Liberty vs. Leviathan

Chronicling Liberty's battle against Leviathan

Fixed

Despite the fact that the fix has been in since the days of FDR, Bernanke’s press conference this week is a sure sign that Keynes is on the ropes.

And just in case you missed EconStories‘ “Fear the Boom and Bust” from last year…

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Confirmation

To all my pro-life, tea party, conservative friends:

If there’s any doubt that the GOP establishment takes your energy, concern and vote for granted, look no further than this SPIEGEL Interview with Karl Rove for confirmation.  He makes clear that pro-lifers and liberty minded conservatives are his lessers and fully expects them to be co-opted and to toe the party line.

SPIEGEL: Are you convinced, then, that the Republican Party will be able to integrate the Tea Party without drifting too far to the right?

Rove: Sure. There have been movements like this before — the Civil Rights movement, the anti-war movement, the pro-life movement, the Second Amendment rights movement. All of them popped up, insistent, loud, and relatively unsophisticated. They wanted everything now and for politicians to be with them 100 percent of the time. And after an election or two, people wake up saying, our system produces mostly incremental progress and takes time and compromise. That’s exactly what’s going to happen here. I meet a lot of Tea Partiers as I go around the country, and they are amazing people. Most have never been involved in politics before. This is their first experience, and they have the enthusiasm of people who have never done it before.

SPIEGEL: Is the Tea Party movement a repeat of the Reagan Revolution?

Rove: It’s a little bit different because the Reagan Revolution was driven a lot by the persona of one man, Ronald Reagan, who had an optimistic and sunny view of what the nation could be. It was also a well-organized, coherent, ideologically motivated and conservative revolution. If you look underneath the surface of the Tea Party movement, on the other hand, you will find that it is not sophisticated. It’s not like these people have read the economist Friedrich August von Hayek. Rather, these are people who are deeply concerned about what they see happening to their country, particularly when it comes to spending, deficits, debt and health care.  (Emphasis added.)

Mr. Rove needs to know that people have and still do read Hayek.  Proving you don’t have to be “sophisticated” to appreciate Hayek, it was my first reading of The Road to Serfdom fifteen years ago that opened my eyes to the true nature of politics and, as Walter Williams said about Bastiat, “created order in my thinking about liberty”.  Reading Bastiat‘s The Law brought even more clarity.

To echo Taking Hayek Seriously, Rove is the first person I’ve ever heard to refer to Hayek as Freidrich August von Hayek. Maybe it’s Rove who has never read him.

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Jobs

Once again the major parties have supplied ample evidence that Hayek was right when he explained “Why The Worst Get On Top” in his classic The Road to Serfdom.  In “Sorry, Mayor, you’re in sales not job creation“, Manny Lopez of the Detroit News calls out Michigan Democrats’ worst, gubernatorial candidate Virg Bernero, for his claim that he has created, and will continue to create, jobs.  Pointing out that Virg, like all politicians, doesn’t create jobs with his own capital but rather buys jobs with our money.

Recruiting a company to a city or state is not actually creating any jobs. It’s closing a sale using tax dollars to lure a company that then results in jobs, but it’s nothing like putting your own money on the line and hiring someone.

If Symmetry Medical later leaves Lansing, it will be bad for the city and damaging to the economy and to the families affected, but the mayor’s salary and job are secure. He’ll move on to the next company with your tax dollars in hand to try and find a substitute.

If that requires digging deeper into your pockets for more tax incentives instead of fixing the structural problem that exists, or hurting an existing business by offering perks to new businesses but not the ones that have been longstanding supporters of the community, so be it.

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Prize and Pretence

I can’t help myself so back just for a moment.

Granted, the president can’t help that he won.  Granted, his prize is the Nobel Peace Prize, not the Prize in Economics.  And, granted, under the circumstances, he handled the situation well.  Here’s hoping though,  he’ll use this occasion to learn about past recipients of the Nobel prize and take to heart Friedrich A. Hayek’s lecture, The “Pretence of Knowledge”, and his acceptance speech, delivered, almost 35 years ago, upon his receipt of the 1974 Nobel Prize in Economics.

An expressed apprehension from his acceptance speech:

…is that the Nobel Prize [in Economics] confers on an individual an authority which in economics no man ought to possess.

This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence.

But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally.

And a few nuggets from his lecture:

…I confess that I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false…

…In fact, in the case discussed, the very measures which the dominant “macroeconomic” theory has recommended as a remedy for unemployment — namely, the increase of aggregate demand — have become a cause of a very extensive misallocation of resources which is likely to make later large-scale unemployment inevitable. The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labor and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate — or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganization of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from reappearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation, but because it is now bound to occur as a deeply regrettable but inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate…

…To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.

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Mises on the bust

I started reading Socialism by Ludwig von Mises this past spring and am almost finished.   Tonight I came across a passage that’s just too good not to share in its entirety.  Note how prescient Mises was.  Socialism was first published in 1922 so he’s writing sometime before then.  The current ill health of the US economy and how it came to be so gives testimony to the accuracy of his analysis.

First, this from the Introduction by F.A. Hayek, a veteran of WWI as Mises and Röpke were.

Socialism promised to fulfill our hopes for a more rational, more just world.  And then came this book.  Our hopes were dashed.  “Socialism” told us that we had been looking for improvement in the wrong direction.

Now this from a section on inflation.  In the broader discussion Mises is discussing the methods of destructionism, the inevitable destruction of capital that occurs as socialist policies are pursued.  Inflation is but one of the policies.  As you read, think in terms of the decades since the end of WWII, not just the last couple of years.  Think not only of real estate bubbles but of the seventies, Greenspan, dot com bubbles and Y2K bubbles.  (All emphasis is added.)

Inflation is the last word in destructionism. The Bolshevists, with their inimitable gift for rationalizing their resentments and interpreting defeats as victories, have represented their financial policy as an effort to abolish Capitalism by destroying the institution of money. But although inflation does indeed destroy Capitalism, it does not do away with private property. It effects great changes of fortune and income, it destroys the whole finely organized mechanism of production based on division of labour, it can cause a relapse into an economy without trade if the use of metal money or at least of barter trade is not maintained. But it cannot create anything, not even a socialist order of society.

By destroying the basis of reckoning values—the possibility of calculating with a general denominator of prices which, for short periods at least, does not fluctuate too wildly—inflation shakes the system of calculations in terms of money, the most important aid to economic action which thought has evolved. As long as it is kept within certain limits, inflation is an excellent psychological support of an economic policy which lives on the consumption of capital. In the usual, and indeed the only possible, kind of capitalist book-keeping, inflation creates an illusion of profit where in reality there are only losses. As people start off from the nominal sum of the erstwhile cost price, they allow too little for depreciation on fixed capital, and since they take into account the apparent increases in the value of circulating capital as if these increases were real increases of value, they show profits where accounts in a stable currency would reveal losses.[19] This is certainly not a means of abolishing the effects of an evil etatistic policy, of war and revolution; it merely hides them from the eye of the multitude. People talk of profits, they think they are living in a period of economic progress, and finally they even applaud the wise policy which apparently makes everyone richer.

But the moment inflation passes a certain point the picture changes. It begins to promote destructionism, not merely indirectly by disguising the effects of destructionist policy; it becomes in itself one of the most important tools of destructionism. It leads everyone to consume his fortune; it discourages saving, and thereby prevents the formation of fresh capital. It encourages the confiscatory policy of taxation. The depreciation of money raises the monetary expression of commodity values and this, reacting on the book values of changes in capital—which the tax administration regards as increases in income and capital—becomes a new legal justification for confiscation of part of the owners’ fortune. References to the apparently high profits which entrepreneurs can be shown to be making, on a calculation assuming that the value of money remains stable, offers an excellent means of stimulating popular frenzy. In this way, one can easily represent all entrepreneurial activity as profiteering, swindling, and parasitism. And the chaos which follows, the money system collapsing under the avalanche of continuous issues of additional notes, gives a favourable opportunity for completing the work of destruction.

The destructionist policy of interventionism and Socialism has plunged the world into great misery. Politicians are helpless in the face of the crisis they have conjured up. They cannot recommend any way out except more inflation or, as they call it now, reflation. Economic life is to be “cranked up again” by new bank credits (that is, by additional “circulation” credit) as the moderates demand, or by the issue of fresh government paper money, which is the more radical programme.

But increases in the quantity of money and fiduciary media will not enrich the world or build up what destructionism has torn down. Expansion of credit does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must land the nation in profounder catastrophe. For the damage such methods inflict on national well-being is all the heavier, the longer people have managed to deceive themselves with the illusion of prosperity which the continuous creation of credit has conjured up.

Remember, this was Mises published in 1922, not Paul from the 2008 primary season.

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FEE is back

Last month on September 1, Lawrence Reed started as the new president of the Foundation for Economic Education (FEE). Already, changes can be seen at the FEE home page with links to Freeman articles, online books and even a copy of correspondence between Henry Hazlitt and F.A. Hayek.

Surely, this bodes well for FEE. Reed’s reputation and track record as a defender of liberty and the free market are excellent. He’s a prolific writer, (and here) engaging speaker and has a positive outlook on the future for freedom. Take some time this week to get acquainted with what FEE has to offer and welcome the new president to the helm.

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Express Lane to Serfdom

I’m out of time this morning, be sure to go to The Western Confucian and read the article linked from his post on Hayek.

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