24 Sep 2008

"Free Market" Bush and Paulson Discredit Free Market

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The leftists have not missed the irony in the latest power grabs by Paulson & Friends. This is why it’s so annoying when mainstream Republicans run on a “small government” message and then do the opposite in office. From the article:

Of course, the ironies and the potential pitfalls of this administration enacting a socialist takeover can hardly be overstated. This is the political party that for decades has insisted on deregulation and free markets, has scolded Hugo Chavez for nationalizing the oil industry, and even now is attempting to tar and feather Barack Obama with the label of socialist. But if this bill is enacted at its advertised $700 billion price tag—and many people believe the price will ultimately prove higher—it means that the Bush administration has undertaken the single largest socialist investment in the history of mankind. The Bolshevik revolution of 1917 couldn’t dream of an economy worth $700 billion; the figure dwarfs anything ever attempted by Fidel Castro or the Sandinistas.

Focusing on ironies and hypocrisy is fun, but Paulson’s socialist prescription actually provides a rare opportunity to advance the state of American political and economic debate. During the Cold War, socialism became an especially unsavory idea because it was linked to the countries that pointed missiles at us. This was less the case in Europe, where democratic socialism grew to become the norm, with sometimes rocky but mostly successful results (you don’t see the Spanish having to take over their banking sector, at least not yet). Paulson’s relatively untainted socialism offers America a genuine Nixon-goes-to-China moment, a chance to have a more honest, less demonizing conversation about where, when, and how government intervention in the economy is effective and desirable.

I have been resisting the easy urge to label George Bush as “the worst president in US history,” as some of my exasperated colleagues have done. Partly I resisted because I knew that FDR expanded government more than Bush.

However, at least FDR had the decency not to label himself as a believer in laissez-faire.*

* I know that during his campaign against Hoover, FDR criticized Hoover’s reckless deficit spending, while Hoover talked about his unprecedented interventions against the advice of the crusty economists. But I’m assuming FDR wasn’t the economic “conservative” in his campaigns the way Bush allegedly was.

24 Sep 2008

Warren Buffett Invests $5 Billion in Goldman Sachs

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Warren Buffett apparently is a Free Advice reader. He has decided to invest $5 billion in Goldman Sachs, no doubt after reading my earlier blog post which contained the following analysis:

I heard a guy say on CNBC that it was crucial to save Goldman Sachs because it is a symbol of capitalism around the world. So that means no matter what, the Goldman shareholders know that they can’t possibly go bankrupt or even get bought out, especially by a foreign buyer. They are untouchable now.

23 Sep 2008

SEC Adds to the (Long) Short List, But Allows Firms to Opt Out

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The SEC added another 40 stocks to its “no short” list, but at least it is allowing firms to take themselves off the list:

Meanwhile, two companies JMP Group [JMP]…the parent of JMP Securities, and Diamond Hill Investments [DHIL]…have been removed from the list.

This is great. A libertarian writer (I want to say Boaz but not sure!) once discussed the idea of allowing vendors to sell things marked “UNREGULATED.” I.e. all of the government’s purity laws etc. would be the default, and only if a manufacturer clearly labeled something as unregulated, would those liability laws etc. not apply.

I am really curious to watch this play out. In the beginning it might just be a few purist firms who opt out–and our partner in exposing crime, Robert Wenzel, tells me that Diamond Hill did it for philosophical reasons as much as pragmatic ones. But if this trend picks up, then choosing to remain on the list will come more and more to be seen as an admission of weakness.

23 Sep 2008

Democrats Let Offshore Drilling Ban Expire!!

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This just came out Tuesday night: Congressional Democrats have decided to pick their battles, and will allow the congressional moratorium on offshore drilling to expire with the fiscal year at the end of September. (The Gang of 10 and then Speaker Pelosi’s bill, which passed the House last week, were all measures to reinstate a large portion of the expiring ban.)

Well this is very exciting but also nerve-wracking. In many articles I have been saying things like, “If the Democrats let the ban expire tomorrow, we would see a significant drop in oil prices.”

Now in truth, I can always cover myself (if I were a weasel) by saying that the markets expect them to reinstate the ban in a few months, and so there’s no real stimulus given to offshore production.

But I promise I won’t take that route out. If oil prices do not respond quite clearly to this surprise announcement, then I will admit I was wrong.

23 Sep 2008

Wall Street Apologist Chadwick Latches on to Austrian Business Cycle Theory

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At first I was really excited by this article linked from CNBC’s main page. The writer, founder of Ravengate Partners, early on sounds like Rothbard:

There is a long trail to the current financial crisis. Listening to our Government leaders blaming Wall Street greed for the entire debacle begs a response. The Government itself is an accessory before the fact to the state of affairs we find ourselves in today. Let’s review:

In the beginning – there were bad lending practices. And they are at the core of this extraordinary mess.

What was at the heart of the bad lending practices? The Federal Government!! Under both the Clinton and Bush administrations, it was government policy to encourage the private sector to ease underwriting standards in order to expand housing ownership in the U.S. The Federal Reserve under Alan Greenspan was an enabler in that development, by employing a monetary policy that kept interest rates exceedingly low, to the benefit of mortgage seekers. So lay blame on the US Government for bad policy.

But then she–and yes the founder of Ravengate Partners is a “she,” did you assume I was criticizing a man this whole time?–proceeds to blame everybody else outside her industry in very broad strokes. But when it comes to her industry, she concedes that “SOME (not all) Wall Street firms” (her caps) contributed to the current crisis.

In the grand scheme, I don’t think it even makes sense to ask what Patricia Chadwick thinks about Austrian Business Cycle Theory. But I guess it’s still a good sign that ABCT is now credible enough to make it into someone’s talking points.

UPDATE: When I first read the article above, I didn’t understand this line: “So lay blame on Wall Street for [w]recklessness.” (It is in bold and ends one of the paragraphs.)

I think I get it now: In her original submission, she had called for blaming Wall Street for “wrecklessness,” and then a CNBC editor contained the “w.” Does that strike anyone else as ironic? It has so many meanings…

23 Sep 2008

Frederic Mishkin, Standup Comedian

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A CNBC article had the headline: “Top Economist Mishkin: Worse Than the Depression” so I clicked on it. The piece contained two hilarious one-liners:

Economics scholar and former Federal Reserve Governor Frederic Mishkin says the shock that continues to rip through the nation’s economy is actually worse than what was felt during the Great Depression.

“The difference is, we have people on the ball,” the Columbia University professor told CNBC.

“We have Hank Paulson, who understands what Wall Street is all about, and in fact the dangers that are lurking there…” Mishkin said.

(Note that Mishkin probably didn’t intend for these quotes to generate mirth.)

23 Sep 2008

Politicians, Not Ike, Causing the Return of Gas Lines

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I explain in this IER piece. What tipped me over the edge on writing this up is that the absurdity struck us here in Nashville. It’s crazy; there are lines of 20 cars out into the street at busy parts of the day. The pastor at church even worked in gas shortage jokes into his sermon. An excerpt (from the article, not the sermon):

At artificially low prices, consumers want to buy more gallons of gasoline than producers want to sell. Specifically, what happened in this case is that wholesale prices spiked, eating away the profit margin of independent retailers. Because anti-price gouging laws forbade them from raising their own prices just as sharply, some retailers decided it was better to shut down, rather than lose money with every gallon they sell.

22 Sep 2008

Bailing Into Commodities: How the Wall Street Bailout Raises Energy Prices

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I explain in this IER blog post.