Liberty & Power: Group Blog
Monetary-policy propaganda is a high art, and lay readers of Bernanke’s article may well be taken in by its artful formulation. Therefore, as a public service, I offer the following brief commentary, interweaved with CNN’s Saturday report on Bernanke’s Sunday op-ed.
NEW YORK (CNNMoney.com) — Federal Reserve Chairman Ben Bernanke, just days ahead of his confirmation hearing, is warning Congress that actions limiting the central bank’s independence could prove detrimental to the causes of financial reform and economic recovery.
Such a warning seizes the high ground by creating the presumption that Bernanke and the present Fed have proved themselves to be beneficial to the causes of financial reform and economic recovery. In the circumstances, that’s a highly questionable presumption. Some of us are inclined to believe that, all in all, the Fed and its glorious leaders, especially Alan Greenspan and Ben Bernanke, got us into our present troubles in the first place and that they have done nothing wise of late to repair the damage they brought on us, acting instead to create enormous risks for our future well-being and, in particular, great risks for the future purchasing power of the U.S. dollar.
In an op-ed piece to be published in Sunday’s Washington Post, Bernanke criticizes two moves aimed at limiting the Fed — a proposal in the Senate to strip the central bank of its bank regulatory powers and a House Financial Services Committee vote to audit monetary policy deliberations and actions.
“These measures are very much out of step with the global consensus on the appropriate role of central banks, and they would seriously impair the prospects for economic and financial stability in the United States,” Bernanke wrote.
I suppose he is referring to the same sort of consensus that Al Gore likes to cite in regard to global warming. We know now, better than ever, that such consensus may well be manufactured by interested parties. I wonder, for example, whether anyone has ever checked to see how many monetary economists have previously enjoyed a grant, a salary, or some other perk from the Fed, or currently do so, or reasonably expect to do so someday.
And about this “economic and financial stability in the United States” that a Fed audit would threaten: Is Bernanke thinking about the stability we enjoyed between the world wars, when the Fed managed to bring about the onset on what proved to be the greatest depression in world history (an accomplishment for which he has previously accepted responsibility on behalf of the Fed)? Or perhaps he is thinking instead about the stability we enjoyed since 2001, when the Fed pushed the Fed funds rate quickly from 6.5 percent to 1 percent, held it at a negative real rate for several years, then pushed it up quickly to 5.25 percent in 2006-2007, then shoved it down quickly to almost zero in the past year? Zounds. It would certainly be tragic if the American people had to give up such remarkable stability. Or perhaps he is thinking about the fact that before the Fed was created, the dollar had retained its purchasing power more or less constant for more than a century, except for transitory war-related ups and downs, but since the Fed’s creation, the dollar has lost more than 95 percent of its purchasing power. Who calls this degree of debasement stability? Yes, it’s more stable than Zimbabwe’s currency. Bravo, Fed: you’ve yet to generate hyperinflation. But you may still do so before the present mess is completely washed away.
Let’s get serious. If the Fed is known for anything historically, it is for first pushing the monetary accelerator to the floor, then stomping on the monetary brake. To praise this outfit for its contribution to financial and economic stability is akin to praising Josef Stalin for his commitment to human rights.
Bernanke says the congressional moves are a byproduct of the public frustration over the financial crisis and the government’s response, especially the bailout of large banks. (Fed rage boils on Capitol Hill)
Odd that people would be upset, eh? Just because many of us have had our dreams of retirement destroyed and our very survival menaced by these monetary rulers of the universe. We need to take a more balanced view: even if you and I have been nearly wiped out, the kingpins at Goldman Sachs and Bank of America are doing very well. People who bought credit default swaps from AIG got their money, didn’t they (actually our money, but that’s only a detail)? So all in all, the country is in pretty good shape, on the average.
“The government’s actions to avoid financial collapse last fall — as distasteful and unfair as some undoubtedly were — were unfortunately necessary to prevent a global economic catastrophe that could have rivaled the Great Depression in length and severity, with profound consequences for our economy and society,” he wrote.
Yes, it is distasteful when we little folks have to take a financial beating so that the rich and well-connected can flourish; we do tend to get a bitter taste in our mouths. But, then, we certainly don’t want another Great Depression, do we? But wait a minute. How does Bernanke know that if, say, the government and the Fed had not taken the slew of outrageous measures they have taken in the past fifteen months, another Great Depression would have occurred? I have a Ph.D. in economics, same as Bernanke, and I’ve been a professional economic historian of the United States for more than forty years, and I don’t know this thing he claims to know. Does he have a pipeline to God? (A more reasonable hypothesis is that he is God’s agent on earth, put here to punish us for our sins.) This constant reference to an impending Great Depression makes for excellent politics of fear, but where’s the theoretical and historical meat? My best guess is that had the government refrained from all of its extraordinary interventions of the past year or so, the worst of the adjustments would already have been made, and a genuine recovery would now be in progress. Instead, thanks to Bernanke and Co., we may never see a flourishing economy in this country again. Argentina and other countries have been ruined by a great deal less meddling.
But the Fed chairman says that, while reforms are needed, “we should be seeking to preserve, not degrade, the institution’s ability to foster financial stability and to promote economic recovery without inflation.”
Ditto my earlier comments on stability.
Among the ideas he supports is development of a special bankruptcy procedure for firms “whose disorderly failure would threaten the integrity of the financial system — to ensure that ad hoc interventions of the type we were forced to use last fall never happen again.”
Note the language: “Interventions of the type we were forced to use last fall.” Two questions: who is this “we,” and who “forced” these actors to do what they did? From my perspective, these actions look like the work of a handful of people with very close connections to the titans of Wall Street who had got their asses in a wringer by making foolish bets – well, in retrospect, not foolish, perhaps, making due allowance for the “Greenspan put,” which allowed them to assume (correctly, it turns out) that if they got their asses in a wringer, the Fed (and, in a really bad situation, the Treasury) would bail them out and, all things considered, they would still come waltzing out of the devastation (for other people) smelling of roses.
Bernanke’s column comes ahead of a Senate Banking Committee hearing, scheduled for Thursday, considering his nomination for a second term as Fed chairman. President Obama announced the nomination in August.
The last sentence of his commentary is likely to be the theme he and his supporters will stress during the hearing.
“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation,” Bernanke wrote.
Strong, yes. Nonpolitical – don’t make me laugh myself to death! Independent? Of you and me, to be sure, but not independent of Goldman, B of A, JPMorgan Chase, and the other old boys up there in the big city. This unholy alliance wants us to lie back and take the punishment they dish out when their salvation requires our sacrifice. If the congress members at the hearing on Thursday have any sense and backbone, they will not take this crap lying down. But that’s a mighty big if.
David T. Beito
Freshmen Rep. Jason Chaffetz has come out against the Afghan War in no uncertain terms:
I can take pot shots at [Association of Community Organizations for Reform Now] all day long, and I’m good at it,” Chaffetz said. “But even though I am probably going against where the party is on this traditionally, I just think we need to stand up and support the notion that it is time to bring our soldiers home.”
Jeffrey Rogers Hummel
The Fed also serves as a clearinghouse for banks, and that function is in tension with monetary policy. When the Fed was first created in 1914, it provided clearing services to all member banks for free, driving out of business the various private clearinghouses that had arisen and were solving some of the liquidity problems associated with the destabilizing National Banking System. Then in 1980, the Depository Institutions Deregulation and Monetary Control Act required the Fed to offer its clearing services to all depository institutions--whether banks or not, and whether members of the Fed or not--but at a fee that allowed the reemergence of private alternatives.
There are two ways to run a clearinghouse. The first, net settlement, involves waiting until the end of the settlement period (traditionally a day) and then transferring only net amounts. The second, a real-time gross settlement (RTGS) system, settles each payment as it occurs. The private Clearing House Interbank Payments System (or CHIPS, created in 1970), which now handles more than one-quarter of bank clearings in the U.S., netted all settlements at the end of the business day until 2001, when it switched to intraday payments. The Fed's current system, Fedwire, in contrast, has always conducted real-time settlements. Because banks may therefore lose all their reserves to other banks before any offsetting receipts come in, the Fed provides banks with intraday overdrafts to assist with their clearings.
Before paying interest on reserves, the value of these overdrafts was climbing to an amount exceeding bank reserves. Thus since 1987, U.S. banks reserves (counting vault cash) have hovered around $65 billion, but the average daylight overdrafts outstanding at any minute during the day rose from around $15 billion to nearly $50 billion. The peak value of daylight overdrafts at any moment could rise even higher, to over $100 billion. Alex Tabarrok over at Marginal Revolution provides a colorfully apt description of this process:"in essence, the banks used to inhale credit during the day--puffing up like a bullfrog--only to exhale at night. (But note that our stats on the monetary base only measured the bullfrog at night.)"
A clearing system using net settlement leaves the potential losses from a bank's failure to pay on the bank(s) owed money. But Fedwire's RTGS system transfers that risk to the Fed itself. The Fed has consequently tried to limit bank use of daylight overdrafts, first imposing net debit caps in 1985 and then imposing minute-by-minute interest charges in 1994. Once the Fed began paying interest on reserves, the banks had an incentive to substitute excess reserves for now more costly Fed credit. A technical article that models this change, Ennis and Weinberg, reveals that the Fed expected and hoped for this result in order to reduce the Fedwire risk from daylight overdrafts.
Being able to earn on interest on reserves would have caused the banks to hold more of them anyway, but the fee on daylight overdrafts only augments that effect. Much of the Fed's recent, more than ten-fold increase in bank reserves, to a current total of about $675 billion, has so far caused banks primarily to increase their reserve ratios rather than expand their loans. Some, like Paul Krugman, have interpreted this as a huge, deflationary flight to liquidity. Others, like myself, contend that it is only a matter of time before this leads to inflation. But as Alex suggests, the payment of interest on reserves could render both predictions wrong. The increase in reserve ratios could simply be a one-shot response of banks, hiking ratios to a new level. No one knows for sure, including I would add, the Fed itself.
The European Central Bank (ECB), like the Fed, has been pumping up its monetary base with wild abandon. And as in the U.S., private European banks seem to be increasing their reserve ratios, at least in the short term. But the ECB has paid interest on reserves since introduction of the Euro in 1999. In fact, because interest on reserves reduces central bank seigniorage, confining it to currency alone, this feature may have eased the negotiations over the inevitable conflicts in creating a European monetary union. The ECB also oversees a real-time clearing system with intraday credit, known as TARGET (Trans-European Automated Real-Time Gross Settlement Express Transfer).
So again, the accumulation of excess reserves may reflect the perverse impact of central banks paying interest on them. The Fed started doing this, confident from the experience of the ECB, and other central banks, such as those of Canada, New Zealand, and Australia, that have been doing so for some time. But the policy had never been tested in a period of falling interest rates, rising risk premiums, and rising preferences for shorter maturities.
I predict that future economic historians will look back on this change as a major blunder during the current credit tightening, making traditional monetary policy less effective. True, the broader monetary aggregates are already beginning to respond to the Fed's base explosion, with M1 annual growth up from 0 to 20 percent over the last three months, and M2 annual growth up from 5 to 10 percent over the same period. Yet irrespective of whether the long run brings deflation, inflation, or neither, paying interest on reserves has certainly applied deflationary pressure in the short run. It may eventually rank with the Fed's doubling of reserve requirements in the 1930s and bringing on the recession of 1937 within the midst of the Great Depression.
Moreover, the paying of interest on reserves was motivated by the misguided focus on interest rates, rather than money supply measures, as an indicator and target of monetary policy, a focus that has dominated central bank operations worldwide for the last two decades. It is also a focus that seems sadly to have taken in many libertarian and free-market economists. Although done in the name of controlling inflation, this focus actually reflects a move toward centralized economic planning on the part of central banks, given that the interest rate is a relative price, with a significant real as well as a nominal component, compared with such purely nominal targets as the money supply or the price level.
The irony is that the Fed is now less able to hit its interest rate target than ever before. It first adopted the corridor or channel system of the ECB, setting the interest rate on reserves below its Federal funds target, as a lower bound, with the discount rate above the target as an upper bound. But as the effective Federal funds rate fell not only below target but below the interest rate on reserves, the Fed on November 5 moved to the New Zealand system, where the interest rate on both required and excess reserves is set right at the target Federal funds rate. So far, this hasn't worked either. (For accessible descriptions of these two systems, see an article by Keister, Martin, and McAndrews.)
Why does the effective Federal funds rate remain below the Fed's target rate of 1 percent, despite the fact that the Fed is now paying interest on both required reserves and excess reserves at that target rate? The best explanation for the anomaly has been offered by Jim Hamilton. Fannie, Freddie, the Federal Home Loan Banks, and other GSEs, plus some international institutions have deposits at the Fed, and these do not earn interest. These institutions are also players in the Fed funds market. So their Fed funds loans would not be affected by the interest paid on excess reserves.
David T. Beito
Disillusioned with the authoritarianism of the church, she left in 1967 to pursue a solo singing career. She recorded an album, which included “Glory Be to God for the Golden Pill” praising benefits of the birth control pill for women. The comeback was a flop. Also, in 1967, she moved in with Annie Pécher, a childhood friend (who may have also been her lover). The two founded a school for autistic children.
At this point, the Belgian government tragically entered the scene. Using a dubious loophole in a contract she signed with the church (which had reaped all the profits from “Dominique”), it said she owned it between $50,000 and $80,000 of back taxes. The government was unrelenting in pressing its claim. Depressed and weighed down by debt, Deckers resumed her singing career in a last ditch attempt to pay the taxes and raise enough to keep the school open. As part of the comeback, she recorded this promotional video (see above) featuring a disco version of “Dominique.”
Her timing was terrible. Disco was on life-support in 1982 and it was another flop. The school closed. With no way left to pay the government, Deckers and Pécher committed suicide together. Pécher left this note: “We do suffer really too much... We have no more place in life, no ideal except God, but we can't eat that. We go to eternity in peace. We trust God will forgive us. He saw us both suffer and he won't let us down.”
And correspondent Tom Allan calls for a more open debate about climate change.
Jane S. Shaw
Lakoff absolves the Obama administration of any bad intentions never considering the possibility that the money saving suggestion might have been made in order to test reaction to state cost benefit analysis applied to health care. Rather he argues this idea is nothing to worry about, even joking that “as expected, the most radical conservatives have seen this not only as an Obama move, but have likened it to mythical ‘death panels.’” Yet, how could one call the Preventive Task Force anything other than a death panel, it recommended that 47,000 women die. The members of the team claim that cost did not enter their deliberations but as Lakoff points out the different reasons put forth are spurious. Besides expense what other motive could explain a policy that would result in so many extra fatalities?
We should not be too optimistic about the seeming defeat of this noticeably ham handed attempt to trade lives for funds. There will be further efforts because the government will have no choice as there will not be enough resources to pay for everyone’s health care. Why any rational being would want a single payer medical system when the single payer has 40 trillion dollars in unfunded liabilities is beyond me.
Jonathan J. Bean
The timing couldn’t be worse for those who would cripple economies with the plaintive cry: “Do as we say or we all die!” Worldwide there is growing skepticism about the benefits of micromanaging every aspect of daily life while measuring “carbon footprints.” The Wall Street Journal even contributed to this Nanny Project with a long piece measuring the carbon footprint of various common products. I was relieved to see that beer had the lowest carbon footprint.
How far have we gone when we decide whether or not it is “good for the planet” to drink beer? Now we must ask: Did German scientists manipulate the beer data to preserve their national beverage? (I’m kidding). It’s a good cause (beer drinking) but who studies this stuff? And when is enough enough?
For more on the “climate conspiracy,” read the following:
“Hacked E-Mail Is New Fodder for Climate Dispute,” by Andrew Revkin (New York Times, November 20, 2009)
“Climategate: the final nail in the coffin of ‘Anthropogenic Global Warming’?”, by James Delingpole (London Telegraph, November 20, 2009)
“CRU Files Betray Climate Alarmists’ Funding Hypocrisy,” by Marc Sheppard (American Thinker, November 22, 2009)
Climate Audit, by Steve McIntyre — this server is slow but it does work.
“The Global Warming Debate, Peer Review and University Science,” by Mitchell Langbert (NAS Blog, November 23, 2009)
Fear not: Our own EPA, under “science president” Obama, has allegedly suppressed an EPA report skeptical of global warming.
This last story on our own home-grown ClimateGate, ends with these quotes:
The revelations could prove embarrassing to Jackson, the EPA administrator, who said in January: “I will ensure EPA’s efforts to address the environmental crises of today are rooted in three fundamental values: science-based policies and programs, adherence to the rule of law, and overwhelming transparency.” Similarly, Mr. Obama claimed that “the days of science taking a back seat to ideology are over… To undermine scientific integrity is to undermine our democracy. It is contrary to our way of life.”
“All this talk from the president and (EPA administrator) Lisa Jackson about integrity, transparency, and increased EPA protection for whistleblowers — you’ve got a bouquet of ironies here,” said Kazman, the CEI attorney.
1. Frank Furedi warns us against conspiracy-mongering.
2. Anthropogenic global warming exponent George Monbiot believes that Phil Jones, head of the Climatic Research Unit at the University of East Anglia, should now resign.
During the housing bubble, however, with congressional backers goading Fanny Mae, Freddie Mac, and other lenders, caution was thrown to the wind, and loans were extended to home buyers who had little more than a pulse as a qualification. People who believed that real estate prices would never fall did not worry much about the great volume of dicy credit being extended to house buyers – for the moment everybody seemed to be getting rich effortlessly with little or no risk. However, people who believed that real estate prices would never fall were fools, and when the Fed began to back away from its easy-money policy and interest rates began to rise, real estate prices began to fall, mortgage delinquencies and foreclosures began to rise, and before long the entire house of cards began to collapse: house prices dropped drastically, as did the pyramid of financial derivatives built atop the mountain of mortgage loans, and in quick succession some of the world’s largest banks and other financial-services companies went belly up. Some, including Fannie, Freddie, and AIG, were taken over by the government or the Fed; hundreds of others were bailed out, at least for the time being.
A sensible person, surveying all of this wreakage and pondering how such a debacle might be avoided in the future, certainly would have concluded that the government should cease and desist from artifically spurring the real estate market by subverting traditional underwriting standards for mortgage loans. Those standards include, for example, a substantial down payment, usually 20 percent, and well-documented sources of income sufficient to permit the buyer to service the loan, usually a steady job or substantial assets.
During the crisis since mid-2008, however, the government has not done what a sensible person would have concluded it should do. Indeed, it has done the opposite. Rather than terminating the government policies that had encouraged the foolish behavior of real estate buyers, sellers, and lenders – foolishness that lay at the heart of the artificial boom that went bust during the past two years – the government has undertaken to continue and even to compound the selfsame policies that in large part caused our present economic troubles. For example, Fannie and Freddie, now effectively government owned and operated firms, continue to extend loans as if promising borrowers were superabundant.
Moreover, the Federal Housing Administration, a government agency created in 1934 to insure conventional mortgage loans, has greatly expanded the volume of its business, and according to a recent report in the New York Times, the FHA “is underwriting loans at quadruple the rate of three years ago even as its reserves to cover defaults are dwindling.” The Mortgage Bankers Association affirmed on November 19 that “more than one in six F.H.A. borrowers was behind on payments.” The FHA has backed 37 percent of all residential mortage loans made in 2009. Reporter Patrice Hill observes that “these loans are exposing taxpayers to the same kinds of soaring default rates and losses that brought down Fannie Mae and Freddie Mac as well as destroyed many banks and the private market for mortgage loans.”
The government is not resting content, however, with taking over the mortgage-loan business and making a multitude of rotten loans. Hill reports:
The FHA’s predominance was enhanced further this year when Congress lifted the ceiling to more than $729,000 for major urban areas and passed an $8,000 tax credit for first-time homebuyers that can be accelerated for borrowers to use as a down payment on FHA loans and avoid any cash commitment to their home purchases.
While these changes were intended to be temporary and expire by the end of the year, given the fragility of the housing and mortgage markets, Congress is considered likely to extend them this fall.
The significant expansion and liberalization of FHA’s loan programs is enabling Americans to go back to many of the same bad credit practices that analysts say were at the root of the housing crisis, likely feeding further waves of default and foreclosure. But this time it is the taxpayer — not the banks — who could end up holding the bag.
Whitney Tilson, manager of investment firm T2 Partners LLC and author of “More Mortgage Meltdown: 6 Ways to Profit in These Bad Times,” called “cataclysmic” the surging default rates of more than 30 percent on loans insured since 2006 by the FHA. That is not far below the 40 percent rate of default and foreclosure on the notorious subprime loans that ignited the credit crisis.
“The FHA’s portfolio is exploding and the taxpayer is now on the hook for 100 percent of the losses,” he said.
“I find it hard to distinguish between the actions of FHA and the self-denominated subprime lenders,” said Edward Pinto, a former chief credit officer at Fannie Mae who recently testified before a House panel on FHA’s growing default problems. “The results are the same — unsustainable loans that prolong and perpetuate our nightmare of foreclosures.”
Mr. Pinto estimates that 20 percent of the FHA’s entire portfolio of $725 billion mortgages will end up in foreclosure — a rate recently borne out by estimates FHA provided to Congress. He predicts that the agency will require a taxpayer bailout within two to three years.
One reason defaults are soaring is that the agency is attracting nearly all of the business of homebuyers who haven’t saved enough to make down payments, he said. Loans with little or no down payments have high rates of default because the borrowers have little financial stake in losing their homes to foreclosure.
The agency requires a minimal 3.5 percent down payment — far below the 20 percent now required by private lenders. That’s very little “skin in the game,” especially in today’s market where the buyer’s equity can be quickly wiped out, Mr. Pinto said. Home prices have fallen an average of 30 percent nationwide.
Many borrowers have been able to avoid even that minimal level of personal investment in their homes. The government is enabling these buyers to put up no cash at all by allowing them to get advanced payments of the $8,000 homebuyers tax credit through arrangements with nonprofit housing groups and state housing agencies. The tax credit can be used the same way to pay closing costs.
Beyond the loosened standards on down payments, the FHA remains willing to make loans to people with low credit ratings, even those with histories of default, foreclosure or bankruptcy. Those with histories of default are far more likely to default again.
Naturally, anything this horrendous in housing-finance policy has a high probability of being backed by Representative Barney Frank and his congressional partners in crime, who continue to conspire with the”affordable housing” coalition as if the present debacle had not plainly revealed the destructive consequences of such policies. At present, 14.4 percent of residential mortgages are delinquent or in foreclosure – an all-time high – and the percentage continues to rise, notwithstanding the government’s commitment of some $50 billion in TARP funds for its Housing Affordability Stability Plan, which seeks to modify and refinance home loans. In this area, as in the labor market, things will probably get much worse before they begin to get better.
To listen to our glorious leaders discuss such matters is to realize that they have no real understanding of what they are dealing with. They see the collapse of an artificially stimulated house-construction industry, and they conclude: the government must subsidize more house construction. They see the collapse of real estate prices, and they conclude: the government must stimulate demand for real estate in order to raise its price. Thus, they demonstrate that they have no comprehension of the structural logic of economic activity. By this expression I mean that, contrary to the way of thinking advocated and formalized in modern macroeconomics, in which an addition to GDP is an addition to GDP, and all such additions are equally apt and good, the sound economist understands that the nation’s economic activity consists of millions of distinct inputs and outputs, and these elements must assume a particular configuration, or structure, if the whole process is to achieve generally beneficial results for its participants.
No one knows (and no one can know) precisely what this structure should be at any particular time, but if people are left alone to exchange their private property rights as they think best, they will make bids and offers that establish market prices for inputs and outputs, and these prices (and the profits and losses associated with them) will set in motion the reallocations of inputs and the alterations of outputs that allow demanders and suppliers to coordinate the changes in their actions that must be made if they are to pursue their objectives successfully. If policy makers ignore or work against this vastly complex, dynamic process of constantly changing prices, input uses, and output production, the result will be a mass of malinvestments and distortions in input use and output production — a veritable economic monstrosity.
When this twisted creation proves incapable of living and breathing and breaks down in agonizing spasms of business losses, bankruptcies, and unemployed labor, the preeminent need is for a restructuring of the economic process: industries and locations mistakenly stimulated by bad policies must shrink; and industries and locations previously starved for inputs must receive them, as investors and workers abandon the enterprises now revealed as losers and seek opportunities elsewhere for more profitable employment of their resources. Cutting short this process of liquidation and redirection by implementing more of the same distortive policies that created the mess in the first place only insures that the restructuring will take longer and be more painful.
To be more specific about the case at hand, the government’s bad monetary policy and bad housing-finance policies earlier in this decade created house prices that were too high and securities based on the returns to mortgage loans (and their derivatives) that were overvalued. To repair this situation, house prices, security valuations, and corporate share prices driven skyward in the government-stimulated frenzy need to come down, in many cases down so far that bankruptcies, unemployment, and substantially reduced wages will occur in the process. Simply piling on more and more of the same distortive policies that generated the crisis in the first place can, at best, only delay the day of reckoning while magnifying the adjustments that ultimately will have to occur. For Fannie, Freddie, and the FHA to pile more bad real estate loans atop the mountain of such bad loans extended between 2002 and 2006 is the height of folly, a virtual apotheosis of a policy of living for today at the expense of our future prosperity.
To repeat unsolicited advice I have given since the beginning of this crisis, I maintain that the best thing the government can do now is to get out of the way: abandon the bad monetary and housing-finance policies conducted in recent years and let the economic process sort itself out through market processes. The claim that without the government’s vast interventions the economy will sink into oblivion is nothing but another fallacy that no sound economist will countenance. This economy and others, when markets were allowed to function without government interference, worked splendidly for a long time before John Maynard Keynes ever achieved his ill-deserved status as the über-architect of macroeconomic salvation. It can work well again if the politicians will stand down – and the people will recognize the wisdom of this laissez-faire course and cease their clamor for salvation via Washington at someone else’s expense.
Aeon J. Skoble
"We explore the conjecture, first hinted at by Peter Minowitz, that Smith deliberately placed his central idea, as represented by the phrase “led by an invisible hand,” at the physical center of his masterworks. The four most significant points developed are as follows: (1) The expression “led by an invisible hand” occurs pretty much dead center of the 1st and 2nd editions of Wealth of Nations, and of the final edition of the volumes containing Theory of Moral Sentiments. (2) The expression in WN drifted only a bit from the center, only about 5 percent from the center in the final edition (and even less if the index is excluded). (3) The rhetoric lectures show that Smith not only was conscious of deliberate placement of potent words at the center, but thought it significant enough to remark on to his pupils, noting that Thucydides “often expresses all that he labours so much in a word or two, sometimes placed in the middle of the narration.” (4) There are numerous and rich ways in which centrality and middle-ness hold special and positive significance in Smith’s thought."
David T. Beito
Those who argue that there would be a significant change for the worse are ignored, ridiculed, and labeled as enemies of the state, especially when they point out that a decrease in the accessibility of care would result in an increase in the mortality rate, after all the government would never kill anyone. An overwhelming amount of publicity highlighted a study which claimed that the American system of private insurance led to an extra 45,000 deaths per annum. However, a British report,which argued that the state controlled system in place there caused 17,000 unnecessary fatalities each year in that much smaller country, received very little attention from our biased media. It is essential to determine the creditability of each assertion.
In the article on the American research linked to above they describe the inquiry’s methodology this way: “The researchers examined government health surveys from more than 9,000 people aged 17 to 64, taken from 1986-1994, and then followed up through 2000. They determined that the uninsured have a 40 percent higher risk of death than those with private health insurance as a result of being unable to obtain necessary medical care. The researchers then extrapolated the results to census data from 2005 and calculated there were 44,789 deaths associated with lack of health insurance.” Now, if this description is complete there are two very obvious serious problems with this research. First there does not seem to be consideration of the fact that those without insurance are going have as a group less financial resources and it is a well documented fact that being poor includes all kinds of negative consequences, such as worse food, for ones health that have nothing to do with access to medical care. Many of their deaths can be attributed to factors other than lack of coverage. Secondly, the uninsured includes persons with medical savings accounts, income enough to pay for care themselves, and brother in laws who are doctors they do not have insurance but they have access to medical services. Their deaths can not be attributed to lack of health care but it seems in this analysis they are.
The British data pointing to government caused casualties is more in line with the truth because we can already see the mechanism at work here in America. The U.S. Preventative Services Task Force has just recommended that women wait until they are fifty years old before beginning yearly mammograms. This new pronouncement supersedes the government’s old advice that these procedures start when women turn forty. This latest guideline will result in two things, the overall cost of medical care will significantly decrease while the number of women who die of breast cancer will increase.
This afternoon I heard a telephone interview on CNN with one of the members of the panel who asserted that monetary expense played no role in the determination that women wait until fifty before being tested. I find this extremely difficult to believe since both conclusions were reached with the same data set. The only thing that changed between the earlier finding and this latest one is that financial burden of health care has become of intense concern.
The government has always been willing to trade lives for money, why do you think that in the beginning our soldiers were riding around Iraq in vehicles with no armor on the bottom? With the incredibly sorry state of our economy and its prospects the pressure to make this exchange in the medical field will be irresistible.
David T. Beito
Jane S. Shaw