was that the Fed and federal regulators were allowing banks and insurance companies and whatnot too much freedom to make and insure investments, including the bad ones. And yet, even if that’s true, the Fed and the federal government were still there to support them and back them up. So they were given all the freedom and none of the responsibility for the consequences of their actions–moral hazard, as we keep saying.
In laissez-faire, free market capitalism (sorry for the long phrase, just covering all the bases), freedom and responsibility go hand-in-hand. You are free to act, but you are responsible for your actions. Insurance companies will charge according to the risk involved in your decisions. Banks would be free to make bad investment decisions or bad loans, but they would suffer losses for it, and/or pay higher insurance costs for it. If they make too many bad decisions, they go out of business, and other banks pick up the pieces.
Our critics want to claim that bailing out the bad banks is necessary, but that laissez-faire, free market capitalism is to blame for the problem. Yet by their own argument, the banks were granted government license, not freedom with responsibility, and thus it was clearly not a laissez-faire, free market capitalism situation. Their analysis is wrong even if we go by their argument!
Government regulation that allows freedom without responsibility is just as bad as government regulation that requires responsibility without freedom.
Michael (A. Clem), spot on. I like to think of moral hazard as “economic natural selection”. I know it’s Darwinian and sources to biological or genetic evolution, but I think your identified “mainstream” is more apt to be familiar with the workings of Charles Darwin. Food for thought…
We really need to clear the air with the general public — ‘re-regulation’ is not ‘deregulation’. A system in which one set of rules are replaced by another, even rules written as incentives and outright payment of fees (as was the case with the American Dream program’s incentives to lenders that found ‘lower income’ buyers of homes), is NOT DEREGULATION. I say again, ‘RE-REGULATION’ is not ‘deregulation’. We can’t possibly say this enough times. The events of today occurred in a highly regulated market whose rulemakers believed in the correctness of their policies as much or more so than today’s rulemakers believe in the current ideas of our time. The new regulations are simply going to result in a new type of catastrophe. The result of ecomonic oppression of the governed will be the same.
I think instead of seeing this chaos as a failure of the free market, it should be seen as a victory. The bottom line is that the Federal Reserve was constantly lying to people about the value of their money, promising to cover counter party risk of stupid transactions, and constantly pushing to much debt into the marketplace by setting interest rates lower than the free market. The poor were getting killed with price increases and debt, while the banks were acting recklessly and immorally. That the free market finally came around and kicked their teeth in and put an end to it, should be cause for a victory celebration, not cause for blame.
Yeah, the adjustment will hurt, and the government may try to make things worse, but on no uncertain terms it was just deserts.
When all this printed up money they are pumping in causes hyper-inflation, I hope they don’t blame that on the free market too.
“When all this printed up money they are pumping in causes hyper-inflation, I hope they don’t blame that on the free market too.”
Sorry, David, that is _EXACTLY_ what they are going to do. I can say that because that is exactly what has happened every time that situation has come up.
Look at the language used to describe the situation in Zimbabwe, for instance: “The Zimbabwe government took 8 zeros off of its currency, in an effort to….”
It’s the “in an effort to…” part that is the illusion. Never is it mentioned that the government causes inflation by printing money, always that the government “responds to inflation”.
So yeah. I lived through the Ford administration’s “Whip Inflation Now!” program, I’ve seen it happen. They will in fact attribute inflation as a failure of the free market.
Anthony Gregory pointed out 4 years ago, in “Corporate State Socialism” that we have had neither full socialism nor full laissez faire capitalism for the past 150 years in this country. What we have is a collusion between statists and corporatists to benefit both. He uses the term “corporate state socialism” (instead of the arcane synonym, “mercantilism”) to provoke both leftists and libertarians to rethink what they are arguing about. It is s thoughtful essay worth reading.
We have a state that privatizes profits, driven by the Fed-created easy credit, then socializes the losses when the cycle busts, as the Paulson plan has done for AIG, Goldman Sachs, JPMorganChase, and Citigroup. Why was Lehman allowed to fail, but not these?
We have political leaders that pay lip service to freedom and capitalist ideals to get elected, then spend us into eternal debt and inflation to build their own power and strengthen the positions of their financial backers at the expense of our freedom and prosperity.
Why has our system evolved this way?
At the risk of sounding like a paranoid lunatic, I would like to point out that the Trilateral Commission no longer has a sitting member to represent Lehman, but all the other players mentioned above do have active members. In fact, the founder and continued honorary chairman is David Rockefeller, of Chase. The Trilateralists are not interested in our freedom and prosperity. They are interested in their own economic and political power.
Marty Feldman predicted last spring at the annual Trilateralists meeting the doom and gloom we are experiencing now, in his comments at a conference entitled “THE GLOBAL FINANCIAL CRISIS: AVERTING RISKS TO THE SYSTEM AMIDST GLOBAL SHIFTS IN ECONOMIC POWER.” His are the only comments from that conference they have published. Please read them.
What “system” was he asking his friends to help avert the risks to? What were the “global shifts in economic power” he was predicting/planning? Averting the risks to your pocketbook and mine were clearly not what they had in mind, as the Paulson plan demonstrates. They wish to avert the risk to their own financial gain at the expense of us taxpaying serfs. The “shifts in power” were the further centralization and strengthening of the corporatist elite’s financial and political power, via further socialization of the international banking system. This is why the Trilateral Commission exists. David Rockefeller felt the Bilderberg Group and the Foreign Relations Council were not acting fast enough to build the New World Order in his lifetime, so in 1973 he formed the splinter group of the Trilateralists. Read their membership list for a who’s who of the global corporatist elite power structure: multinational corporations, central bankers, and career politicians from both sides of the house.
Please visit opensecrets.org to see who the top corporate contributors are for our frontrunning statist presidential candidates. Then cross reference this list to the Trilateralists, to see who is calling the shots. McBama is beholden to the corporatists to the tune of many millions of dollars in campaign contributions.
We can debate amongst ourselves forever the merits of one political or economic belief system against another, but meanwhile, the power brokers are using our collective naivete to steal our wealth and grab ever more economic and political power at our expense.
Lets get one thing straight, the Fed Funds Rate does not set the mortgage rates. They are set by the market for mortgages. In the boom period we had a huge demand by investment banks for mortgage backed securities that out stripped the supply, hence the drop in the rates. Furthermore, the Fed Funds Rate is a “target rate” and the market sets the real overnight rate between banks.
The prime rate is effected by the target Fed Funds Rate. But the banks work around that. When it went up to 5%, banks offered people with good credit prime minus .5%. Then when it goes down, the banks offer those same people prime plus .5%. It just depends on the supply and demand for those loans.
My question is with the huge government program starting, why hasn’t gold taken off? You have a commodity that cost slightly over $500 to produce and yet it is trading at $700. At those margins, any other manufacturer would go broke. But if there is fear of hyper-inflation, gold should be well over $1,000 today. You may say it will be, my response is go ahead and make that bet.
I believe that speculation pushed prices too high and is not going to push it too low. I just can’t pick a bottom yet.
Quote from Maturin: “What we have is a collusion between statists and corporatists to benefit both. He uses the term “corporate state socialism” …”
I thought we already had a name for this (i.e., fascism).
Keith,
Yes, that is what it is often called. But Fascism is also a dirty word.
Gregory’s point in his essay is that when you start using buzzwords with pejorative connotations, such as “socialist, capitalist, communist, statist, corporatist, or fascist,” you are encouraging your debating opponent to entrench themselves in their defensiveness, rather than to rethink their assumptions. Gregory suggests we can (hopefully) get them to scratch their heads and think about exactly what these words mean when he mixes the supposed polar opposites of corporate and socialist notions in his description of our current political machine.
Ad hominem name calling never wins an argument.
It is an appealing idea.
On gold prices:
I think that there are two forces at work on gold prices right now. The first in an inflationary one, caused by expansion of the money supply.
The second is a deflationary one, caused by banks refusing to lend out the new money, and their skyrocketing reserves.
Given an environment in which banks are willing to lend, adding $1 to the actual money supply will normally add about $10 to the amount of credit availiable, as the banks will add the $1 to their reserves, and then make $10 in loans. (assuming a reserve requirement of 10%, which may not be accurate).
Right now, the money supply is expanding, but the credit supply is shrinking. As the credit supply shrinks, investors are being forced out of their positions, even winning positions like gold. This can only continue until the banks start lending again. At this point, the credit supply should return to it’s normal level of about 10* the money supply. And at that point, we should see a huge inflation.
Of course the wildcard is foreign central banks. When, oh when, will they realize that their supply of dollars is doomed, and start dumping it on the market, so it can flow back into America and claim goods? If and when that happens, we should see a second *huge* layer of inflation. It could come at any time.
Keep in mind that the Chinese alone have enough dollars to (assuming that the market was crippled by price controls) buy all of our production for 9 months to a year. Of course, we would not let all that product go without an inflationary fight, which could well drive other nations to realize that their dollars aren’t worth what they thought they were, and make a bid for their piece of the pie while there is still pie to be had for dollars.
All in all, I do expect a tremendous increase in the price of gold — and everything else — once the banks get over their shellshock.
An Obama presidency, which would likely pry loose money from the prudent and give handouts to fools, would tend to make this situation even worse.
What has me wondering is the Silver market. Silver normally trades at about a 50:1 ratio with gold. For several months, however, it has been trading at 80:1, more or less, but it’s been impossible to get silver at that price. It looks like government price controls: low prices and shortages. But there are no official price controls on silver. My best guess is that people are selling paper silver which does not corrispond to metal, and that there will be a flury of delivery defaults, followed by a ratcheting up of paper silver prices to match physical silver prices.
Silver rounds, generic, bullion direct:
https://www.bulliondirect.com/nucleo/lp/Silver_Bullion_999pure_Bars_Rounds_(1.00_oz).html
Gold rounds, generic, bullion direct:
https://www.bulliondirect.com/nucleo/lp/Bullion_Gold_999+_pure_Coins_Bars_Rounds_(1.00_oz).html
If you look at gold coins on Bullion Direct,
you’ll see them trading at about 2% over spot.
Spot: 752.55
Bid: 770.02
If you look at silver, you’ll see generic rounds trading abut 41% over spot:
Spot: 9.8
Bid: 13.83
And note that when silver rose $1 today, the bid only moved about 50cents. So the premium for actual posession of the metal was much higher.
That situation will be interesting to watch. I exapect that within some unspecified period of time, the silver/gold ratio will return to it’s recrent norm of about 50:1.
Regards,
Rich.
(Don’t blame me, I voted Libertarian).
I didn’t write this piece, but it is the best post I have read in a long time. I am sharing it with my readers, I’m passing it along to you. It is pure mind candy. One commenter wrote:
If this were an essay on economics, it would be the best essay on economics I’ve read in a year or more.
If this were an essay on social structures, it would be the best essay on social structures I’ve read on a year or more.
If this were an essay on conservative versus reformer mindsets, it would be the best essay on *that* that I’ve read in a year or more.
In fact, it was all three of those things, and I’m frankly stunned at how excellently you’ve made so many points in such a short space.
Bravo.
http://beetlebabee.wordpress.com/2008/11/16/jane-galt-a-libertarian-view/
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