A Free-Market Perspective

[Inthemood]

Re: Free-Market Economics

Because interest rates are low, you have created artificially a demand for borrowing and people begin to take that money borrowed and invest it in all sorts of things and sectors of the economy. Because interest rates are low people all of a sudden started investing heavily into real estate, speculating, and creating a bubble.

But this money has to come from somewhere, right? The Federal Reserve simply prints it, out of thin air. This over time causes devaluation of the dollar, and an increase in prices (inflation).

I'm dissecting little by little... How do you create an artificial demand? What exactly is a bubble? (the same term was used to describe the events which precipitated 1890 and 1929. I don't think I fully understand the term.

I understand that the Fed, gets carried away and starts printing away the currency which consequently decreases the value of money. However, what about the expanding population? As the population is growing don't you need to print more money to sustain the economy? How would that work exactly? I assume you've read Human Action, so you probably have an answer forthat.

[Anonymouse]

Re: Free-Market Economics

These are some blog posts from the above article which are illuminating:

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.

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.

More at:

http://blog.mises.org/archives/008864.asp#comments

[Anonymouse]

Re: Free-Market Economics

Has Libertarianism Ended?

Daily Article by D.W. MacKenzie | Posted on 10/29/2008

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. (No such deregulation took place.) Slate.com's Jacob Weisberg has taken a more cautious approach. According to 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.

Weisberg ignores the fact that the Community Reinvestment Act (CRA) pressured banks to ignore supposedly outdated criteria like the size of the mortgage payment relative to income, credit history, savings history and income verification.[1] The new criterion for creditworthiness became "participation in a credit-counseling program."

The failure of Lehman and AIG has prompted the federal government to take swift action to reward one of them. Furthermore, the federal government is moving to put $150 billion into the purchase of preferred stock. Weisberg dismisses the idea that government bailouts will encourage irresponsibility as libertarian paranoia, the type of stuff that one finds only in novels by Ayn Rand. However, the idea of moral hazard is standard textbook economics, with universal acceptance among economists. It is also worth noting that AIG reacted to news of its impending bailout by holding an expensive party at a posh resort. Does Mr. Weisberg need further evidence of the existence of moral hazard?

Weisberg dismisses the idea that Fannie Mae and Freddie Mac contributed to the recent crisis. Weisberg also claims that libertarians deal in theories that do not apply to the real world. The fact of the matter is that libertarian-minded scholars saw the potential for trouble with Fannie Mae and Freddie Mac years ago. Weisberg counters the arguments and evidence of economists with empty assertions. It should further be noted that Fannie Mae and Freddie Mac have lobbied both major political parties aggressively. Those who claim that more regulation will stabilize financial markets ignore the obvious fact that corporations lobby those who write regulations. They ignore the less obvious truth that special interests, corporate or otherwise, hold inherent advantages in politics. It is much easier for narrow special interests to organize lobbying efforts. Proponents of increased regulation dream of a world where the state promotes the public interest, but this runs counter to the nature of large activist governments.

We should also note that the federal government was supposed to have set corporate America straight with the Sarbanes-Oxley Bill. Sarbanes-Oxley supposedly dealt with the most pressing problem in corporate America: accounting fraud. The SEC had its budget doubled, while also gaining greater authority to oversee accounting practices. New laws imposed stiff fines and lengthy prison sentences for corporate malfeasance. Yet legislators in Washington were well behind the curve. New problems emerged in the financial industry, precisely because our regulatory authorities encouraged unsound banking practices.

It is important to note that the federal government is always explicitly trying to solve yesterday's problems while it creates tomorrow's crisis.

We are now hearing the usual chorus of how the government must act to make sure that this type of crisis "never happens again." It won't. Each government-spawned crisis has unique elements because real-world conditions change continuously. This is a major source of government failure: the failure to anticipate future development. Government is always behind the curve in dealing with crises because policy is driven by politics, and politics is driven by public opinion. Ordinary voting citizens are by and large not experts on financial markets. Since most of us are not financial experts and do not have intimate knowledge of financial markets, future financial trends and problems are generally not well understood. Politicians are therefore in a position where they must please those who know the least about the future situation by reacting to high-profile news stories regarding past events only. Worse still, those who do posses intimate knowledge of financial markets have an incentive to capitalize on public policies through their lobbying efforts.

Finally, we should acknowledge the role of the Federal Reserve in the recent crisis. The Fed has financed many booms and busts since it began operating in 1914. Most recently, the Fed financed the housing boom with low interest rates and a steady supply of new credit. The Fed has been a part of every boom-bust crisis since its inception, yet it remains in operation and the prospects of reforming the Fed are remote. This is further indication of government failure. The government has consistently failed to alter or abolish its own defective institutions. Instead, government failed by creating institutions like Fannie Mae and Freddie Mac, which are "too big to let fail." The government has proven susceptible to special interests in writing new regulations. Given that government has failed to enact "effective regulations" in the past, but has instead catered to special interests, why should we believe any politician who now champions regulation in the public interest? Government has proven its inclination to reward private-sector failure with its 85 billion bailout of AIG. Bailouts, reregulation, and tax increases are not the solution; such measures are the root cause of our current crisis.

Weisberg is wrong in all of his allegations against libertarianism. While he correctly recognizes that libertarian arguments derive from sound reasoning, he is amazingly unaware of how closely the current crisis fits with libertarian theory. In contrast, his own arguments lack not only empirical validity, but also logic. The market succeeds by rewarding efficiency with profits and eradicating inefficiency through bankruptcy, as is evident by the bankruptcy of AIG and Lehman. These two companies did create some of their own problems, but government has proven itself to be the cause rather than the solution to such crises. Contrary to what Weisberg claims, the philosophy of freedom has, once again, been proven right. The current financial debacle is cause for concern not only because some Americans have incurred real financial losses, but perhaps more so because we are all in danger of losing personal and economic freedom. The American public must come to recognize the true nature of our current problems if we are to avoid further loss of liberty.

http://mises.org/story/3162

[Anonymouse]

Re: Free-Market Economics

jgk3,
I don't remember opposing the views that Anon is simply repeating, they are not his views...all I did is invite Hye_Psycho to take it easy. No?
Why don't I discuss the views repeated by Anon? I have no incentives. Would you discuss the harmony rules of serial music with a "not-so-modest" 12 year old who's still learning the basics, has no experience composing music but has strong opinions on the subject? Some may...I don't.

Regards,
Hyer.

No ones "views" are theirs, if you want to be technical about it. Essentially everyone's idea is someone else opinion:

"Most people are other people. Their thoughts are someone else's opinions, their lives a mimicry, their passions a quotation." -- Oscar Wilde

So, what is your point? If you have "no incentives" to discuss, then take your snide attitude elsewhere to another forum and furthermore, don't post in a thread where you have no intention of a discussion aside from being an insecure little wit.

If you think you have any idea of what you are talking about, which I don't think you do, then please indulge me, or great composer of economics. If you are such an expert on economics, then please show me the error of my ways.

Making snide comments to feel validated about yourself is a serious symptom of a crack in your edifice of thought.

[Hyer]

Re: Free-Market Economics

Hyer, why aren't you discussing the topic of Free-market Economics if you wish to oppose Anon's view?

jgk3,
I don't remember opposing the views that Anon is simply repeating, they are not his views...all I did is invite Hye_Psycho to take it easy. No?
Why don't I discuss the views repeated by Anon? I have no incentives. Would you discuss the harmony rules of serial music with a "not-so-modest" 12 year old who's still learning the basics, has no experience composing music but has strong opinions on the subject? Some may...I don't.

Regards,
Hyer.

[jgk3]

Re: Free-Market Economics

Hyer, why aren't you discussing the topic of Free-market Economics if you wish to oppose Anon's view?

[Hyer]

Re: Free-Market Economics

I'm not in college, that just goes to show you that when you are on the forum with your other alias or lurking, you haven't really paid attention to what I write about my schooling.

I just got the top grade in my Constitutional Law midterm.

That is being in college. Your logic reminds me of a 14 year old considering himself an adult and a 12 year old young.

But if you like to discuss the subject matter as opposed to engage in silly insults because you feel inadequate we can do so.

I can tell that those like you and hye moron that have no understanding of economics, nor have ready any economics, are the first ones to resort to personal attacks, as opposed to discussing the issue.

Try to follow the rules.

What insults? Since when being in college and still learning is an insult?
What personal attacks? Please consider being more open minded...and a sense of humor...

As for your invitation, thank you...what would be the incentives? Why would your opinion matter enough?
Maybe when you become either more knowledgeable on the subject, the real world or a bit more modest?

Keep cool.

[Anonymouse]

Re: Free-Market Economics

Hye_Psycho,
Aren't you being a bit too harsh? The kid is still in college, has no real life experience, and not even studying Economy...He's candidly repeating what he's told...Let him play in his playground.

I'm not in college, that just goes to show you that when you are on the forum with your other alias or lurking, you haven't really paid attention to what I write about my schooling. But if you like to discuss the subject matter as opposed to engage in silly insults because you feel inadequate we can do so.

I can tell that those like you and hye moron that have no understanding of economics, nor have ready any economics, are the first ones to resort to personal attacks, as opposed to discussing the issue.

Try to follow the rules.

[Hyer]

Re: Free-Market Economics

i cant imagine the kind of rubbish they teach you in the bastion of free-market capitalism, but i really do recomend you stick your head out of your ass and perhaps broaden your readings to include some leading political economists.

Hye_Psycho,
Aren't you being a bit too harsh? The kid is still in college, has no real life experience, and not even studying Economy...He's candidly repeating what he's told...Let him play in his playground.

[gmd]

Re: Free-Market Economics

Based on what is presented here so far I was wondering if you can explain why the dollar is doing better against most foreign currencies and why gold has been on a general decline. I am also confused by the general feeling of optimism about the future prospects of the American economy considering that so far the govt is pumping money it does not have to conduct a so called rescue. There does not seem to be any public discussion on the long term effects of US debt especially considering the likely decline in govt revenue in the foreseeable future. Why is the Austrian school of thought left out of public debate on the state of the economy within the mainstream.