The Brothers Austrian

From 1987 up until the end of Greenspan’s rein in 2006, there was a period of easy money and what Barry Ritholtz called “ultra easy money” which was created by Greenspan flooding the market with easy cash.

Ritholtz points out that yet another ingredient to the crisis pie might have been that there were too few banks and too many giants. You had super mergers in which smaller banks were snatched by the larger banks. One argument is that banking should be done on smaller scale. A scale where the bank manager as a more personal relationship with person he is lending to.

The principal of banking has always been the same throughout history, borrow money cheaply (deposits) and lend it out to someone who will pay as much interest as possible. What we saw develop through the use of technology was a man (or computer software) lend money to man in on Long Island to buy his house without personally verifying the financial standing of the borrower.

Sweet plan, right? The lender is now executive somewhere else and the taxpayer is left holding the ball, the proverbial “Moral Hazard” at its best.

The easy money policy that allowed for super mergers to occur is another example of how Federal Reserve policies often limits competition and encourages malinvestment.

Wendall Wilkie Federal Reserve, Real Estate banking, barry ritholz, Federal Reserve, greenspan, moral hazard, taxpayer

This mission is for Obama guys!

In case you missed it, there was some hulla balloo in downtown New York City Monday when the federal government sent Air Force One (along with its paparazzi) on a secret mission.  It seems like the secret mission included a photo op flyby of the Statue of Liberty.  The planes logically took a path most similar to the ones taken on 9/11.  Genius.

Like any good Austro-libertarian I asked myself if a private company, say XYZ Company, would have the hubris to complete such a mission.  In all honesty you know what, perhaps it would.  It’s impossible to know for sure.  One thing that we do know is that there would be immediate backlash from potential consumers of XYZ Company.  In other words, they would be accountable.  In this case, however, other than some trumped up anger from the president (and likely a fired employee), the government will go unscathed.  After all. what can we really do?

To top all of this off, the government spent $328k on this folly.  That should sicken each and every one of you.  As Federal Reserve inflates our money supply by the trillion, the same government still has the pretense to send Airforce One on this special mission.  Can’t say I’m surprised.

Teacherman General, Government Spending 9/11, airforce one, Federal Reserve, government, money supply, obama

My brother has posted a few times lambasting the higher education system, especially at the elite level, for propagating a broken economic system.  Worse, their temerity leads them to believe that they can diagnose and fix macroeconomic systems.

The seminal work underpinning my brother’s revulsion is The Pretense of Knowledge, by Friedrich A. Hayek.  This is the name given to a speech by Hayek in 1974 in a lecture to the memory of Alfred Nobel.  In it, Hayek explains the limits of human knowledge, especially in relation to the infinite variables of a macroeconomic system.  As he says, “Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones.”  Nevertheless, political economists tend to use rigid formulas, in a manner like the physical sciences, to analyze highly fluid macroeconomic settings.  Hayek notes, “Yet the confidence in the unlimited power of science is only too often based on a false belief that the scientific method consists in the application of a ready-made technique, or in imitating the form rather than the substance of scientific procedure, as if one needed only to follow some cooking recipes to solve all social problems.”

The inane pretense of the Federal Reserve and the Obama (and Bush, etc) administration that they have the knowledge to manipulate the monetary system without consequence is absurd. 

But when it doesn’t work, we can just blame the ‘free market’ — right?  Talk about moral hazard…

Teacherman Federal Reserve, Interventionism, Politics Federal Reserve, hayek, macroeconomic, monetary system, pretense of knowledge, sciece

Have you ever stopped to think about how much efficiently you could have learned something? Or what about when you realize everything you thought you knew was wrong? I am sure some very smart people were convinced the world was flat and were quite perturbed when learned the world was actually round. Well I would say I just realized everything that I had been taught/thought about the history of the U.S. was dead wrong.

At Syracuse University, as a history major, I was taught that it was Roosevelt’s quarterbacking in the 30’s that helped the U.S. recovery from the depression. I was essentially taught, like the rest of us, that fiat monetary system created by the Federal Reserve was necessary to provide the economy the “flexibility” to soften the blows that were supposedly considered a natural occurrence of the market (this is painful to think about). If you are reading the blog, you probably have had the experience that I had when I discovered the plethora of readings that come from what is known as the “Austrian” school of economic thought. My first reading was Economic Policy: Thoughts for today and Tomorrow. From there it all just snowballed for me. Hayek, Hazlitt, Rothbard. But honestly it really only took me about the first 25 pages of that first Von Mises book and I was hooked. Like I had discovered a new religion and that I was saved….and then I immediately felt as if I had been robbed.

I thought to myself, “How could I not have heard of this school thought…I was a double major.” One would think that if you majored in both political science and history that I would have come across this “Austrian” school of thought. This just did not make sense.

What I do realize is that history is written by the victors. America came out of the WWII the strongest nation which had seemingly won WWII (no one really won, everyone lost in my opinion). We had amassed an enormous amount of wealth throughout the 19th and early 20th century. Subsequently although Roosevelt was in charge during the majority of America’s most prolonged down turn he and his “brain trust” are viewed as saviors.

What’s my point? I honestly believe that Mr. Obama and Mr. Bernanke are two of America’s best and brightest, however their current “humanactions” are a mold/consequence  of their life experiences. Obama happened to attend a college that teaches its students to believe that they know better than the collective. They believe can smooth out market upheaval with their policies rather than recognizing its their policy  their school of thought that caused the problems.   What if Mr. Bernanke was scientist that could have cured cancer but he was instead taught that cancer can’t be cured but merely slowed down and then at very end of his life he realizes he could have cured cancer all along but he was taught it can only be slowed down.

This is my glass have full post. I will try not to succomb to the idea (at least not tonight) that this mess came about because politicians and other self interested individuals were/are trying retain their power through inflation and wealth redistribution.

Wendall Wilkie Entrepreneurship, Federal Reserve, Free trade, General, History, Real Estate austrian, education, Federal Reserve, hayek, Hazlitt, syracuse university

Picking up off a recent blog article that made some waves, this post is in support of H.R. 1207.  Ron Paul introduced the Federal Reserve Transparency Act of 2009 last week.  According to Paul, the bill is the first step to open up the Fed’s ‘opaque’ operations to the public.  As Rothbard put it in The Case Against the Fed,

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies. It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional  Committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

Teacherman Federal Reserve, Politics Federal Reserve, ron paul, rothbard, transparency

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