The Brothers Austrian

What haunted Henry Hazlitt, still haunts us today: Governments focusing on only what the immediate effects of a policy will be. He refers to their actions as “half truths”. The seen and unseen. The seen of this bailout is that a few hundred thousand auto workers are still employed and the employees/retirees will have benefits.

The unseen: What about the workers that are not part of the auto industry that did get laid off? What about the worker whose 401k is down 40% with no pension plan? What about the guy who saves and saves and saves, only to have the value of savings dwindle via inflation in order to pay for the bailout of the auto worker (I am sorry let’s be honest here, this is a bailout of a group of people that have political pull, not the saving of a so called iconic “American” industry)?  What about the capital resources that are redirected to the auto sector versus another, more viable sector? What about the effect on bond investors?

In a NYT op-ed piece James Glassman claims that this might  “Drive the bond market to ruin”. This is the what I call the “Obama Button”.  It’s like the reset button. What would happen if we pressed the reset button? Who knows right? All bets are off! If I am a bond investor I have to price in whether or not an industry will be “bailed out”.  While the immediate effect is saving a few hundred thousand jobs, the long term effect is that there will be more market volatility because we never no who is next to be part of our “bailout nation” or even how to price the possibility of a bailout. Will the bailout lead to the bonds being “made whole” like they were for Citigroup or will do I price in huge discount in case the government tries to super cede me in the capital structure (think Chrysler secured bondholders).

MisesBeliever Government Spending, Inflation, Interventionism, Taxes, Uncategorized auto industry, bail out, bond market, citigroup, henry hazlitt, obama button

The title of this posting refers to Cato’s Letter Number 4, by Thomas Gordon. Writing in 1720, Gordon notes the importance of restoring the credit markets in England, but bemoans the idea “that any thing ought to be done to repair the losses, occasioned by folly and covetousness, out of the estates of those, who always foresaw, who always opposed this mighty mischief; much less at the further expence of the honour and trade of the nation.”  Gordon actually calls for the “necks” and “money” of those responsible for the crisis, today it is the calls of the Austrian School for bankruptcy.

Very good Mr. Gordon, you just became relevant in the 21st century. Cato’s Letters (written by Gordon along with John Trenchard) represent some of the most influential 18th century political theory. Murray Rothbard mentions Gordon and Trenchard along with Algernon Sidney and John Locke as the most influential libertarian leaning philosophers during colonial times. But in Cato’s Letter Number 4, we see more than the ideological origins of our founding fathers. We see a true understanding of macroeconomic policy that made people like Ludwig von Mises and Henry Hazlitt shake their heads at the missed historical lesson in the macroeconomic policies of the early 20th century.

Again, to Gordon, “If our money be gone, thank God, our eyes are left: Sharpened by experience and adversities we can see through disguises, and will be no more amused with moon-shine.”

Or so we hope…

Teacherman Uncategorized algernon sidney, austrian school, cato's letters, colonial, henry hazlitt, john locke, john trenchard, libertarian, ludwig von mises, murray rothbard, thomas gordon