The Brothers Austrian

Has anyone ever noticed that rarely do you ever hear or see Ron Paul’s testimony either on Bloomberg or CNBC? Especially recently? Is it possible that the establishment wants to keep him quiet and out of public sight as much as possible? Am I being too much of a conspiracy theorist to think that the establishment sees Ron Paul as dangerous? Here is a statement by Ron Paul to Congress back in 2002:

Though the Federal Reserve policy harms the average American, it benefits those in a position to take advantage of the cycles in monetary policy. The main beneficiaries are those who receive access to artificially inflated money and/or credit before the inflationary effects of the policy impact the entire economy. Federal Reserve policies also benefit big spending politicians who use the inflated currency created by the Fed to hide the true costs of the welfare-warfare state. It is time for Congress to put the interests of the American people ahead of the special interests and their own appetite for big government.

Abolishing the Federal Reserve will allow Congress to reassert its constitutional authority over monetary policy. The United States Constitution grants to Congress the authority to coin money and regulate the value of the currency. The Constitution does not give Congress the authority to delegate control over monetary policy to a central bank. Furthermore, the Constitution certainly does not empower the federal government to erode the American standard of living via an inflationary monetary policy.

In fact, Congress’ constitutional mandate regarding monetary policy should only permit currency backed by stable commodities such as silver and gold to be used as legal tender. Therefore, abolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation’s founders: one where the value of money is consistent because it is tied to a commodity such as gold.  Such a monetary system is the basis of a true free-market economy.

In conclusion, Mr. Speaker, I urge my colleagues to stand up for working Americans by putting an end to the manipulation of the money supply which erodes Americans’ standard of living, enlarges big government, and enriches well-connected elites, by cosponsoring my legislation to abolish the Federal Reserve.

In the Case Against the Fed, Rothbard warns against the dangers of the fractional banking system. He cautions that fractional banking is legalized embezzlement a ponzi scheme. Banks take your deposits and loan them to other people, thus creating money that they don’t have, with money that isn’t theirs. Essentially every bank that practices  fractional reserve banking is insolvent.  The scheme will eventually be exposed by those that start to understand the fraudulent activity that banks are taking part in when they go to redeem their money and cannot get it back upon demand.

I believe that Ron Paul is seen as menace to this scheme. That perhaps people know that his opinions are given credence by the media and that perhaps the bank runs that Rothbard warns are inevitable will be touched off.   General Electric CNBC as well as other channels, fearing the anarchy that would be created in the wake of bank runs, decide to not give him the prime time that other congressmen get.

Wendall Wilkie Federal Reserve, Politics cnbc, congress, congressmen, fractional reserve banking, media, ron paul, rothbard

Farm subsidies are one of the grossest misallocations of resources perpetrated by the US government.  For all of the things the Obama budget gets totally wrong, this one he got right (sort of).  Obama’s recently submitted budget will eliminate farm subsidies to those farmers making over $500,000 per year (hence the sort of, not a total victory for free trade).  This is a huge step and one that no president dare take until now.  Already this action has stepped on the toes of Congress, as representatives have already come out to reassure their lobbyists constituents that the farm subsidies in place for this year will remain.

Most estimates place the value of subsidies at 22 percent of all US farm production.  That’s a staggering figure.  Over one-fifth of all value created by US farms is pure government subsidy.  Many believe that this money is going to poor and struggling yeoman farmers.  Not so.  First, farmers as a class are not poor.  The government itself puts the average farm income nearly 30 percent higher than the average American household.  Moreover, the average farmer has a net income nearly 8 times the average American (nearly $1 million).

According to the Organization for Economic Co-operation and Development, farm subsidies end up being a food tax on the average American household of $146 per year.  That’s a hefty tax whose buden falls heaviest on the working poor.  The worst offender is probably sugar.  Sugar subsidies, at times, have caused Americans to pay double the world market price.  Currently the average world spot price is around $.14/pound.  US subsidies guarantee American sugar producers a minimum of $.23/pound.

Will there be a hang over for the farmers coming off subsidies?  You bet.  When any good is subsidized that heavily, it incentivizes the overproduction of said good.  When these subsidies end, the will no longer be any floor holding the price up and will demonstrate just how poorly those resources were allocated.  Farmers need to immediate see the change coming and reallocate resources toward profitable ventures.  This may mean a variety of innovative changes or simply diversifying land use and cutting costs.

At the end of the day, though, this is a huge victory for liberty.  I understand that a good chunk of subsidies will still exist, but in this one small arena, we’ve achieved a victory for liberty in this country.

Teacherman Free trade, Government Spending, Interventionism budget, cotton, farm subsidies, misallocation, obama, resources, sugar

Say you want to buy a house, town home, or condo right now, should you?  For all the ‘benefits’ of purchasing real estate right now, buyers are walking into a virtual unknown.

The problem is that our federal government, in trying to ’save’, the housing industry, has actually perpetuated its decline: the new stimulus package is offering an $8,000 tax credit for home purchases this year; the Federal Reserve is artificially keeping interest rates low; Obama’s housing plan wants to help homeowners drowning in bad mortgages.  You get the point.

The problem is that for someone relatively young without any real ‘roots’ purchasing a home right now is incredibly risky.  I may decide to get up and move in the next three to five years.  So each of these so called government ’saving graces’ is injecting a big dose of the unknown into my plans.  Let’s say government sells me on buying a new home.  Then, a year after I purchase, the government removes the floor and my property value instantly drops to the corrective market price.  All the government has done is punish me, the good American, who is doing his best to save the economy.

Get out there and spend, right?

Better idea: Government, give us a chance to buy, let the market correct, flush out the misallocated resources, and move on.

Teacherman Real Estate condo, Federal Reserve, misallocated resources, mortgages, property, Real Estate, stimulus, tax credit

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. “Thomas Jefferson: 3rd president of US (1743 – 1826)

Wendall Wilkie History, Interventionism, Uncategorized banking, danger, Thomas Jefferson

Every morning my Blackberry starts blowing up at about 5:45 am with overnight headlines and every morning I feel like I am having a continual nightmare. Luckily I usually don’t have any actual nightmares while my body enjoys the the peace and quiet that is known as REM.

This mornings nightmare listed below.

US stocks sink to lowest since 1997

Feb 23 2009 22:00

US stocks hit their lowest level since 1997 as investors took scant comfort from the prospect that Washington would increase stakes in key lenders without nationalising the institutions outright

Read more >>

http://link.ft.com/r/M2ZOXX/JOUL7/102FY/AN6Z9/V4WAM/AZ/t

AIG wants new loan terms, again. Sources say AIG (AIG) is looking to overhaul its $150B government bailout to reduce its financial burden, and in the process would further expose taxpayers to the troubled insurer’s balance sheet. The new plan would have $60B of the government’s loan repaid with a combination of debt, equity, cash and operating businesses (The Wall St. Breakfast).

Hedge funds face off on more regulation. One of the world’s largest hedge fund groups is ready to propose new measures that would push money managers to open up their businesses. The Alternative Investment Management Association, a U.K. group with members in the U.S. and many other countries, could release a proposal as early as today suggesting hedge fund managers take such steps as registering with regulators and having regular contact with authorities about their businesses.

UBS casts a long cloud over bourses

Feb 23 2009 23:46

UBS fell sharply on Monday as questions continued to be raised over the long-term future of Swiss private banking

Read more >>

http://link.ft.com/r/M2ZOXX/JOUL7/102FY/AN6Z9/2EQX4/AZ/t

Japan’s buyer of last resort

Government mulls share-buying spree.

Email when ready

http://link.ft.com/r/EB8122/S5O6Z/QPLX2/DU0MK/1IEXM/6C/t?a1=QPLX2

Wendall Wilkie Stock Market

Rick Santelli’s recent tirade on CNBC has blown up the blogosphere.

Rick understands that we have to bite the bullet here. Price fixing does not work and it has been proven over and over again throughout history. Unfortunately our Harvard/Yale educated leaders are not listening. They merely following the Keynsian plan of attack that they were taught to use as mean to smooth out recessions, a school of thought that has been ingrained into their heads via their high priced ivy league educations.

I believe Rick a is very disturbed by the way he came off in this legendary interview. Rick does not believe that the people in houses, that they can’t afford, are actually “losers”. Rick’s impassioned comments are rooted in his love of love laissez faire economics, and his rejection socialism. Rick is guy on CNBC that is constantly under attack on CNBC because economic view point seems to hail more from the Austrian School than the Keynsian School, which dominates the media and our government.

Good luck at the White House Rick.

Wendall Wilkie Interventionism obama, Rick Santelli

“Often the masses are plundered and do not know it.”

Ah, yes, nary a week should go by without hearing from our good friend Frederic Bastiat.  The French economist, who died too early and too soon after his emergence as a economist.  Bastiat died at the age of 49, only six years after truly finding economics, as a theoretical study, at the age of 44 (thanks Wikipedia!). In that time Bastiat published some real economic gems.  This from his Selected Essays on Political Economy:

“But what relief can the landless find in the proclamation of the right to employment? In what respect will this new right increase the amount of food or the number of jobs available to the masses? Is not all capital employed in giving them work? Will it increase by passing through the public treasury? By taking it away through taxation, does not the state close at least as many sources of employment on one side as it opens on another?”

Fast forward to today and we face a similar, but different problem for the masses.  In all of their zeal to get reelected save the economy, the government spending trillions of dollars.  Some of these ’stimulus projects’ will help select portions of the masses, but in the end, the only real stimulus will be in the green ink industry.  What will the masses be left with?  At the very best significant inflation, at the very worst hyperinflation.  Inflation always falls upon the masses the hardest.  And thus, the masses are being plundered without even knowing about it.

Teacherman Government Spending, Inflation, Politics economist, employment, frederic bastiat, hyperinflation, Inflation, masses, political economy

A recent Time article quoted an Iranian as saying the difference between the Republicans and the Democrats is like the difference between Pepsi and Coke. When it comes to economic policy I could not agree more.

CHANGE is here right? Wrong! Since 1896 the Keynesian viewpoints began to overwhelm capitalism.

(I know some of you are chomping at the bits to say that such an assumption cannot possibly be true being that Keynes would have been 13 in 1896. What I am referring to is the emergence of interventionist policy that started to take hold in during the banking crisis in the late 19th century.  To me Keynes merely gets credit for the wave interventionist monetary policy which came to a perverse apex during the great depression).

FDR, Obama and Kennedy all attended Harvard. H.W Bush, Clinton, G.W Bush all attended Yale. The same schools produce the MBA students that litter the ranks of Goldman Sachs. Under Bush the there was Paulson (Goldman Sachs). Under Obama there was/is Rubin (Citi), and Larry Summers who head Obama’s economic council. Current Treasury Secretary Geithner (Dartmouth) worked under Rubin and Summers from 1999 to 2000. Change?

Whats my point? All of these people come from the Keynesian school of thought. We can spend you way out of this thing.  We can do it if we try, we can do it. Hey, it worked in Great Depression…right? It worked for the Japanese, right?

Former Treasury Secretary O’Neill made the following comments to the LA Times.

“Doesn’t this seem like lunacy to you?” said O’Neill, who was President Bush’s first Treasury chief, from 2001 to 2002, in a telephone interview today. “The consequences of it are unbelievably bad in terms of public intrusion into the private sector.”

… “Is anybody thinking there?” asked O’Neill, who also served as deputy budget director in the Ford administration. “It’s too late, it’s not going to make any difference and it’s aggravating as hell when there’s a better idea and you can’t even get it in play,” he said, recognizing little success so far in pitching his own proposal.

I suppose it come down to what was repeatedly preached by Mises. Governments pick the winners and the losers. In the modern era the history books were written by FDR’s Keynsians that graduated from Ivy league schools. They are the ones picking the winners. They are a best and our brightest, right? My gripe is that they all tend to come from the same school of the thought. They leave no room for the entrepreneur to pave his own way.

Obama Pepsi, Bush Coke…when can we have a little Sprite?

Wendall Wilkie Interventionism, Politics Change, dartmouth, Economics, government, harvard, Keynes, keynesian, mises, obama, yale

I’m currently teaching President McKinley in class.  You probably know the story of McKinley and Bryan in the elections of 1896 and 1900.  I have to admit, I was somewhat disappointed to see McKinley end up at #16 on the recent survey of presidential leadership.  Not that I put much stock in this type of survey, but to see McKinley below the likes of Monroe and Polk is a tad aggravating.

I cannot say I am a total fan of McKinley politically, after all, it was in his name that the country got its all-time high protective tariff in 1890 (not to mention his later bellicosity).  The McKinley Tariff set the taxation rate on imports at a whopping 48.4%.  The insanity of such an idea bore itself out in the resulting Panic of 1893.  But after bargaining away a strict gold standard to get the tariff passed, the republican bore down on the hard money standard for the Election of 1896.  I must admit, though, that even as a congressman McKinley was not an ardent goldbug.  He voted twice for Bland Free Coinage and even put forth an platform at the 1888 Republican convention that supported both gold and silver coinage.  But in the end, when it came down to defending hard money against the bombastic William Jennings Bryan, McKinley passes muster. If we can fault McKinley for all of the above, we must recognize the importance of shunning silver in 1896.  In the midst of the ‘long depression’, diving into silver would have caused catastrophic economic problems.

But back to the survey, for me, McKinley is just one of those presidents that you pull for subjectively.  His policies were pretty flawed, but this was a good man.  A man with no extrodinary skill.  A man who lost his only two daughters before the age of five.  A man would patiently cared for his sick wife.  A man who, according to one historian, never sought political promotion in a ‘Machevellian’ manner.  A man who, as governor, paid out of his own pocket for a railroad car of food for the destitute.  A man who then spearheaded, not the largest public spending campaign, but charity drives to feed and cloth more than 10,000 people.

Teacherman Gold, History election of 1896, free coinage, Gold, mckinley tariff, panic of 1893, president, silver, william jennings bryan, william mckinley

I have a message for President Obama: If you want to save the economy, make the entrepreneur eager to invest.  If you want to create your two million three million (wait wait, we have hope, let’s make it…) four million jobs, stop wasting money investing in ‘public works’ and start reassuring the entrepreneur.

The problem is that everything this country has done in response to this economic crisis should scare the entrepreneur, not encourage him to assume risk.  It does not take an Austrian to realize the power and potential of the entrepreneur in the American economy.  First of all, what can the entrepreneur do?  According to Israel Kirzner the entrepreneur plays a critical role in the economy thanks to his or her ability to be alert to new and shifting opportunities.  After all, it is the entrepreneur who will create (and alter) what goods are produced as well as where and how they are produced.  Entrepreneurs, through their keen alertness to profit and trepidation of losses, will adjust production activities to best respond to market demands.  In other words, if you let the entrepreneurs among us go freely, we will sort out the bad assets from the good naturally.

There in lies the problem.  What entrepreneur can act freely at this juncture?  The stimulus bill hinders economic activity in many ways, not the least of which is its massive borrowing.  This capital could have been used by entrepreneurs for economic endeavors not based on the ruling class’s whims, but based on those insane ideas of profit and loss.  Let’s not forget the rhetoric of Washington these days: blame capitalism, blame greed, and regulate, regulate, regulate … and soon … nationalize!  With that coming from the statists in Washington, what entrepreneur is feeling confident in assuming risk in this country?  Let’s not blame Obama entirely, the Bush crew, also deserves some blame.  It was Paulson and Co. that bullied the largest banks in the country to take Federal money.  In the case of Bank of America, taking that money also meant taking all of Merrill Lynch’s assets at a price that the market had entirely rejected.  This is not an environment fostering entrepreneurship, it is one downright hostile to it!

There are a ton of ways in which the government foster entrepreneurship, I don’t think I could recommend them all here.  But I do have one idea.  One idea that is entirely not remotely a possibility, but one that would provide instant ’stimulus’ is an immediate 25% cut of the minimum wage.  True, an abolishment would be better, but that wouldn’t have the same air of practicality now would it, let’s be reasonable.  There is obviously a surplus of labor in the country right now and given that surplus there is obviously a large number of unemployed Americans who would be willing to work for less, but are currently being priced out of the market.

Teacherman Entrepreneurship, Interventionism, Politics banks, bush, entrepreneurs, Entrepreneurship, miniumum wage, obama, stimulus