This huge bailout of Wall Street is like the titanic increasing its speed as it heads towards doom rather than changing course away from disaster. Thankfully CNN.com has published on their front page a commentary written by Ron Paul about why the government shouldn’t bail out Wall Street. It is great to see a mainstream media outlet like CNN recognize Ron Paul and these paleoconservative ideas.
Monthly Archives: September 2008
Believe it or not, there is good news in this economic mess.
One piece of good news is that individuals of all stripes are skeptical of this government solution: they may begin to question the wisdom of government economic intervention. This response can take many flavors, like questioning whether we can afford all of this, for instance.
With all the focus on our domestic mess, there’s a reduced risk of getting involved in foreign military adventures. Few people really think this is a good time to attack Iran, say. So this is positive. Avoiding war and violent conflict is positive.
One of the biggest pieces of good news is the strength of the market. In this case, I mean the market as in individuals acting and transacting freely. In times of incredible stress and strain (like now) when forces (like the federal government) continually oppose individuals acting freely, the market still delivers: cars, groceries, toys, clothing, etc. Supplies may fluctuate, but as long as prices have some flexibility, then many wrinkles get naturally smoothed out. I have yet to see a grocery store with empty shelves. It’s relatively rare to even see an item out of stock nowadays, barring a very unusual sale.
This is remarkable considering what little variety (and quantities) used to be in general stores, for instance, or what little variety American pioneers had in their civilization, or what absolute poverty (when compared to today’s relative wealth) mankind has lived in when compared to the prior and current centuries. The differences are remarkable.
Seeing the market under stress and still providing goods and services (I can still get a car wash, for instance, or cheap medication, or frozen vegetables, or a new car, or a showerhead, or thousands of other things) is a testament to its strength and durability, despite efforts which effectively disrupt economic activity.
Perhaps this is a crude metaphor, but I can’t help thinking of that scene in Spiderman 2, when the train is racing away to the edge of the track, increasingly accelerating. It seems hopeless. All are doomed. Spiderman tries a couple of things that fail pathetically. And then he finds something that works. He holds on for dear life, and the viewer is amazed at Spiderman’s strength and durability to withstand the crisis and save the train.
The market, similarly, performs very well under very stressful and tense situations, if given freedom to do so. Seeing it not catastrophically crumble and buckle and fail is to me some sort of miracle. I pray it will not crumble and buckle and fail until the appointed time, and I think we have (at least) several decades left before things start looking really really ugly.
May we be prepared when that day arrives!
Seeing President Bush the other day acknowledge we are in economic turmoil, but that we shouldn’t worry because the government’s here to help, and that they’re dilligently working on it, is a bad sign. It looks like this morning will see another great and terrible solution.
Market problems (a direct consequence of various government economic interventions) are bad enough. But getting the government even more involved is even worse. Bad problems become worse. A moderate recovery time becomes a slow recovery time. Or a problem gets pushed to the backburner, for someone else to worry about (like the national debt, say).
American hubris is near an all-time high: after all the government-induced market turmoil over the decades since serious government intervention started (like the Federal Reserve or the New Deal, for instance) we still think we can control market forces and subdue economic crises by getting together, having a meeting, making a policy, printing some money, and giving some speeches. The Soviets tried this approach for decades and it was quite disastrous. Socialism (admittedly closer to our current situation than Soviet Communism) has crippled Europe’s economic health. Central economic planning is really what’s going on, and it is disturbing for me to see both parties sickeningly and quickly cooperate to “fix” a problem by making it worse.
The biggest problem is that the arrogant, high-and-mighty Washington elitists have made no concerted effort to understand the problem. They assume their charts and graphs and equations (or their subjective, highly biased interpretation of them) are correct, with no attempt to truly investigate not only the fundamentals of their economic models, but also the effect of prior government economic interventions. The assumption is made that they understand the problem and know how to fix it, when in reality, neither is the case.
Some of the biggest government economic interventions led up to (i.e. the Federal Reserve) and prolonged significantly (i.e. the New Deal, Hoover Dam, etc.) what we call The Great Depression. Another set of grandiose economic interventions (i.e. LBJ’s war on poverty) led up to the stagflation problems in the 1970s: prices go up (inflation) but economic growth is stagnant. Stagflation conditions certainly are plausible over the next few years.
The worst consequence of this biggest problem is that individual liberty has shrunk. We move closer to a totalitarian state, where the government takes nearly everything from us (like the opportunity to sell stocks, or an increasing set of long-term financial obligations, or our money via inflation) to care of everything for us (listen to Nancy Pelosi, for instance, talk of government “insulating Main St.” from the effects of this economic crisis).
I do not believe that many in Washington are complicit in the disaster: most are economically ignorant, unaware of the ineptitude of and destruction associated with government economic intervention. But this is no excuse. It is our responsibility to be educated, to be aware, and to understand the principles (i.e. freedom, individual responsibility, private property rights, etc.) that America was founded on, and that we have largely ignored in the last hundred years or so in favor of a new set of values that hold economic intervention in the highest esteem.
The term “inflation” is bandied about quite a bit these days. But what does it really mean?
Inflation means that the money supply has been inflated by increasing the amount of dollar bills in circulation. The first people to get the newly printed money have more money to spend. Eventually, prices go up. What most of us see from this is the end result: higher prices.
Inflation goes up and down, and is somewhat cyclical. It is also closely tied to government spending, especially deficit government spending (when governments spend more than they receive in tax revenue). Inflation, the government statistics say, is usually around 2 to 4% per year.
This summer, things seemed different. We know prices have gone up. Prices of commodities like foodstuffs, natural gas, and petroleum have gone up. These price increases have been 50% or more in the last year alone for some of these items. Does that mean inflation has been at 50% the last year?
Thankfully, no, it does not mean that. What it does mean is something related, but different.
Investors have money to invest. If the stock market is bad, then investor will often choose something else, like real estate. If that is bad, then investors may invest in dollar-denominated assets, like bonds, which are tied to the value of the dollar. Since we now have a falling housing market, a struggling stock market, and a weak dollar, investors are looking elsewhere.
The result is that investors invest in something more stable, something that can be seen, touch, and tasted: commodities. So investors buy into petroleum. They buy into foodstuffs. They buy into previous metals like gold, silver, and platinum. They have even bought into some of the less-precious metals like copper, nickel, and chromium. As a result, prices of all of these commodities have risen lately. There are also other complicating factors, like wars, rumors of wars, and supply issues. But largely, the price increases are due to this influx of investment cash.
When will this clear up, or will it stay this way forever? Supply issues, like wars, for instance, will continue to affect the situation of certain commodities. Government subsidies (i.e. for corn for ethanol production) will continue to also artificially inflate prices on some goods. However, much of the cost will be recovered when the stock market/housing market/bond market recovers. When they start to recover (hitting bottom would be nice), then investors start finding those to be attractive investments, and so they start pulling out from commodities. In other words, they sell their stake in commodities, and purchase stocks, bonds, mutual funds, or some sort of real estate investment vehicle. When this starts to happen, prices of commodities will go down.
Most people think that if we could smooth out the market, (i.e. with government intervention), then we could avoid these problems. This is the thinking of the Democratic party, among others. However, this thinking is flawed in that it does not take into account the current economic interventions and their effect.
It turns out that the business cycle is not a fundamental market phenomenon at all, but is instead a consequence of government economic intervention: artificially low interest rates set by central banks. This is not an inevitable part of human nature.
In summary, commodity prices are high because of weak investment markets, but prices will decrease as the investment markets strengthen.
78 Teach ye diligently and my grace shall attend you, that you may be instructed more perfectly in theory, in principle, in doctrine, in the law of the gospel, in all things that pertain unto the kingdom of God, that are expedient for you to understand;
79 Of things both in heaven and in the earth, and under the earth; things which have been, things which are, things which must shortly come to pass; things which are at home, things which are abroad; the wars and the perplexities of the nations, and the judgments which are on the land; and a knowledge also of countries and of kingdoms—
80 That ye may be prepared in all things when I shall send you again to magnify the calling whereunto I have called you, and the mission with which I have commissioned you. -D&C 88:78-80
The 2008 South Ossetian War, featured nearly daily in the news in early and mid-August 2008, like many foreign policy topics, seems confusing. It’s this type of confusion that makes Americans feel more comfortable with someone with foreign policy “experience” (the Washington variety) in the Oval Office.
The conflict certainly seems convoluted. Our views are also distorted by the misconception that there is usually a “good guy” and a “bad guy.” But this is not always the case. There may be two “bad guys,” or both may be in different shades of gray. In my opinion, that is the case here.
Georgia attacked first. Why? They wanted to subdue the so-called “breakaway” region of South Ossetia. (One wonders about North Ossetia, which has been part of Russia for a long time. But I digress.) Why would they want to subdue it? This is one reason I have a hard time buying Georgia’s story. What justifies aggressive military action, even invasion? In my mind, Georgia was completely unjustified. Even if there were mitigating circumstances, pre-emptive, aggressive war is never justifiable.
But many know that Russia was not terribly innocent in the scheming. They had troops all along the border at the time of Georgia’s attack, and were very swift to respond to the Georgian “incursion.” They also had a heavy-handed occupation for several weeks after combat operations had largely ceased. Independent human rights workers have indicated the Russian-caused casualties and damage outweigh that caused by Georgian forces.
Russia claims that South Ossetia (and Abkhazia) have a high percentage of Russian citizens, or individuals with valid Russian passports. Thus, Russia was defending her citizens from attack. Moscow news reported that Georgians and South Ossetians in Moscow were mostly opposed to the conflict, linking it with Georgian President Saakashvili. Other reports, however, indicate huge chunks of South Ossetian government budgets are essentially Russian-supplied kickbacks, questioning the legitimacy, even, of South Ossetian and Abkhazian governments.
What’s my point? Both parties are guilty. Both are responsible. The United States has some responsibility also, as we trained Georgian troops and have strong diplomatic ties with Georgia. We also brought NATO to Russia’s borders (or tried to) by inviting Georgia in. This has the understandable effect of angering Russian authorities.
What should have happened? When relations were frosty between the two nations (namely, Georgia and Russia), they should have talked about it. How much destruction of life and property would have been spared if a peaceful solution had been reached beforehand? South Ossetian, Georgian, Abkhazian, and Russian governments (moderated by another party or two, perhaps) should have gotten together and brokered a peace deal, one which would benefit all parties as much as possible; one which would have best represented the aims of the South Ossetian and Abkhazian peoples, with Russian and Georgian interests subordinate.
Our foreign policy does not encourage talking before shooting. It encourages suspicion, back-biting, evil speaking, spying, trust in oversimplistic political decisions about complex intelligence gathered from a variety of sources, and military aggression, a shoot-before-you-speak approach. If it does not create these scenarios, it at least creates situations where these scenarios become very possible.
We continue to provoke Russia with a missile shield in Poland. We continue to talk of a second Cold War. We continue to push for NATO expansion. We continue to support Russian enemies as “fledgling democracies.” Isn’t Russia a democracy, also? The net effect of all of these policies is to estrange Russia and increase tensions. We are moving farther from Russia when we could be moving closer.
I do not mean to sound like an alarmist. World War III (or IV, if the Cold War counted) is not imminent. But our foreign policy does not bode well for long-term peace.
Unfortunately, it is all but taboo to even question the status quo in foreign policy. Differences between McCain and Obama with respect to Russia (and most countries, for that matter) are much more slight than mainstream media moguls would lead you to believe.