Protectionism vs. Growth?

CATO posted a great commentary about a surprisingly forward thinking libertarian editorial in the Bangor Daily News about whether their congressional delegation should be spending time and energy protecting old legacy manufacturing like New Balance footwear or in pursuing new vibrant economic sectors and preparing their workforce for the future economy.

CATO Post
(scroll down to "An Editorial takes an unexpected turn")

Monopolies can only exist with government restrictions on trade and commerce limiting competition from newer, more innovative and nimble competitors.  It's not the lower cost overseas providers that big business worries about, it's the startups that are the lifeblood of American capitalism (creative destruction).  Politicians should be concerned with aiding business to be more competitive by educating the workforce and investing in advanced research (if you believe government has any role at all outside of protecting The Rule of Law) not protecting obsolescence.

The multi-billion dollar lobbying economy of Washington and rampant political corruption from the local to Federal level is fueled primarily by corporate interests seeking tax handouts (Tax Expenditures are poorly accounted and exceed $1 Trillion per year) and anti-competitive advantages.  The one beneficial area of lobbying is in attempts to reduce the overwhelming regulatory burden (estimated to cost Americans $1.8 Trillion annually).

Free market economics is an incredibly complex and poorly understood field so my apologies for seeming to ramble but there as so many forces at work on the economy it is impossible for anyone to understand and control it, which was the gist of Hayek's position and why Keynes is still so attractive despite being proven wrong in every single cycle of the last 100 years.  The Fatal Conceit is too attractive to the intelligent mind... "if ONLY we understood everything well enough we could control it and plan it better".

Return to Study

Having taken some time off from blogging, I have continued avidly following global economic developments through the "Great Recession" and my study of free market economics.  It has amazed me how widely and overwhelmingly the Keynes school has pervaded the entire thinking of the developed world with the notable exception of Ron and Rand Paul, however skewed their views may be (I'll post thoughts specific to each of them soon).

I've added to my reading list (which I do not read enough of!) "Individualism & Economic Order" by Hayek
https://play.google.com/store/books/details?id=ZLFEIdaZZD0C
as well as the old standard Adam Smith's "The Wealth of Nations",
https://play.google.com/store/books/details?id=NLoxfUPHoukC
both of which I'm slowly working into in the little spare time I have.

Next will be "Collectivist Economic Planning" by Hayek
https://play.google.com/store/books/details/Friedrich_August_Hayek_Collectivist_Economic_Plann?id=rauFqOrO5J4C

As I've been posting comments on various relevant articles, I thought it would be beneficial to log them all here as a more consolidated collection of my thoughts on the subject.

Previous Government Caused Banking Fiascos

Subsequent to a recent discussion with a colleague at odds about the supposed fallacies of free markets which I argued were caused at root by government intervention, I found this article detailing the historical trail of government policies that caused the Savings and Loan crisis of the late '80s.

Many people mistakenly attribute the implosion of the S&L's to Reagan's deregulatory policies and perhaps that may have been the tipping factor, but the house was on the verge of collapse already because it had not been built not by market forces, but by incompetent governmental tinkerers.

From "The Real Reagan Record" in The National Review of Aug 31, 1992

http://www.nationalreview.com/reagan/niskanen200406101410.asp


Going all the way back to 1932 with the creation of The Federal Home Loan Bank System, instabilities were exacerbated by non-free market factors.
"the structure of the savings-and-loan industry was designed in Washington, rather than by evolutionary market processes. A 1932 act created the Federal Home Loan Bank System, with a structure much like that of the Federal Reserve System, to increase the funds available to reasonably solvent S&Ls to finance home mortgages."
Regulatory restrictions on their asset structure incentivizing home mortgages seems to be the the primary cause of the instability.

One of the interesting conclusions of this article is it's negative judgement of the FDIC in 1934. If there is validity to this, then the recent increase in deposit insurance limits from $100K to $250K would be rather alarming.

"Most important, deposit insurance creates a moral hazard for the owners of weak or insolvent banks and S&Ls, in effect setting up a one-sided bet. If they make unusually risky loans that do not later default, all the returns accrue to the owners; if these loans fail, the losses are borne by the insurance fund and, ultimately, the taxpayers. Heads I win, tails you lose. "

Forclosures Overblown?

So today some comments on the market situation (is there any other subject right now? LOL) prompted me to dig into some statistics as the media makes it out like every other home on the block is being foreclosed.

The actual rate of foreclosure is .6%. 3.6% of all residential mortgages were delinquent for at least 90 days. 20.4% of subprime mortgages were delinquent for at least 90 days. By this reckoning, only 1 in 5 of people who shouldn't have gotten loans in the first place are even late?
http://www.housingzone.com/blog/500000650/post/1980033398.html

And of course the media focuses on markets where the averages are skewed due to incredible overbuilding. I'm not proposing that there isn't a problem, but how much of it perceptual and it's this perception issue that caused the credit crunch in the first place.

Obama's Plan for Redistribution of Wealth

So I just got off the fence. I've been very positive about Obama since the beginning and if it wasn't McCain running against him (who I have be an ardent fan of his moderate positions for over a decade), I wouldn't have been on the fence at all.

As a dedicated libertarian (small "L") who supports free markets, limited government, and more individual freedom, I abhor anything that smacks of moving toward collectivism. The current solutions to this economic crisis are alarmingly collectivist, and a recent street conversation between Obama and a plumber that he wants to move even more that way has firmly made up my mind.

Plumber to Obama: “Your new tax plan is going to tax me more. Isn’t it?”
Obama: “It’s not that I want to punish your success, I just want to make sure that everybody that is behind you, that they have a chance for success too. I think that when you spread the wealth around, it’s good for everybody.”
http://www.620wtmj.com/shows/charliesykes/30935599.html

Are There No Libertarians In a Crisis?

An article in Forbes yesterday by Bob McTeer was indicative of the current crises of economic thought. Libertarians have not had much of a voice and seem to have lost influence through misperception. Without any non-radical messianic leaders like Milton Friedman and Friedrich Hayek, there is no one to provide a touchstone to Free Market ideals and how far we actually have come.

http://www.forbes.com/2008/10/10/libertarian-federal-reserve-oped-cx_bm_1010mcteer.html

My response:
While I enjoy the joke on Objectivists, I have to cordially disagree in principle as to how Free Market Economists would handle the current situation, which was exacerbated by Keynesian/interventionist policies to begin with. Fear of the unknown (being in the foxhole as it were) does drive those of little faith to grasp at straws in crisis.

If we had economists who understood and believed as strongly as Friedman or Hayek today, we would have real solutions rather than panic induced money throwing (ritual sacrifice?).

True Free Markets are much more resilient and more quickly corrective than any Central Planning measures. Isn't the fact that Warren Buffet, Citi, Wells Fargo and others are buying up devalued assets indicate economic Darwinism is already happening? Two of the Big Three automakers finally merging to get more competitive?

Search your doubting libertarian soul, buying up the Commanding Heights isn't the best solution.

Milton Friedman Wasn't Wrong

In response to an article on the Motley Fool about a quote by Milton Friedman:
"There is one and only one social responsibility of business -- to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game."

The author feels that our culture has developed a "Gordon Gecko" mentality of greed at all costs, but the fallacy is that there are costs to excessive greed.
Here is the article http://www.fool.com/investing/general/2008/10/04/trashing-milton-friedman.aspx

And my response:
There is a tremendous difference between "unrestrained capitalism" and the Keynesian interventionism we still operate under.

Buffet's comment that "It takes 20 years to build a reputation and five minutes to ruin it." implies there are negative consequences to negative greedy actions. Either to the corporate bottom line, civil litigation with monetary penalties, or criminal charges.

Government bailouts and golden parachutes with no penalty clauses simply sustain the belief that there are no consequences.