Another Twin Spin
I have begun blogging at the Campaign for Liberty website, which is home to some serious Ron Paul fans. My inaugural post is on “Misunderstanding the Causes of the Great Depression.” An excerpt:
A relatively free market can handle huge disruptions. E.g. if an asteroid smashed into Chicago in 1929, that might have caused a sharp economic downturn too, but it wouldn’t have caused double digit unemployment 10 years later.
So what did cause the severity and length of the Great Depression? The New Deal.…
The New Deal represented the most comprehensive “war on depression” ever waged by the US government. And, just like the War on Drugs and the War on Terror(ism), the war on depression waged by FDR gave us the worst depression in US history.
All of the “unprecedented” measures that have been taken in the last 14 months are making things worse. Suppose Bernanke and Paulson had announced in September 2007, “Yep, a bunch of banks made goofy loans to unqualified applicants, and a bunch of whiz kids on Wall Street bundled them together with fancy models that, in retrospect, were totally wrong in their estimates of massive defaults. We feel your pain, fellas, but this is America where we have a profit and loss system. If you had been right, you would have kept your profits, and since you were wrong, you go belly up. Better luck next time.”
That tough love would have been painful. Plenty of investment banks would have folded. The stock market would have tanked. The dollar would have gotten hammered in the foreign exchanges. But, on the bright side, major firms would have written off their multibillion dollar losses, capital would have been rearranged in light of the new information, and then economic growth would have resumed. There would have been a recession, but there have been lots of recessions over the years. Life would have gone on.
Instead of that, though, Bernanke and Paulson decided they were going to somehow magically erase all of the mistakes that bankers and investors made from 2001 to 2007. They were going to prevent a recession.
Guess what? All of the negative consequences (folding investment banks, tanking stock market, falling dollar) happened anyway. Recession, though postponed, is still coming.
Also, I have an article on oil in this month’s Freeman. Notwithstanding my usual self-centered focus, I have linked to the table of contents of the issue, because it’s a really good one. But here is an excerpt from my contribution (with a certain part put in bold to satisfy my frequent critic, TokyoTom):
Here we run into yet another nonsensical aspect of the official story from Big Oil’s critics. Let’s suppose for the sake of argument that the accusations are correct and that opening up ANWR and other federal lands wouldn’t lead to more drilling. Then what in the world is stopping the politicians from accepting the oil companies’ money? In these hard times, why not take billions from ExxonMobil and all the rest? If they don’t end up drilling—as the harshest critics allege—then people in Alaska, Florida, and California don’t need to worry about their coastlines being soaked in crude spills, now do they?
Things get worse. It’s not merely that the conspiracy-charging politicians deny companies access to federal lands that have the potential of major oil and gas discoveries. They want to swing the pendulum in the other direction with so-called “Use It or Lose It” legislation, which would penalize energy companies that lease federal land if they don’t begin producing within a specified time.
Putting aside the arrogance of politicians telling oil-industry experts how to run their businesses, such legislation would merely present an additional risk to domestic exploration efforts. As it is, an oil company runs the risk of paying to lease a certain area and finding nothing. The proposed legislation would increase the hazards, causing companies to become more conservative in where they explore.
This sorry episode underscores the flaws with government ownership of land. There are legitimate concerns over environmental quality, just as there are obvious concerns over high gasoline prices. But the political process is a terrible way to settle disputes. If the federal government auctioned off its massive landholdings to the private sector, oil companies and conservation groups alike could make bids and channel resources into appropriate ends, guided by the price system.
As it is, we have the worst of both worlds, where valuable oil and natural-gas deposits are arbitrarily placed off-limits and where oil companies are given rights to develop in certain areas without local owners exercising oversight to ensure that the mineral extraction occurs with the appropriate level of attention to long-run resource and environmental value. The “use it or lose it” mentality already prevails when politicians sell access rights to the vast lands they temporarily control—though economists know that this mentality is conducive to economically inefficient exploitation, rather than the wise husbandry that would develop under truly private ownership.
