While in recent years the Israeli government has trended away from its socialist roots, the country still has a long way to go before its people can enjoy the fruits of a highly productive and innovative economy. To this end, libertarians in Tel Aviv [they exist] have organized a Tea Party to “show the public and our fellow man that probing, overreaching, and intruding government is not the only option. In fact, it shouldn’t be an option at all.”

Tel Aviv Tea Party

Will demunicipalizing the garbage collectors bring peace to the Middle East?

Here is a video of Hayek speaking with some students at Stanford in the 1970s. Says Hayek, “If we want to preserve a free society we must take from government the monopoly of issuing money…the new thing will grow by itself.”

If this week has proved anything it’s Bastiat’s famous dictum: Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

When asked by U.S. News and World Report what he thought about bailing out consumers deep in all sorts of debt, Ron Paul, channeling Bastiat, answered, “If they’ve spent more money than they’ve had and can’t pay their bills, they have to either quit spending and work hard to pay off the debt, or, if [necessary], file for bankruptcy. But they shouldn’t ask other people, who may be poor themselves and just barely making it [for help.] If you ask taxpayers to do it, someone else gets stuck with the bill. Someone else always has to pay the price. This idea that there are no victims, that’s a fallacy.”

This may as well be the lesson of political economy…someone always has to pay the price. How are we going to finance these bailouts? Either massive inflation, taxation, or borrowing. Though this might temporarily stave off recession, it will also stave off the correction. Markets need to correct themselves.

With Bastiat’s aphorism in mind, it shouldn’t be too hard to understand why 61 Nobel Laureates recently endorsed Obama after he promised to double NIH funding.

On the free market people choose for themselves what they feel comfortable spending. The hallmark of the planned economy is that someone other than the individual decides how he spends his money. But if economists have taught us anything, it’s that the fiction of socialism is untenable and leads to ruin, poverty, and war.

Here’s the Bastiat Collection.

We are reading The Communist Manifesto in one of my classes. Shocking, I know.

Marx lays down ten measures that he believes will revolutionize the capitalist mode of production. His fifth is especially relevant: “Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.”

Scott Horton in his interview with Peter Schiff points out that this is how socialism will/has come to America. In essentially buying out AIG, a failing insurance company, the government has set a dangerous precedent. That the company is failing is beside the point; the fact is the government decided the company needed to be bought out and therefore they bought the company out. Because it has the legal power to create credit out of thin air, this precedent allows the Federal Reserve to essentially “buy” the country if it wants.

Marx never intended agrarian countries like Russia and China to lead the Communist Revolution, but rather he thought industrialized nations like America and Great Britain would lead the way.

Coins are different. The price of the zinc required to mint pennies has been steadily increasing; the cost of producing a penny is now 1.7 cents — it costs nearly two pennies to make one. This phenomenon has led many to question the continued existence of the penny and suggest it be abolished. Understanding negative seigniorage in economic terms will lead to an opposite conclusion: hundred dollar bills should be done away with. FULL ARTICLE

James Grant, Jeff Tucker’s favorite New York Timer, tries to understand “[h]ow…the supposedly “contained” subprime mortgage problem metastasize[d] into a global financial panic.”

Given this article’s appearance on Mises.org, is it surprising that Grant places blame on the Federal Reserve?

In a speech before he became Chairman of the Fed, Ben Bernanke talked about a “Great Moderation” that the Fed had engineered. Greenspan in all his wisdom would be able to steer the economy into a permanent prosperity. Right…

…it was actually the Great Complacency that Mr. Bernanke had put his finger on. In finance, to borrow from the economist Hyman Minsky, nothing is so destabilizing as stability. The paradox is easily explained. Profit-seeking people will take more financial risk when they believe the coast is clear. By taking bigger chances, however, they unwittingly make the world unsafe all over again.

Anxious people don’t ordinarily get in over their heads; it’s the confident ones who do. And nothing builds confidence like the belief that a greater power has conquered the business cycle and laid inflation low. In such happy circumstances, a calculating human will take out a bigger mortgage, build a bigger hedge fund or attempt a gaudier corporate buyout. That is, he or she will borrow more money, or, as they say on Wall Street, lay on more leverage.

This is what the Fed does. They try to manufacture economic prosperity by artificially distorting the market with low interest rates; the consequence of this action is the inducing of unwise investments. Eventually, entrepreneurs realize this error and liquidate the unprofitable investments; this leads to a retraction–the “bust” of the cycle.

So the way to cure the recession is to minimize the role of the government:

If stability leads to instability, it follows that instability will eventually restore tranquillity. But first must come the tallying up of the errors, misjudgments and outright criminality that blossomed during the Great Moderation. Mr. Bernanke, in an attempt to limit the damage and hasten the healing, is likely to keep the Fed’s rate low — lower, even, than the measured inflation rate.

Unfortunately, this will lead to even greater problems:

To lubricate the machinery of lending and borrowing, Mr. Bernanke is likely to make dollars increasingly plentiful. The trouble is that, while the Fed is America’s central bank, the dollar is the world’s currency. It lines the vaults of central banks of America’s creditors, especially the up-and-coming states of Asia and the oil-soaked principalities of the Middle East.

Such institutions hold dollars by choice, and not a few of them chafe at the greenback’s steady loss of purchasing power. For some, Tuesday’s hasty rate cut might be the last straw.

As just about nobody predicted the present troubles, humility is what becomes today’s forecaster the most. So I will offer up a humble forecast. Inflation will, at length, make its way up from the bottom of the Fed’s worry list to the very top. Not for years has it seemed to matter that the dollar is only a piece of paper. But, before very long, that homely fact will push itself back to the fore.

What a pleasant surprise to read such clear thinking in such a muddled newspaper. Who knows, maybe we’ll hear a coherent sentence in tonight’s State of the Union address.

In his autobiography, former Randian Alan Greenspan says he has, “always harbored a nostalgia for the gold standard’s inherent price stability–a stable currency was its primary goal.”

A stable currency implies that its purchasing power would remain the same. But under a gold standard, there would be a trend for prices to fall as production and innovation would not be set off by increases in the money supply (or very minor increases).

If this fact was explained to the American people, maybe they would not “have tolerated the inflation bias as an acceptable cost of the modern welfare state.” If Greenspan went before the American people to explain that, “there is no inherent anchor in a fiat-money regime,” maybe there would be a change of opinion. People are done with the “wisdom” of the policymakers. They want to return to the Constitution where power is decentralized in the market among individuals.

Greenspan says, “There is no support for the gold standard today and I see no likelihood of its return.”

But he does predict, “We could…see a return of populist, anti-Fed rhetoric, which has lain dormant since 1991.”

Contradictions do not exist.

[All quotes from The Age of Turbulence]

Ben Darrington, the Yale Austrian who won the 2007 Douglas E. French Prize, was recently quoted in Time:

“He’s [Ron Paul] about something that American nerd culture can get on board with: really knowing one subject and going all out on it,” says Ben Darrington, a Ron Paul supporter at Yale. “For some people, it’s Star Wars. For some people, it’s Japanese cartoons. For Ron Paul, it’s free-market commodity money.”

He might as well have been talking about Austrian economics in general.

Like Anthony Gregory, I agree with many of the nominees for the “Free Market Hall of Fame.” Unfortunately, as Gregory notes, too many good guys are missing, and not all candidates are exactly “free market.”

This is especially true of the “(past) free market business leader” category.

My own nominee would be James J. Hill, a true market entrepreneur. In building his Great Northern Railroad, Hill did not rely on government subsidy and privilege, but rather acted as the true free market businessman should, i.e. guided by the consumer, not the state.

Thomas DiLorenzo includes Hill in his magnificent book, How Capitalism Saved America.

As DiLorenzo writes:

Quite naturally, Hill strongly opposed government favors to his competitors: “The government should not furnish capital to these companies, in addition to their enormous land subsidies, to enable them to conduct their business in competition with enterprises that have received no aid from the public treasury,” he wrote. This may sound quaint by today’s standards, but it was still a hotly debated issue in the late nineteenth century.

He certainly deserves to replace the inflationist, Benjamin Franklin.