“Depression is the aftermath of credit expansion.” – Ludwig von Mises
I’d love to find someone that can venture through a single day without reading, hearing or talking about the current state of the economy, the stimulus plan, the bailouts or ponzi schemes. It’s sickening but what’s worse is the fact how NO ONE talks about fixing the problem correctly. Does anyone learn from the past?
I didn’t read the stimulus package in its entirety (it appears that our representatives didn’t either) so take what I say with a grain of salt.
We can blame Bush, blame Clinton, blame Obama, blame Regan, blame Nixon, etc. – it’s all the same; they work for the same crooks, I mean corporation, the US Government!
Time magazine recently published a list of the top 25 people most responsible for this crisis but I would argue that their thinking is flawed and dated by at least 100 years. As Victor Sperandeo noted in his book, Trader Vic – Methods of a Wall Street Master, Thomas Jefferson understood better than any political leader in world history that government “profusion” can only be paid by the “labors of the people.” He knew that a growing government budget and an extension of the services government offers “under the pretense of caring for [the people]” can only come at the expense of private property and individual liberty.
“I place economy among the first and most important virtues, and public debt as the greatest of dangers … We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.” – Thomas Jefferson
“The issue is always the same: the government or the market. There is no third solution.” – Ludwig von Mises
This blog entry is not about playing the blame game, pointing fingers or determining who is responsible but rather a move towards first discussing and then implementing responsibility and accountability based on how economics 101 truly works (without government interference). I am certainly not ruling out oversight and regulation but I am asking the government to just butt out of the free-market system we call capitalism. They will not make things better. For example, Ludwig von Mises once said:
“Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other.”
He made this statement more than half a century ago but the current administration is doing exactly that, spending an unprecedented amount of money (trillions when they look in the mirror and state the truth) on a stimulus plan that will most likely fail to achieve what its authors claim. I am not arguing that is won’t create jobs but how many jobs will be lost due to the new package. What will the net gain or loss total be once we look back in five or ten years?
The talking heads of the media offer no help as they skew the unemployment numbers every chance they get so they can “GET” their headlines. Even the president is talking about the economy and unemployment numbers reaching levels not seen since the Great Depression. Really? What stats are they looking at? This is a sensitive topic as several of my family’s closest friends have lost jobs in recent months but the truth is the truth.
Business Week noted:
In the last year, the U.S. economy shed 3.4 million jobs. That’s a grim statistic for sure, but represents just 2.2% of the labor force. From November 1981 to October 1982, 2.4 million jobs were lost — fewer in number than today, but the labor force was smaller. So 1981-82 job losses totaled 2.2% of the labor force, the same as now.
Job losses in the Great Depression were of an entirely different magnitude. In 1930, the economy shed 4.8% of the labor force. In 1931, 6.5%. And then in 1932, another 7.1%. Jobs were being lost at double or triple the rate of 2008-09 or 1981-82. This was reflected in unemployment rates.
The latest survey pegs U.S. unemployment at 7.6%. That’s more than three percentage points below the 1982 peak (10.8%) and not even a third of the peak in 1932 (25.2%). You simply can’t equate 7.6% unemployment with the Great Depression.
Come on, 7.6% is not 25.2%. Gross numbers of jobs lost today may be larger than a specific time in the 1930’s but an apples-to-apples comparison using percentage ratios shows us that the comparison is stupid. Times are tough and many people have lost their jobs and many small businesses are shutting their doors but let’s not spew inaccurate data to rush a stimulus plan through congress.
“The wavelike movement effecting the economic system, the recurrence of periods of boom which are followed by periods of depression is the unavoidable outcome of the attempts, repeated again and again, to lower the gross market rate of interest by means of credit expansion. There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises
As the quote says above, economic cycles of booms and busts are inevitable so let them run their course rather than have these non qualified elected politicians (with lobbyists in their pockets) making the decisions. How many current and past administration members actually started and owned a business or were active investors? So why are they the ones trying to pull us out of this mess? It’s a joke!
I don’t have all of the answers and I am not the smartest or most qualified guy in the room; however, Washington doesn’t have the most qualified guys in the room either (the most qualified guys/gals were not even on the ballots prior to the election)! With all of the bailouts running though Washington, what’s the incentive to do the “right thing” when Uncle Sam will come to your rescue and in some cases reward you for fucking up! Sorry but this pisses me off.
Many of the quotes throughout are from Ludwig von Mises (1881 – 1973), who was an Austrian Economist, philosopher, and a major influence on the modern libertarian movement. Although I don’t agree with everything Ludwig wrote, I can say that the vast majority of his writings are singing the tune: “I told you so”.
One last thing – I HATE THE PHASE: “Distribution of Wealth”
- “The masses, in their capacity as consumers, ultimately determine everybody’s revenues and wealth.” – Ludwig von Mises
- “Taxing profits is tantamount to taxing success.” – Ludwig von Mises
- “It is untrue that some are poor because others are rich. If an order of society in which incomes were equal replaced the capitalist order, everyone would become poorer.” – Ludwig von Mises
- “The riches of successful entrepreneurs is not the cause of anybody’s poverty; it is the consequence of the fact that the consumers are better supplied than they would have been in the absence of the entrepreneurs effort.” – Ludwig von Mises
Finally, I sure as hell hope we are not walking down the path of Socialism (and I am not targeting Obama and his administration; this journey started decades ago).
“A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism: is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings.”
Tell me what you think, let’s start a discussion! I prefer to hear from you as the media and these so-called experts are pure garbage.
Agreed and what gets me is that so many people, especially here in Europe, think that this was caused by giving too much room to the free market. Now, they think it is time for more government. They are completely unaware that the primary underlying cause is centrally planned money and fractional reserve banking.
In the US, the only solution I see (from here) is Ron Paul ’12. It’ll be a long road until then. In Europe, we have unfortunately no such character.
I’m sorry for being ignorant, but I have a bit of a split view of what you’ve written here. On the one hand, I totally agree that the direction this government is taking, and has taken, is idiotic. What we need is a better run and organized free market. There is a balance of equilibrium which is natural and true and that the government only serves to counteract, either in the direction of bubble or burst, but never toward harmony.
On the other hand. The components of our economic system are too complex. Even the smartest among us can’t be expected to understand the details of the cogs in our system. Should Ponzi schemes be legal? Should there be no regulation of insider trading? If no, then where should the line be drawn? I think there is a balance there as well. One that Ludwig von Mises, in his utterly idealistic view of free markets fails to address. Therein lies my ignorance, I haven’t read any of Mises’ work.
Either way, the point is this. Lessons which should have been learned and used to improve upon a system that is failing are not being heeded. They are instead being compounded upon, and that is why this situation is so dire. It has less to do with the comparison to the great depression and more to do with our seeming inability to react correctly to the problem. It’s sort of ironic too, because just when the tools are available to us to solve the problem, we are blind to them. What we need is financial transparency, regulation of what information can be hidden and copy-written and what information must be commons. We’re in an era where everything that needs to be known and consumed can be, but we don’t seem to care that the more the market knows and can understand, the more balanced the economic system becomes.
actually, i think the government’s actions of late smack more of corporatism (http://en.wikipedia.org/wiki/Corporatism) than socialism. if it were socialist in nature, i’d think there would have been a better redistribution of wealth :-).
Bryn,
I would tend to agree with where you are coming from. Transparency is needed, especially with firms and banks receiving federal bailout money.
Kevin,
Very interesting.
Johnson,
Ron Paul is an interesting candidate but the two party system will always limit him (another problem with politics in this country).
Yes, as a trader and novice economist, I agree with a lot of what you say. The problem, however, is that both Jefferson and Von Mises predate my economist of choice, John Maynard Keynes.
Yes, our elected officials have been fucking things up since, i would argue, the 60’s.
Ok, I am not going to get into this right now, but just peek past econ 101 and go to 102. Read Keynes . He would advocate some public debt and I agree. It is way too easy to point fingers right now.
Chris,
I recently wrote along the same lines in my CAPS blog, and got responses from many people in the libertarian/Mises camp. Feel free to read my thoughts and the comments: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=140626&t=01007595628960767877 (or try: http://tinyurl.com/blvcmb).
As far as those who can go an entire day without hearing/reading about the recession, I say ignorance is bliss, but only up to a point. Knowledge is power, and in this kind of economy, being informed is much better than being caught unaware. Being informed is a choice and a privilege!
As always, great post, keep it up.
-Neil
PS. While there are many things that economists disagree about (the level of gov’t involvement being top dog today), there are many more things that they do agree upon: http://gregmankiw.blogspot.com/2009/02/news-flash-economists-agree.html (or the tinier: http://tinyurl.com/cpzu7g)
Bryn
You stated:
“On the other hand. The components of our economic system are too complex. Even the smartest among us can’t be expected to understand the details of the cogs in our system.”
Hang on to that thought – its a gem. In fact I would say that observation proves why von Mises is correct and Keynes is wrong.
Chris – enjoyed the post. I share your frustration. Bastiat (a 19th century French economist) said it best when he described political activity as everyone trying to live at everyone else’s expense (paraphrasing). Other economists expanded on this thought (Buchanon) by showing that while all people want to do well and enjoy the good life, only those in government have the “legal authority” to use the force of government (taxes, regulation, war) to achieve the good life for themselves. This destroys wealth and hurts those people who are not in the government and use persuasion and voluntary exchange to achieve the good life.
Solutions will not come from those in government. They are enjoying the good life and cannot see the damage they are causing. The solution must come from those not in government who must limit the actions people are allowed to take through government.
Chris, “Come on, 7.6% is not 25.2%.”
– We are not at the peak of the current unemployment numbers, so a valid comparison will only be possible with hindsight. Apart from decrying every clumsy government action, can one of these Austrian hotshots show a ‘successful’ historical example of how it should be done?
Bryn, “What we need is a better run and organized free market.”
– The market is no longer free once you tell it how to run or itself.
Marc,
True, we are not at the peak but we haven’t approached 1982 so why is the media and the President comparing 7.6% to the Great Depression? One step at a time.
The example of how it should be done is the United States prior to the 20th century. We became the richest, most powerful and best (in my opinion) country in the world. Then, politicians decided to get greedy and work the system. There’s your example.
This is still the best capitalist country in the world but we have been heading in the wrong direction for a long time. Being #1 might not be in the cards for future generations and I hate that thought.
Hey Chris,
great article, I wont point fingers at the current admin. but I think we are headed in the wrong direction. I also notice an interesting trend of young people (like us) who have not voted before this election, becoming influenced by George W.’s term, and they think that is “conservatism”, and so vote liberal, but if you ask them about policies, they hardly know anything about it. A rather dangerous voting block. But I digress…
I personally believe Government should only keep the field level and legal, other than that, the less tinkering the better.
As far as taxing the successful and giving it to the poor- I come from an immigrant/minority family that started with nothing, through hard work and much persecution (and even wrongful imprisonment) they became multi-millionaires. Nobody gave them a dime, they simply learned how money works, and how to work hard for it. All the lazy, whiners that have sprouted up in this country- those that want to loot the successful, the risk takers, the job creators- make me sick. They bring no real value to themselves, or more importantly, our country. They simply want to take value out.
Good post.
@ Ty
No offense, but taxes belong to a working society, the state needs to guarantee a business friendly environment and this INCLUDES a degree of social harmony and mutual respect as well as all the basic services (executive organs, legislative stuff and so on), how poor is a society in which the personal ego overwhelms everything like a pest and the the rich (which were mostly born rich or in favourable conditions) drive their escalades around while others die and suffer everyday because the society lacks an adequate public health system for example, the “whiners” and “all lazy” are just in your head, dont let your thinking be dominated by stereotypes, reality is not black and white, its grey