A few thoughts for the Progressives on this forum...

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Quote Dr. Econ:

Quote jrodefeld:...The idea is that we can have a functioning expansive State that will work in the interest of a majority of Americans rather than a narrow segment of ultra rich corporations and Oligarchs. IOI I'm telling you right now that this goal is completely impossible and unobtainable.

A libertarian, telling us that we are too idealistic?

Right.

Yes I am. Government power repeatedly fails to bring us this progressive utopia and always tends to become horribly corrupt and grant favors more to the wealthy and powerful and less to the poor and middle classes. Yet we are told that if we could only get the right regulations or the right people in power, we will have a responsive and effective government that can solve all these problems in society.

As a libertarian I ask you to look at human history and the abuses perpetrated by governments against individuals. In the 20th century alone, governments killed more than 200 million of their own people. This is not counting wars this is referring to genocide. The documents we have about the futility of political action to solve problems makes an overwhelming case the power corrupts and governments tend to exploit and loot rather than work on the behalf of their own citizens.

I am saying we should give up on political action at a national level to solve problems. We should use political action only to reduce the power of the Federal Government. As for solving our mutual problems, rather than looking to the government or politicians we should look to ourselves and our communities. We need many autonomous sovereign states and communities competing against one another. Decentralized political power and a free people will lead to greater prosperity. We should focus on improving our lives and helping one another rather than wasting our time with national elections and the constant fighting that politics tends to bring out in people.

The nature of man and his selfishness and corruptibility is something that some Progressives admit to. But unbelievably many see this as a reason that man should not be free but ruled over by a powerful state. Yet, libertarians understand the fallability of man and thus the need to keep any one person or group of people from power over others and a monopoly on the use of force. Sure, many people will behave badly in a free market, but whatever harm they might cause will be highly contained and isolated as opposed to the harm committed by central governments or national banks whereby their greed and corruption can destroy the global economy.

If you think about this from a philosophic standpoint, I think you would see that voluntarism and decentralized power structures is the only way to reduce the harm that greed and man's worst attributes can cause.

In fact that is a primary reason for a Republic and limited government as opposed to a democracy. From the principle of Natural Rights, comes the idea of liberty being a "divine" right or inherent in our humanity so as to not be corrupted by man. The Constitution and Bill of Rights were formed to keep man in check,

That is why Thomas Jefferson said this: “ In questions of power, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution.”

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jrodefeld
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Quote Dr. Econ:
Quote LysanderSpooner:

Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now.

My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'.

As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years.

As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory.

I don't care about being a military superpower and empire that seeks to dominate the world. I reject that kind of arrogent power and our founders did as well. We merely need a competent military that can defend our country in the event of an attack. We do NOT need military bases around the world. We do not need to be at war against countries that haven't attacked us.

Our economic prosperity is what counts and I argue that the cause of that prosperity is due to the free market and the industrial revolution. Our Constitution and the principles of individual liberty and sound money our nation was founded upon created the basis for the largest middle class the world has ever known.

You can thank Keynesian economics for the Great Depression, the destruction of our currency, the budget deficit and the errosion of our standard of living and the alarming growth in government. You CANNOT credit Keynes for anything remotely close to "prosperity".

Henry Hazlitt, a brilliant economist of the Austrian School, wrote a line by line refutation of Keyne's General Theory in "Failure of the New Economics". Basically, Keynes book was poorly written and added absolutely nothing to economic thinking. What was original was self evidently fallacious and what was true in the book was not original. He merely came along at a time when politicians and bankers were already looking to centrally plan the economy for a variety of reasons and Keynes merely provided the excuse they were looking for.

Hayek and Mises beat Keynes in every argument and debate but they suffered for the mere fact that they were telling people in power what they didn't want to hear.

You need to better aquaint yourself with the economic Theory of the Business Cycle. The case is clear that the trend in modern economies of periodic booms and busts is NOT an inherent problem with capitalism or the free market.

The real cause of the business cycle, the continual booms and busts, is the central bank manipulating interest rates. Interest rates send critical market signals that are entirely subverted when central planners push them down below market rates. Interest rates are the price of money, basically. If there is a lack of savings or loanable funds, interest rates go up. If there are savings and loanable funds, interest rates go down.

Let me copy a more precise definition for you:

Banks expand credit well beyond their own assets and by the funds of their clients, often supported or encouraged by the setting of low interest rates by a central bank. This additional credit flow into the economy from increased borrowing for capital projects stimulates economic activity. Projects which would not have been started before, seem now profitable, creating malinvestment. They increase demand for production materials and for labor and their prices rise, which, in turn, leads to an increase in prices of consumption goods. If the banks would stop the extension of credit, the boom would be rapidly over. To prevent the sudden halt of this boom (and the resulting collapse of prices), the banks must create more and more credit, and the prices will rise even more.

But this expansion of credit cannot continue forever. There is no additional capital or labor; there is only more money (and debt). The means of production and labor which have been diverted to the new enterprises have to be taken away from others. Society is not sufficiently rich to permit the creation of new enterprises without taking away from others. As long as the expansion of credit is continued this will not be noticed, but it can't be pushed indefinitely. The inflation and the boom can last only as long as the public thinks that the prices will stop rising in the near future.


Alan Greenspan and Ben Bernanke lowered interest rates when investment in the housing sector was booming. If the market were to set interest rates then the rates would have gone way up putting a halt to the formation of the housing bubble. We built too many houses based on this misinformation provided by the interest rates.

How can you deny that this explains the malinvestment and misallocation of resources that we witnessed in our economy? And if the Austrians are so wrong, why is it this theory and others that allow them to correctly predict every major economic recession and depression for the last one hundred years while other economists and Keynesians are repeatedly clueless about the effects of their policies?

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jrodefeld
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Oct. 15, 2011 1:24 am

Jane, you ignorant slut.

Jefferson was talking about electric power, fool.

He was saying, don't simply believe the corporations they feared would own electricity, (man), but bind them to a public power system, where they can never make money hand over fist, selling power.

Now, extrapolate from this explanation, to money in elections, if you'd like, and the power of government.

Unless you understand history, you are condemned to repeal it.

anonymous green
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Jan. 5, 2012 10:47 am
Quote Laborisgood:
Quote jrodefeld:

and a limited government as the true humanitarian system.

That's rich.

What an intelligent critique you make of my central thesis.

Seriously, do you care to make a comment about the documented fact that in the decades prior to Johnson's "war on poverty", we saw the rates of poverty declining much more rapidly? The trend has flatlined since then.

A market economy and a moral, restrained federal government will provide far better outcomes in the short term and especially in the long term for the poor and middle class. I stand by that statement and I could give as detailed an economic explanation as you could ask for to defend my statements with indisputable data.

But I won't bother unless I can count on you to respond with more than two words.

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jrodefeld
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Quote camaroman:

http://catallaxyfiles.com/2011/10/03/well-done-lbj-great-society-programs-perpetuate-poverty/

Thanks for the link. Yeah, that graph shows a great deal.

Now supposed the data showed the opposite. Suppose in the decades prior to The Great Society we actually had extensive government programs designed to combat poverty and we had similar decline in poverty rates that we see in that graph. Then in the 1960's we got rid of those programs and embraced the free market and poverty rates flatlined or even went up a little.

We would never hear the end of it. We would heard how we were making so much progress and horrible people ended that progress by getting rid of essential programs. And if the data showed that I would agree with this assessment.

But the data doesn't show that. In fact it makes my case exactly but since the government is infallable we are not supposed to hear about the possibility of progress in its absence.

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jrodefeld
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Quote ah2:
Quote LysanderSpooner:
Quote Dr. Econ:
Quote LysanderSpooner:

Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now.

My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'.

As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years.

As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory.

Keynesianism, Marxism, interventionism, socialism, fascism and mercantalism are all failed economic theories. We have never had a truly freed market, but anytime the market has been somewhat free, been allowed to work somewhat, there was great prosperity.

Government spending to create jobs is ALWAYS wasteful. Government created "jobs" destroy more than they create. All that you're doing is taxing money from the people, spending it somewhere else, and taking a cut for the bureaucracy.

Read "Economics in One Lesson" by Henry Hazlitt. He'll answer all of your questions.

See this is just a lie. I have been reading through this entire thread and thinking about how to thoughtfully respond and when it all comes down to it, it seems these discussions always come back to some basic lies Libertarians tell themselves and this is the worst.

The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. This combination has and always will and forever lead to economic collapse. The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

None of this is a mistake and your claim is a flat out lie.

I won't claim that YOU are lying because you probably believe what you are saying. Nevertheless, what you are saying is patently false on every level.

Exactly how much time have you spent studying the Austrian School economists? If you haven't spent a reasonable amount of time reading the works of Mises, Rothbard, Hazlitt, Seinholz, or any of the great intellectuals who divised the theories that support their claims, you CANNOT make the claim that what we are saying is a "lie". Rather than simply stating that, you should try to show why the Austrian School economics is incorrect.

Even mainstream non-Austrian commentators are moving away from Keynes and embracing large parts of the Austrian expanation for what has happened.

But let me ask this. In your list of what caused the crisis, you conveniently omit any reference to the Federal Reserve system. Are you honestly disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

That is not even a slightly controversial view. But you don't agree with that. You don't think artificially low interest rates fueled the creation of the housing bubble? You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

As far as "deregulation", there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret. Or government policy that encourages over investment in housing.

I suggest you read Tom Wood's book "Meltdown" to learn about the real causes of the economic crisis.

You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

You can be childish and claim everything I say is a "lie" or you can critique the theories in a more constructive way.

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jrodefeld
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Oct. 15, 2011 1:24 am
Quote MEJ:

When I look at the tax facts it appears that the more the rich are taxed, the more economic growth we get. Here's a link about national deficts, if you care...which means it's not as big of a deal as some would have us believe

"What I am trying to tell you is that if you embrace that ideology in favor of government "by the people, for the people" you will always get a government that inevitably favors the rich." - jrodefeld

You can tell us that, but we're not going to believe that it's that simple, or true. Maybe you should try a little reading about corporate personhood

I just don't see how a limited government can maintain integrity and sovereignty when it is pressured by multinational corporations (that are governed by rich people) that account for more than half of the world's largest economies... how does a small and limited government protect its citizens from them?

I disagree with you when you try to link high tax rates to economic growth. The tax figures are quite misleading because in the 1950's almost noone was paying those rates. There were so many deductions that could be taken that many wealthy ended up paying less in taxes that they would today. Not only that, but we calculated the wealthy differently where they top tax bracket was significantly higher, adjusted for inflation.

Even leaving aside economic growth, how is it moral to take more than fifty percent of the earnings of ANY American? I cannot possibly see the moral justification for that. I think that the economic health of the nation has been more based on factors like the regulatory environment, whether or not we had major war going on and the relative stability of the dollar. I would suggest that the economic health we experienced prior to 1971 was due to a stability provided by a dollar that was linked to gold and a much smaller government compared to today.

I know quite a bit about corporate personhood. I think that a bit too much is made of this argument but I commend the owners of that website for pushing for a Constitutional amendment which is the proper way to change policy in this country.

How do you see the integrity and sovereignty of our very large federal government today? A limited government can be more easily monitored for abuses by a vigilent public.

And keep in mind that even a limited, Constitutional government would still be far larger than even the largest single corporation.

I really don't understand what is so hard to get about this concept. The problem is government granting favors and colluding with corporations. If a government is smaller it has less ability to redistribute wealth to the rich or benefit them politically. Even if a much smaller government were to be influenced by corporations, it would still be preferable because the scale of the corruption would be much smaller and more limited.

But we really need to get acquainted with the idea of a strictly defined Federal Government that only carries out functions granted by the innumerated powers of the Constitution. That is how we prevent special interests corrupting government.

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jrodefeld
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Quote chilidog:
Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

Seriously? You think the period 1880-1900 is part of the period 1880-1960?

What are you talking about? I honestly have no idea what you are trying to say here. My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

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jrodefeld
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Quote Dr. Econ:...The fundemental contradiciton of LIbertarianism is that it uses government to protect man from one another but does not use governmet to protect man from nature.
Quote jrodefeld:I have absolutely no idea what you are talking about when you say government should "protect man from nature".

Of course you do. You set up a government to protect man from other men, but nothing for the necessity and natural forces that produce all kinds of harm on men. Your system cares about one type of harm, but not the other.

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Dr. Econ
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Quote jrodefeld: ... As long as all transactions are voluntary and nobody can use force or violence against another, a libertarian society is the most peaceful and tolerant.

Nature will force man to work in the worst of conditions in your Libertarian world. They will give up all their rights, be humiliated, suffer indignities, spend their working hours in toil, sweat and danger because nature forces them to. Just because there is no human force does not mean there is no natural force.

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Dr. Econ
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Quote jrodefeld: ..you need to understand that the market economy is an antidote to the type of crony capitalism and fascist abuses that Wall Street firms have foisted on the American people.
Quote Dr. Econ:...The reason why that is false is because justice requires information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.
Quote jrodefeld:...You don't see how it is possible to find out if lies or fraud have been committed? Let's say you buy a drink that claims it will cure baldness and it turns out to be a scam. That is fraud, it doesn't work and those that knowingly made that false claim should be punished for that act.

In order for that to happen, I need to prove it. I need to obtain the information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.

Quote jrodefeld:The point is that in a free market those things are illegal and governments have an impartial role to bring justice on behalf of the victim.

You are saying you are for a huge consumer protection arm of the government that sues all the companies that lie and commit fraud? That is what liberals want. That is what environmentalists fight for every day. That is not really libertarianism as I understood it. It is not really a 'free market'. A free market has people hiring lawyers and bringing suits based only on a set of laws. That is what I am criticizing, since the wealthy will be able to afford justice while the poor will not.

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Dr. Econ
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Quote jrodefeld:
Quote Dr. Econ:

Quote jrodefeld:...The idea is that we can have a functioning expansive State that will work in the interest of a majority of Americans rather than a narrow segment of ultra rich corporations and Oligarchs. IOI I'm telling you right now that this goal is completely impossible and unobtainable.

A libertarian, telling us that we are too idealistic?

Right.

Yes I am...

And you don't see the irony that, do you? You will never get your Libertopia. All you will do is let more corporate power commit more fraud and abuse on the American or world system. They will cut back medicaid, Social Security, food stamps and regulations to make sure people have some protections from corporate crime.

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Dr. Econ
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Quote jrodefeld:
Quote ah2:
Quote LysanderSpooner:
Quote Dr. Econ:
Quote LysanderSpooner:

Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now.

My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'.

As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years.

As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory.

Keynesianism, Marxism, interventionism, socialism, fascism and mercantalism are all failed economic theories. We have never had a truly freed market, but anytime the market has been somewhat free, been allowed to work somewhat, there was great prosperity.

Government spending to create jobs is ALWAYS wasteful. Government created "jobs" destroy more than they create. All that you're doing is taxing money from the people, spending it somewhere else, and taking a cut for the bureaucracy.

Read "Economics in One Lesson" by Henry Hazlitt. He'll answer all of your questions.

See this is just a lie. I have been reading through this entire thread and thinking about how to thoughtfully respond and when it all comes down to it, it seems these discussions always come back to some basic lies Libertarians tell themselves and this is the worst.

The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. This combination has and always will and forever lead to economic collapse. The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

None of this is a mistake and your claim is a flat out lie.

I won't claim that YOU are lying because you probably believe what you are saying. Nevertheless, what you are saying is patently false on every level.

Exactly how much time have you spent studying the Austrian School economists? If you haven't spent a reasonable amount of time reading the works of Mises, Rothbard, Hazlitt, Seinholz, or any of the great intellectuals who divised the theories that support their claims, you CANNOT make the claim that what we are saying is a "lie". Rather than simply stating that, you should try to show why the Austrian School economics is incorrect.

Even mainstream non-Austrian commentators are moving away from Keynes and embracing large parts of the Austrian expanation for what has happened.

But let me ask this. In your list of what caused the crisis, you conveniently omit any reference to the Federal Reserve system. Are you honestly disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

That is not even a slightly controversial view. But you don't agree with that. You don't think artificially low interest rates fueled the creation of the housing bubble? You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

As far as "deregulation", there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret. Or government policy that encourages over investment in housing.

I suggest you read Tom Wood's book "Meltdown" to learn about the real causes of the economic crisis.

You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

You can be childish and claim everything I say is a "lie" or you can critique the theories in a more constructive way.

Glass-Steagal.

Making banks have more than 10% cash on hand to garauntee loans they've made.

Regulating the derivative market. IE - make it illegal to stack derivative on top of derivative on top of derivative.

Regulations on predatory leading (IE most of the stuff in Dodd Frank that has been retroactively nerfed by Congress).

Fining the crap out of Moodys and S&P for their failure at rating MBSs prior to the crisis - may not prevent but maybe it will make them a little more diligent in the future. And boy would it feel good...

Making it more difficult for primary mortage loan originators to dump their crappy loans on other banks, including but not limited to Fannie and Freddie. Notably, before the crisis Fannie and Freddie had a much lower rate of toxic loans than most other private banks because the restrictions on what loans they will take is much higher. In fact, the main reason Fannie and Freddie were taking on these loans at all is because as a GSE they have to maintain stock prices within a particular margin. They had to take on these loans to maintain market share and the private market was being flooded with them.

http://useconomy.about.com/od/criticalssues/a/Fannie_Cause.htm

I have no love for the Federal Reserve but to point to that as the singular cause is overly simplistic - which I know you like. Simple explanations lend themselves to simple solutions which are so easy and expedient, but often useless.

ah2
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Dec. 13, 2010 9:00 pm
Quote LysanderSpooner:... Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now....
Quote Dr. Econ: My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'. As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years. ...
Quote Jerrod:..Our economic prosperity is what counts and I argue that the cause of that prosperity is due to the free market and the industrial revolution. Our Constitution and the principles of individual liberty and sound money our nation was founded upon created the basis for the largest middle class the world has ever known.

LS said the policies of the last 100 years put us in the fix we are in. I reminded him that we became an economic and military superpower during those set of policies.

Now you are saying even though we had those policies, we have the largest middle class. I guess those policies were really that bad, then. Further, how on earth do you blame these very same polices for the fix we are in now, if - while under them - we grew to have the largest middle class ever?

Why do you write so much to evade so little?

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Dr. Econ
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Jul. 31, 2007 3:01 pm
Quote jrodefeld:... Henry Hazlitt, a brilliant economist of the Austrian School, wrote a line by line refutation of Keyne's General Theory in "Failure of the New Economics". Basically, Keynes book was poorly written and added absolutely nothing to economic thinking. What was original was self evidently fallacious and what was true in the book was not original. He merely came along at a time when politicians and bankers were already looking to centrally plan the economy for a variety of reasons and Keynes merely provided the excuse they were looking for.

This paragraph proves that you want to waste your time with unsupported allegations and arguement by authority instead of debating the actual issues.You are generating noise to evade the issues. Please stop it.

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Dr. Econ
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Jul. 31, 2007 3:01 pm
Quote jrodefeld:... The real cause of the business cycle, the continual booms and busts, is the central bank manipulating interest rates. Interest rates send critical market signals that are entirely subverted when central planners push them down below market rates.

We have had this debate before, and you lost. Do you remember the arguements? No? Well I already addressed it above: "As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory."

What tears you guys up is that there is no significant inflation, people are buying treasuries at a real loss, and all countries use some type of fractional reserve banking and "federal reserve" type system.

Quote jrodefeld:...How can you deny that this explains the malinvestment and misallocation of resources that we witnessed in our economy? And if the Austrians are so wrong, why is it this theory and others that allow them to correctly predict every major economic recession and depression for the last one hundred years while other economists and Keynesians are repeatedly clueless about the effects of their policies?

The housing crisis was the result of relaxing of regulations - why is it that the last housing crisis was in the 20's, and came about after years of deregulations?

The Austrians are perfectly right about the fact that too much money causes inflation. The fact we have no sigificant inflation means money is about right.

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Dr. Econ
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Jul. 31, 2007 3:01 pm
Quote jrodefeld:Seriously, do you care to make a comment about the documented fact that in the decades prior to Johnson's "war on poverty", we saw the rates of poverty declining much more rapidly? The trend has flatlined since then.

The war on povery was designed to feed, clothe and provide medical aid to the poor. There was very little in the bill that attempted to end systemic poverty.

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Dr. Econ
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Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

That's a whole lot of time and a whole lot of history and a whole lot of different laws and policies. Why don't you just say 1700 to 1960?

I don't think the USA was building ANY type of middle class, vibrant or not, from 1860 to 1900. And the period 1945 to 1964, well, maybe someone else can explain that...

chilidog
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Jul. 31, 2007 3:01 pm
Quote ah2:...The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. ...The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

Quote jrodefeld:..Are you ..disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

Since there was no inflation, I would say they contributed little by trying to keep interest rates low - if that is what they did. But they contributed a lot when they failed to deregulate new instruments, and allow other deregulations under their jurisdictions.

Why don't respond to Ah2's facts?

Quote jrodefeld:... You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

Oh please. We have been over this before and you lost then too.

Quote jrodefeld:...No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

The idea is that excess savings causes gambling behavior in the stock market, causing bubbles. It is also aided by lower wages and higher inequality - reducing demand.

Quote jrodefeld:...there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret....

Of course there were. Glass Stegal would have prevented the housing meltdown to melt the entire economy. To prevent the housing bubble, you simply had to keep in place regulations that existed before Reagan. That's why you have a FED and NO housing crisis since the Great Depression.

Quote jrodefeld:....You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

Even a broken watch is right two times a day. When do Austrians not predict a crisis?

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 3:01 pm
Quote jrodefeld:

That is all I have to say on this subject.

Dude, I gotta applaud the effort and passion, but your arguments make absolutely no sense to me. None. The more you explain, the less sense it makes to me. You seem to believe that the business sector is comprised 100% of noble, rational, patriotic, honest players who seek to bring value to their fellow man, care deeply for their neighbors and country, kiss babies, and rescue puppies. I know the textbooks say that, but that's not the way it works in the real world. While the vast majority of those in the private sector do fit that description, there is a dangerous dirtball minority that ruin it for all, and that necessitates strict regulations. To paraphrase a sneering Col Nathan Jessup, "You want government on that wall! You NEED government on that wall!"....And I'm not naive enough to believe more government is the answer, I believe a balance is needed.

And if "freedom" and "liberty" from government guarantee prosperity for all, then why are most big corporations running FROM operating in the countries where citizens have the most "freedom" and "liberty" in the world - mature Western Democracies - and embracing those countries that have much less "liberty and "freedom"....authoritarian and government managed economies?

It's simple. The "freedom" and "liberty" they've convinced people like you to favor - is "freedom" and "liberty" for THEM, to do WHATEVER THEY WANT to make the most money they can EXPLOITING whatever or whoever they can.

And in the end, the U.S. always ranks pretty high in global "business friendly" rankings, anyway.

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al3
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Jul. 31, 2007 3:01 pm
Quote jrodefeld:
Quote Laborisgood:
Quote jrodefeld:

and a limited government as the true humanitarian system.

That's rich.

What an intelligent critique you make of my central thesis.

Seriously, do you care to make a comment about the documented fact that in the decades prior to Johnson's "war on poverty", we saw the rates of poverty declining much more rapidly? The trend has flatlined since then.

A market economy and a moral, restrained federal government will provide far better outcomes in the short term and especially in the long term for the poor and middle class. I stand by that statement and I could give as detailed an economic explanation as you could ask for to defend my statements with indisputable data.

But I won't bother unless I can count on you to respond with more than two words.

I apologize for the brevity of my original post. Please don’t misconstrue my lack of words as a lack of concern for the gravity of the subject.

Humanitarian work is often thankless and rarely financially rewarding. At least it should not be financially rewarding. Look no further than the Red Cross’ ability and willingness to pay obscene six figure salaries to many upper management personnel who deliver no humanitarian services.

This is much like the private for-profit health insurance racket that devours huge profits while it delivers no healthcare services. Government run programs like Medicare and Medicaide have extremely low overhead costs in the range of 3 to 4% as opposed to the 30 to 40% that gets pissed away enriching those who deliver no healthcare services.

You can make the case for a smaller government being more efficient with it’s resources. You can make the case that a bigger government leads to bigger expenditures. You can make the case that humanitarian causes within a government are pissing away good money on undeserving people at the expense of others. But, you cannot make a case that less government increases humanitarianism. I will concede efficiency, profits and liberty of the few at the expense of the many to libertarians and conservatives, but I will never concede humanitarianism to them.

Reputable charity organizations and churches often deliver much humanitarian services, but the lion’s share is delivered by the government. The work is so vast and so plentiful that only the government can hope to meet the basic humanitarian needs. Less government equals less humanitarianism. I’ll take a bigger government delivering more humanitarian services at the expense of the corporations, banks and the wealthy any day. A more humanitarian world is a world I want to live in. However, you can keep pushing for the alternative libertarian paradise that inevitably leads to a less humanitarian world.

I hope these additional words helped clarify my position.

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Laborisgood
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Jul. 31, 2007 3:01 pm

I would not concede efficiency at all. As you point out, the big drag on these agencies is the executive "talent," not the delivery of services. If you need to have this rare and exotic talent, the private sector says you have to pay this enormous tribute. Were you to hire a mere "civil servant" with similar skills, you would get crap, it seems. But, because charity needs to be run like a business, we have to pay business overhead to the top and be glad not to be stuck with government bureaucrats. Isn't that scary enough to make you pay up? See how it works?

drc2
Joined:
Apr. 26, 2012 11:15 am

Libertarians seem to have no sense of American economic history.

Prior to the New Deal, the U.S. had two classes. The poor and the rich. Very few were in the middle of those extremes. A large middle class was created through government policy just as it's now being disolved with government policy.

The closest America ever came to resembling original libertarian ideals was at its founding. Most of the non-slave population owned their own workplace. Independent farmers, shop keepers and craftsmen. They received the full fruits of their own labor. it wasn't shared with capital. That, of course, is the basic premise of socialism.

The early libertarian, Benjamin Tucker, sought to restore that and even referred to himself as a socialist noting that labor which creates all should receive all. He condemed State Socialism which is what most people think of when the term socialism crops up.

Current libertarians are attemping to graft themselves onto a tree that early libertarians thought should simply be chopped down.

They've forgotten their roots.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 3:01 pm
Quote chilidog:
Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

That's a whole lot of time and a whole lot of history and a whole lot of different laws and policies. Why don't you just say 1700 to 1960?

I don't think the USA was building ANY type of middle class, vibrant or not, from 1860 to 1900. And the period 1945 to 1964, well, maybe someone else can explain that...

I just caught this comment. The US did not have any significant middle class until after World War 2. There was NO middle class until about 1880 but even then it was really quite small, dwarfed by the elites and the working poor. As I stated in my previous post, the middle class did not become a central component to American life nor was the US even considered a world power until WWII, the GI Bill, unionization, and social programs that engage in targeted human resource development nationally.

ah2
Joined:
Dec. 13, 2010 9:00 pm

As I pointed out, Ah2, the large middle class was created by government policies instituted in the New Deal. Policy has been changed....and the large middle class is disolving. We're going back to the 'Old Deal". The rich, the poor, and a small number of people between the two extremes.

Many libertarians seem to have no clue of U.S. economic or social history.

Retired Monk - "Ideology is a disease"

polycarp2
Joined:
Jul. 31, 2007 3:01 pm
Quote drc2:

I would not concede efficiency at all. As you point out, the big drag on these agencies is the executive "talent," not the delivery of services. If you need to have this rare and exotic talent, the private sector says you have to pay this enormous tribute. Were you to hire a mere "civil servant" with similar skills, you would get crap, it seems. But, because charity needs to be run like a business, we have to pay business overhead to the top and be glad not to be stuck with government bureaucrats. Isn't that scary enough to make you pay up? See how it works?

I figured I might get a negative response from a liberal on that one. No worries, I’m not boarding the Libertarian Crazy Train. I just find it tiresome arguing about the influence of the invisible hand of the market on efficiency and profits, but when they lay claim to improving humanitarian services via decreased government, they have crossed a line that they have no right even coming near.

Humanitarian Services are by definition “not profitable” and “not an efficient use of resources” if you place little value on those services (which they do). Those services, more than any, would wither and die outside of a supportive government structure. They can call it fiscal responsibility if they so choose, but they cannot call it humanitarian.

I don’t disagree with your assessment of market efficiency, I just prefer to leave that argument to those who are better suited for it. I don’t think charities or government should be “run like a business”. I just felt compelled to throw my 2 cents in when I saw the laughable notion of humanitarian improvements via libertarianism. That is rich.

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Laborisgood
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Quote ah2:...The policies that led to BOTH the Great Depression and our recent Great Recession were identical

Here's an amazing graph which shows that both 1980 and 1930 had huge previous increases in the percentage of the economy in finance:

http://www.princeton.edu/bcf/newsevents/seminar/Philippon-paper.pdf

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Dr. Econ
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Quote Dr. Econ:
Quote Dr. Econ:...The fundemental contradiciton of LIbertarianism is that it uses government to protect man from one another but does not use governmet to protect man from nature.
Quote jrodefeld:I have absolutely no idea what you are talking about when you say government should "protect man from nature".

Of course you do. You set up a government to protect man from other men, but nothing for the necessity and natural forces that produce all kinds of harm on men. Your system cares about one type of harm, but not the other.

Okay, why don't you give some examples? Are you referring to natural disasters and hurricanes and so forth? If that is the case it should be obvious that no government can prevent those kinds of natural disasters. As far as responding to them, it has been obvious that FEMA has been horribly ineffective and counterproductive in its response to any number of crises, especially in New Orleans. Charity and local governments have proven FAR more effective at responding to these types of natural disasters.

If this is NOT what you are referring to by "natural" forces you will need to clarify and expand on what you meant.

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jrodefeld
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Oct. 15, 2011 1:24 am
Quote Dr. Econ:
Quote jrodefeld: ... As long as all transactions are voluntary and nobody can use force or violence against another, a libertarian society is the most peaceful and tolerant.

Nature will force man to work in the worst of conditions in your Libertarian world. They will give up all their rights, be humiliated, suffer indignities, spend their working hours in toil, sweat and danger because nature forces them to. Just because there is no human force does not mean there is no natural force.

This is absolutely meaningless drivel devoid of real meaning. "Nature" forces men to do these things you describe? If a government protects man from aggression or coercion from other men, what other source could oppress people in an economy?

An economy is made up of interactions among humans, which we can call "civilization". It is the furthest thing from "nature" and the "law of the jungle". If no one can use force or coercion upon another and all transactions need to be voluntary and mutually beneficial, then where does the "oppression" come into place?

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jrodefeld
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Quote Dr. Econ:

Quote jrodefeld: ..you need to understand that the market economy is an antidote to the type of crony capitalism and fascist abuses that Wall Street firms have foisted on the American people.
Quote Dr. Econ:...The reason why that is false is because justice requires information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.
Quote jrodefeld:...You don't see how it is possible to find out if lies or fraud have been committed? Let's say you buy a drink that claims it will cure baldness and it turns out to be a scam. That is fraud, it doesn't work and those that knowingly made that false claim should be punished for that act.

In order for that to happen, I need to prove it. I need to obtain the information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.

Quote jrodefeld:The point is that in a free market those things are illegal and governments have an impartial role to bring justice on behalf of the victim.

You are saying you are for a huge consumer protection arm of the government that sues all the companies that lie and commit fraud? That is what liberals want. That is what environmentalists fight for every day. That is not really libertarianism as I understood it. It is not really a 'free market'. A free market has people hiring lawyers and bringing suits based only on a set of laws. That is what I am criticizing, since the wealthy will be able to afford justice while the poor will not.

No, I am saying that a "consumer protection" arm of the federal government will become so fraught with abuse and corruption that it will be ineffective at doing its job. In short order, instead of going after legitimate fraud and abuse and coercion perpetrated by business, the government will begin to "plan" the economy through punishing certain businesses but not others.

As to poorer people not being able to afford to bring suits against larger corporations, a far better answer to this problem is concerned citizens such as yourself forming private non profit groups that bring legal cases against abusive corporations on behalf of a number of victims.

And we don't need each and every individual to get his or her case represented, we merely need a certain number of high profile cases to be brought against an abusive corporation and business that committed fraud or aggression to make it clear that the supposed benefit of a scam or unfair business practice is not worth the cost.

Not to mention, that in a free market, the incentives are to treat costomers well and provide a good product. Competition and public pressure will already punish those who are trying to scam people by having them lose customers to their competitors.

Like I have already said, in the absence of government protection or collusion, corporations are forced to curry favor with the consumers and they have no incentive to abuse those individuals they rely on for their own survival in the marketplace.

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jrodefeld
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Oct. 15, 2011 1:24 am
Quote ah2:
Quote jrodefeld:
Quote ah2:
Quote LysanderSpooner:
Quote Dr. Econ:
Quote LysanderSpooner:

Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now.

My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'.

As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years.

As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory.

Keynesianism, Marxism, interventionism, socialism, fascism and mercantalism are all failed economic theories. We have never had a truly freed market, but anytime the market has been somewhat free, been allowed to work somewhat, there was great prosperity.

Government spending to create jobs is ALWAYS wasteful. Government created "jobs" destroy more than they create. All that you're doing is taxing money from the people, spending it somewhere else, and taking a cut for the bureaucracy.

Read "Economics in One Lesson" by Henry Hazlitt. He'll answer all of your questions.

See this is just a lie. I have been reading through this entire thread and thinking about how to thoughtfully respond and when it all comes down to it, it seems these discussions always come back to some basic lies Libertarians tell themselves and this is the worst.

The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. This combination has and always will and forever lead to economic collapse. The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

None of this is a mistake and your claim is a flat out lie.

I won't claim that YOU are lying because you probably believe what you are saying. Nevertheless, what you are saying is patently false on every level.

Exactly how much time have you spent studying the Austrian School economists? If you haven't spent a reasonable amount of time reading the works of Mises, Rothbard, Hazlitt, Seinholz, or any of the great intellectuals who divised the theories that support their claims, you CANNOT make the claim that what we are saying is a "lie". Rather than simply stating that, you should try to show why the Austrian School economics is incorrect.

Even mainstream non-Austrian commentators are moving away from Keynes and embracing large parts of the Austrian expanation for what has happened.

But let me ask this. In your list of what caused the crisis, you conveniently omit any reference to the Federal Reserve system. Are you honestly disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

That is not even a slightly controversial view. But you don't agree with that. You don't think artificially low interest rates fueled the creation of the housing bubble? You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

As far as "deregulation", there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret. Or government policy that encourages over investment in housing.

I suggest you read Tom Wood's book "Meltdown" to learn about the real causes of the economic crisis.

You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

You can be childish and claim everything I say is a "lie" or you can critique the theories in a more constructive way.

Glass-Steagal.

Making banks have more than 10% cash on hand to garauntee loans they've made.

Regulating the derivative market. IE - make it illegal to stack derivative on top of derivative on top of derivative.

Regulations on predatory leading (IE most of the stuff in Dodd Frank that has been retroactively nerfed by Congress).

Fining the crap out of Moodys and S&P for their failure at rating MBSs prior to the crisis - may not prevent but maybe it will make them a little more diligent in the future. And boy would it feel good...

Making it more difficult for primary mortage loan originators to dump their crappy loans on other banks, including but not limited to Fannie and Freddie. Notably, before the crisis Fannie and Freddie had a much lower rate of toxic loans than most other private banks because the restrictions on what loans they will take is much higher. In fact, the main reason Fannie and Freddie were taking on these loans at all is because as a GSE they have to maintain stock prices within a particular margin. They had to take on these loans to maintain market share and the private market was being flooded with them.

http://useconomy.about.com/od/criticalssues/a/Fannie_Cause.htm

I have no love for the Federal Reserve but to point to that as the singular cause is overly simplistic - which I know you like. Simple explanations lend themselves to simple solutions which are so easy and expedient, but often useless.

It is not overly simplistic. And I don't say that the Federal Reserve is the singular cause of the crisis, only the largest cause.

Are you aware of any high profile liberal or Democrat who has even mentioned the Federal Reserve as a leading cause of the crisis? They don't even mention it.

The real problem is that their view is far too simplistic. They are making the case that there are no real fundamental problems with the US economy that a few more regulations couldn't have fixed. There is nothing wrong with monetary policy and the secretiveness of the Federal Reserve creating trillions of dollars out of thin air to loan to banks at zero percent interest. Regulations couldn't even touch it because it was done completely in secret bypassing Congress and elected leaders.

Here are two posts made on Tom Woods blog about the subject:

Although we’ve heard a great deal about how “deregulation” caused the financial crisis, specific cases of repealed legislation that would have prevented it are few and far between. The one some progressives seem to have settled on is the “repeal” of the Glass-Steagall Act of 1933, which separated commercial from investment banking. The “repeal” involved only one provision of the Act, the one preventing the same holding company from controlling both a commercial bank and an investment bank.

I’ll try to write more on this when I have time (for now, I’ll note that I cover the subject in Rollback, my book from earlier this year). When we recall that stand-alone institutions, both commercial and investment, also failed during the crisis, and that all of them acquired mortgage-backed securities (which they had always been allowed to do, by the way), the Glass-Steagall “repeal” looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place.

(The problem with those who point to Glass-Steagall is not that they’re radical. It’s that they’re not nearly radical enough. They think the system as is, shot through with moral hazard at every level, and presided over by a market-defying central bank, is of its nature stable and without fault; we just need a few regulations.)

Because Glass-Steagall was passed during the Depression, it is assumed that it was addressing a pressing need of the time. In fact, the lack of government-enforced division between commercial and investment banking had precisely zero to do with bank problems during the Great Depression. The 9,000 bank failures during the early 1930s had far more to do with the damage done by government regulation — namely, the unit-banking laws that made it difficult for banks to diversify their portfolios (by limiting them to a single office and making branching illegal) — than with a lack of regulation. These were small banks, not the behemoths for which Glass-Steagall would have been relevant. Canada had none of these stifling regulations, and had zero bank failures. (Incidentally, Canada also avoided all the post-Civil War bank panics that struck the U.S., even though Canada did not have a central bank until 1934 — yet again, reality refuses to conform to the where-would-we-be-without-our-wise-overlords comic-book version of events.)

The Glass-Steagall-did-it crowd is the same crowd that likes to claim Canada avoided the worst of the U.S. crisis because it was so much better regulated. But they can’t have it both ways — Canada did not have a Glass-Steagall law!

And a second post on the subject:

"Deregulation Caused the Financial Crisis"

Sick of that one? Me too. Here’s the quick note I sent someone who asked Professor Walter Block this very thing.

“I cover this in detail in my forthcoming (February 7) book Rollback. For now, I’d ask your friends for specific examples of deregulation that led to the present crisis. They can’t name one. There isn’t a repealed regulation that would have prevented the securitization of mortgages, or prevented banks from holding such securitized mortgages as investments. Banks were allowed to do this all along. If they cite the so-called repeal of Glass-Steagall they are even more clueless. The partial lifting of barriers between commercial and investment banking had exactly zero to do with the financial crisis. (Much more on this in my book.)

“Moreover, who could possibly look at banking and think this was a deregulated industry? Regulation is absolutely everywhere. No one seems willing to consider the possibility that regulation may simply have failed, that regulators may be human beings rather than demigods, etc. Walter is right: banking is the most heavily regulated industry in America. There are already 115 agencies regulating the U.S. financial sector. Your friends think things would improve if there were 116. They are stuck in an interventionist worldview they cannot break free of. The thought never occurs to them that the very institutions that are supposed to provide stability may be the sources of instability — beginning with the Federal Reserve. This story is told in my book Meltdown, which Walter recommended.”


What you need to understand is that the problems are far more fundamental and require more sweeping change that you understand. The problems we are having require vast reform of the monetary system.

jrodefeld's picture
jrodefeld
Joined:
Oct. 15, 2011 1:24 am
Quote Dr. Econ:
Quote LysanderSpooner:... Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now....
Quote Dr. Econ: My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'. As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years. ...
Quote Jerrod:..Our economic prosperity is what counts and I argue that the cause of that prosperity is due to the free market and the industrial revolution. Our Constitution and the principles of individual liberty and sound money our nation was founded upon created the basis for the largest middle class the world has ever known.

LS said the policies of the last 100 years put us in the fix we are in. I reminded him that we became an economic and military superpower during those set of policies.

Now you are saying even though we had those policies, we have the largest middle class. I guess those policies were really that bad, then. Further, how on earth do you blame these very same polices for the fix we are in now, if - while under them - we grew to have the largest middle class ever?

Why do you write so much to evade so little?

You are misunderstanding what I am saying. You don't flip on a switch and transition from a free market economy to total socialism over night. Just because we had some prosperity after the creation of the Federal Reserve in 1913 and the introduction of some progressive policies does not mean that our wealth can be attributed to those policies.

We had a far smaller government, sounder money and a relatively free market for most of the early to mid 20th century. Yes, we did have a central bank, but its activities were contrained due to the Gold Standard, first the domestic gold exchange which FDR ended in 1934 and finally the foreign gold exchange which broke down in 1971.

The "progressive" policies caused a great deal of harm even then. First they created a central bank under Wilson and he promptly led us into World War 1. Then the Fed created a bubble in the 20's that ended in the stock market crash of 29. Then Hoover and FDR pursued policies that deepened and lengthened the Great Depression. Then FDR led us into World War 2.

In fact, after WWII, we actually came to our senses and rejected Keynesian economics for a time and actually slashed spending and taxes and we had a robust recovery and enjoyed reasonable prosperity in the 1950's and 60's.

The path we were put on with Wilson and FDR with the monetary system and Keynesian economics would ultimately be our downfall as a nation. It was simply that in the early stages we had so much prosperity and the Fed was so contrained in its ability to expand credit that we were able to live relatively well dispite the glaring problems I outlined above.

However, like I already said, things surely went downhill very fast after Nixon closed the gold window in 1971 and there were no longer any restraints on monetary policy and the growth of government. All Austrians knew that the Bretton Woods agreement would break down and usher in an era of massive inflation, corporatism and growth in government. They were proven correct.

It was these policies of the last one hundred years that has led us to where we are today. But prior to 1971, in so many respects we still had a remarkably limited government, a much sounder currency and a healthier middle class. But this was not the result of progressive policies overall. Much more credit should go to the prosperity and industry that we built up since the Industrial Revolution in the 19th century.

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jrodefeld
Joined:
Oct. 15, 2011 1:24 am
Quote Laborisgood:
Quote drc2:

I would not concede efficiency at all. As you point out, the big drag on these agencies is the executive "talent," not the delivery of services. If you need to have this rare and exotic talent, the private sector says you have to pay this enormous tribute. Were you to hire a mere "civil servant" with similar skills, you would get crap, it seems. But, because charity needs to be run like a business, we have to pay business overhead to the top and be glad not to be stuck with government bureaucrats. Isn't that scary enough to make you pay up? See how it works?

I figured I might get a negative response from a liberal on that one. No worries, I’m not boarding the Libertarian Crazy Train. I just find it tiresome arguing about the influence of the invisible hand of the market on efficiency and profits, but when they lay claim to improving humanitarian services via decreased government, they have crossed a line that they have no right even coming near.

Humanitarian Services are by definition “not profitable” and “not an efficient use of resources” if you place little value on those services (which they do). Those services, more than any, would wither and die outside of a supportive government structure. They can call it fiscal responsibility if they so choose, but they cannot call it humanitarian.

I don’t disagree with your assessment of market efficiency, I just prefer to leave that argument to those who are better suited for it. I don’t think charities or government should be “run like a business”. I just felt compelled to throw my 2 cents in when I saw the laughable notion of humanitarian improvements via libertarianism. That is rich.

What you don't understand is that in a free country in the absense of a large government not every activity needs to be in pursuit of profits. You seem to have some idea of libertarianism that every aspect of society that is not government is a cut throat pursuit of the maximum amount of money and material abundance. Nothing could possibly be further from the truth.

Another issue you face is that you keep claiming that the number who need help are so vast and the task so overwhelming that we need government to do the most "humanitarian" work. What you are not understanding is that a superior goal that many libertarians have is to create an economic environment that drastically reduces the number of poor and hungry.

There are all kinds of economic activities and social cooperation that is encouraged in a libertarian society that is not driven by the desire for profit. Humanitarian work is desirable and encouraged.

If savings are encouraged and people have material abundance in excess of their basic needs, wouldn't they be far more able to give to others in need? If governments were not forcefully taking 50% of our paychecks and constantly erroding our standard of living through inflation, private charity could expand drastically.

Free individuals can choose whether they want to pursue profits, or pursue non profid humanitarian work. Or they can follow a career path because of a desire to help people and while they may make profits, that is not their goal.

Many progressives think that any sector of the economy where profits are present is inherently undesirable. Thus the call to have "not for profit" health care or any other sector they want to reform.

This displays a very poor understanding of the proper function of profits and losses in an economy. They properly function as market signals that consumers send to businesses. It does NOT follow that every business or doctor or entrepreneur is looking to pursue maximum profits at the expense of all other considerations.

For example, I really believe that most doctors choose that profession to help people. They want to be successful in helping people. Of course everyone wants to live reasonably well but many are interested in helping people over making a profit. But profits are still critical for that person because it is the ONLY way to know if you are effectively serving a need in the economy.

Losses are equally important in an economy. If you remove profits and losses from a sector of the economy, what you are really doing is not "elminating greed" but you are eliminating the one way that consumers can indicate their preferences by rewarding the best doctor or the best store or whatever. You are reducing the ability of the consumer to plan the economy and turning that function over to central planners.

This will NOT improve outcomes.

A free economy and free country does not require one to believe in maximum profits or even materialism. It merely means people have the choice to pursue humanitarian non profit work or any type of mutually beneficial economic activity.

In fact all the progressives who currently lobby government to create "non profit" medicine or to create a new program for the poor or whatever would be able to organize in the private economy and reject profits and work on any social problem imaginable and you would probably be able to do far more good in the private sector than in the government sector.

What is so hard to understand about this?

jrodefeld's picture
jrodefeld
Joined:
Oct. 15, 2011 1:24 am
Quote ah2:
Quote chilidog:
Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

That's a whole lot of time and a whole lot of history and a whole lot of different laws and policies. Why don't you just say 1700 to 1960?

I don't think the USA was building ANY type of middle class, vibrant or not, from 1860 to 1900. And the period 1945 to 1964, well, maybe someone else can explain that...

I just caught this comment. The US did not have any significant middle class until after World War 2. There was NO middle class until about 1880 but even then it was really quite small, dwarfed by the elites and the working poor. As I stated in my previous post, the middle class did not become a central component to American life nor was the US even considered a world power until WWII, the GI Bill, unionization, and social programs that engage in targeted human resource development nationally.

This is absolutely incorrect. Let me ask you this. Would you rather live in the United States in 1840 or 1900? Do you think the poorer classes were better off after the Industrial Revolution? Of course they were.

The problem is that compared to today, a "middle class" person in 1900 would be living in desperate poverty. A first reaction might be that we should have had a "new deal" type of program in 1880 that would surely have improve the standard of living of those people? But that doesn't make any sense if you think about it.

What is important is that prior to the founding of our country probably 95% of the world lived in desperate poverty. It was the common state of affairs the world over. It was only the introduction of market economics and capitalism that emerged from the enlightenment era, what was termed "liberalism" that allowed for the first time the conditions that allowed the production of material goods and the efficiency that allowed the poor to get wealthier and wealthier generation over generation. For the first time in recorded history, in a generation or two a family could lift themselves out of poverty and have enough to eat and provide a better life for their children.

Today, we might look at working conditions for a poorer person in 1870 and find them deplorable. The reality however, was that was the best job available in the economy and compared to what the alternatives were, they were more than happy to take that job.

It was FAR better than anything else that had been available to a common person in most countries. There was no government program or "new deal" policy that could have improved that person's life. It was the market economy that was already improving the wealth of the family that that individual belonged to. His son might work at a better job and make a little more money.

We seem to think that when a government puts a policy into place, everything that follows that policy is because of that policy rather than despite that policy. For example, what really eliminated child labor? Was it a government ban on child labor? No, it was the fact that a family became prosperous enough that they could afford to have their children NOT work.

Even today, progressive politicians have pushed for "progressive" laws to be introduced in third world countries such as banning child labor laws. And some have been introduced. You know what frequently happens? Instead of working a legal job, many children are forced into prostitution. Does that make you feel better?

No one sends there children to work because they want to. They did it because they could not survive without all members of the family working. The way out of these kinds of problems are policies that encourage economic prosperity so workers can become more efficient, prices become lower and families can do without their kids working. Then they can do without both parents working and a family is able to eventually make ends meet on a single income. That is ideal.

To evaluate the policies of the late 19th century we need to compare the average workers life to what it was like before. What was the rate of progress? How fast was economic growth?

In fact, the Industrial Revolution provided the most rapid economic growth in recorded history. Comparatively speeking, the average life was infinitely better at the turn of the twentieth century than it was in 1840.

The middle class might have been better off in 1950 and it certainly is today, but that has very little to do with government policy. It has to do with continued technological progress that continues despite some very bad government policy that hinders economic growth.

So you cannot possibly say that there was no middle class to speak of before the New Deal. The truth is that increases in prosperity were largely the result of the market economy and the increasing efficiency of the American worker due to technological breakthroughs and investment in capital equipment.

The fact that we never again had economic growth so rapid as during the Industrial Revolution up to 1910 or so indicates that if we had a similar market environment and a commodity backed currency we could do much better.

Do you now understand why you cannot fairly compare the middle class of 1950 to the middle class of 1880? And why you cannot credit the New Deal for "the creation of the middle class"? The creation of the modern middle class was happening already.

It just might have been accelerated if progressive policies and the creation of a central bank didn't divert resources to fighting two world wars and created a fifteen year depression.

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jrodefeld
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Oct. 15, 2011 1:24 am

Jrodefeld,

Well stated!

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LysanderSpooner
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Jul. 31, 2007 3:01 pm
Quote Dr. Econ:
Quote ah2:...The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. ...The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

Quote jrodefeld:..Are you ..disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

Since there was no inflation, I would say they contributed little by trying to keep interest rates low - if that is what they did. But they contributed a lot when they failed to deregulate new instruments, and allow other deregulations under their jurisdictions.

Why don't respond to Ah2's facts?

It is absolutely unbelievable that you can make such a statement. There is no inflation? Do you ever go grocery shopping?

Inflation is a monetary phenomenon. Rising prices are the result of inflation. The Federal Reserve has tripled the monetary base since 2008. That IS inflation.

The official CBO numbers on inflation are completely fraudulent and inaccurate.

Look at this website: http://www.shadowstats.com/

John Williams compiles the more accurate stats that the government tries to hide from the people. If we judge inflation the way our government used to calculate it, it is over 6%. Not only that, but even this figure is misleading as even then the government stats were designed to disguise the true extent of inflation.

Some have said that the true rate of price inflation is over 9%. And all that money that the Fed has created has not yet circulated into the economy. When it does, we will see an extremely rapid rise in prices.

Also, note on this website the true unemployment rate of roughly 23%. That is real Great Depression numbers.

Not only that, but inflation is not even relevent to how interest rate manipulation distorts the market and causes misallocation of resources and overinvestment in certain sectors of the economy.

Seriously, if banks couldn't loan litterally free money to developers to build houses, you don't think they would build far less of them if they had to pay high interest rates?

I have already explained this to you. This is not even a very complicated economic point. It is very basic and you cannot honestly dispute this.

Quote Dr. Econ:
Quote jrodefeld:... You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

Oh please. We have been over this before and you lost then too.

I "lost" huh? I would say that there is no disputing that these government guarantees contributed to the problem to some degree. I am not saying they are the single or even most important factor. But they played a significant role whether you want to admit it or not.

Quote Dr. Econ:
Quote jrodefeld:...No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

The idea is that excess savings causes gambling behavior in the stock market, causing bubbles. It is also aided by lower wages and higher inequality - reducing demand.

But we had no savings. Every single Fed and government economic policy is designed to discourage savings and encourage debt. Fiat money encourages gambling behavior in the stock market.

Quote Dr. Econ:
Quote jrodefeld:...there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret....

Of course there were. Glass Stegal would have prevented the housing meltdown to melt the entire economy. To prevent the housing bubble, you simply had to keep in place regulations that existed before Reagan. That's why you have a FED and NO housing crisis since the Great Depression.

No it wouln't have. I already posted the response to this from Tom Woods but I will repeat the link here for your benefit.

http://www.tomwoods.com/blog/repeal-of-glass-steagall-had-nothing-to-do-with-the-crisis/

I am not even opposed to reinstating Glass Steagall but it would NOT have prevented this crisis.

Quote Dr. Econ:
Quote jrodefeld:....You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

Even a broken watch is right two times a day. When do Austrians not predict a crisis?

Yes, but they were not just doom and gloomers predicting vague chaos in the future. Their predictions were incredibly detailed and accurrate about government and Fed policy and what its effects would be. Ron Paul offered a bill that would have prevented the creation of the housing bubble by preventing the Fed from funnelling credit into the housing sector.

He saw this coming a decade ago. And he proposed actualy tangible pieces of legislation that would have prevented the problems we are now experiencing.

Who else can you say that about?

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jrodefeld
Joined:
Oct. 15, 2011 1:24 am
Quote Dr. Econ:
Quote ah2:

The source LS wants us to read: http://www.hacer.org/pdf/Hazlitt00.pdf

I am working through it now.

It is crap.

Quote Dr. Econ:
Quote LysanderSpooner: Read "Economics in One Lesson" by Henry Hazlitt. He'll answer all of your questions.

But he does nothing of the sort. He reiterates the standard 'classical' model - before even rational expectations and real business cycle theory. He even ignores market externalities and market power, and assumes that what is true in individual level is true in the aggregate. His wonderful naive faith in technology is sobering - and I can't help thinking how FOXCONN slaves are repeating this free market myopia while the US surrenders her manufacturing and turns into a third world country.

Read Hazlitt? Why? Why not read Keynes, Marx, Fischer, or now Krugman and Minsky? Do you actually think any of these writers did not learn all this silly free market stuff in their first year of undergraduate economics?

I have already proved some of the arguements that you have brought up before - and just as you ignore those posts you will ignore this one.

You fail to even make a single case against what Hazlitt writes in this book save for meaningless rhetoric about it being "naive" and so forth.

The important point is that this book is designed for a beginner. It doesn't answer all questions. It is a good first introduction to real economics by taking apart the most common economic fallacies that continue to plague the economic profession to this day.

Yes, the "broken window fallacy" is pretty elementary and might even seem self evident when you read about it. But why is it that so many of the Phd economists cannot even grasp this basic concept?

You might be impressed with charts and math equations and so forth that those ivory tower economists might use to wow the gullible but economics is actually much more simple that they try to make it.

They needlessly complicate things so as to disguise the fact that government policies they defend are blatently immoral and violate basic economics. It is fallacies passed off as wisdom.

You have to begin with the basics and understand the common fallacies before you can move on to move advanced concepts like the "business cycle theory" or "praxeology" or any number of more complicated ideas. I still maintain that if you read "Economics in One Lesson" and understand it you will know more about real economics and be able to understand the fallacies that plague the profession.

I could link to "Human Action" by Ludwig von Mises or "Socialism: An Economic and Sociological Analysis" or "The Theory of Money and Credit" but I highly doubt you will be willing to wade through a 1200 page treatise that is really for the more experienced economist.

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jrodefeld
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Oct. 15, 2011 1:24 am
Quote LysanderSpooner:

Jrodefeld,

Well stated!

I appreciate the comment. I have to commend you on the user name you chose for this forum. I happen to greatly admire the work of Lysander Spooner. An abolitionist and libertarian who fought against injustice not through seeking government power, but by condemning slavery and racism by expanding the concept of liberty and using the text of the Constitution to bolster his argument.

In contrast to the new Republican party of Lincoln, Spooner was not interested in trading one form of slavery for another. He seemed to offer a saner and less costly way to get rid of slavery without the bloody Civil War and without compromising the Constitution.

I find his books indispensable.

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jrodefeld
Joined:
Oct. 15, 2011 1:24 am
Quote jrodefeld:
Quote Dr. Econ:
Quote Dr. Econ:...The fundemental contradiciton of LIbertarianism is that it uses government to protect man from one another but does not use governmet to protect man from nature.
Quote jrodefeld:I have absolutely no idea what you are talking about when you say government should "protect man from nature".

Of course you do. You set up a government to protect man from other men, but nothing for the necessity and natural forces that produce all kinds of harm on men. Your system cares about one type of harm, but not the other.

Okay, why don't you give some examples? Are you referring to natural disasters and hurricanes and so forth? ... As far as responding to them, it has been obvious that FEMA has been horribly ineffective and counterproductive in its response to any number of crises, especially in New Orleans. Charity and local governments have proven FAR more effective at responding to these types of natural disasters.

Are you saying we can't have laws protecting humans from nature because no government has existed that does this well? That's like saying that states should not have abandoned slavery when they all believed in slavery. That's like saying Democracy was impossible when all states practiced Monarchy. Locke would never have written his book on the Rights of Man because no state ever existed that was Libertarian.

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Dr. Econ
Joined:
Jul. 31, 2007 3:01 pm
Quote jrodefeld:
Quote Dr. Econ:
Quote jrodefeld: ... As long as all transactions are voluntary and nobody can use force or violence against another, a libertarian society is the most peaceful and tolerant.

Nature will force man to work in the worst of conditions in your Libertarian world. They will give up all their rights, be humiliated, suffer indignities, spend their working hours in toil, sweat and danger because nature forces them to. Just because there is no human force does not mean there is no natural force.

This is absolutely meaningless drivel devoid of real meaning. "Nature" forces men to do these things you describe? If a government protects man from aggression or coercion from other men, what other source could oppress people in an economy?

An economy is made up of interactions among humans, which we can call "civilization". It is the furthest thing from "nature" and the "law of the jungle". If no one can use force or coercion upon another and all transactions need to be voluntary and mutually beneficial, then where does the "oppression" come into place?

Necessity.

Dr. Econ's picture
Dr. Econ
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Quote jrodefeld:
Quote Dr. Econ:

Quote jrodefeld: ..you need to understand that the market economy is an antidote to the type of crony capitalism and fascist abuses that Wall Street firms have foisted on the American people.
Quote Dr. Econ:...The reason why that is false is because justice requires information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.
Quote jrodefeld:...You don't see how it is possible to find out if lies or fraud have been committed? Let's say you buy a drink that claims it will cure baldness and it turns out to be a scam. That is fraud, it doesn't work and those that knowingly made that false claim should be punished for that act.

In order for that to happen, I need to prove it. I need to obtain the information, which is not free. Thus, the wealthy will be able to commit fraud and lie in a free market.

Quote jrodefeld:The point is that in a free market those things are illegal and governments have an impartial role to bring justice on behalf of the victim.

You are saying you are for a huge consumer protection arm of the government that sues all the companies that lie and commit fraud? That is what liberals want. That is what environmentalists fight for every day. That is not really libertarianism as I understood it. It is not really a 'free market'. A free market has people hiring lawyers and bringing suits based only on a set of laws. That is what I am criticizing, since the wealthy will be able to afford justice while the poor will not.

No, I am saying that a "consumer protection" arm of the federal government will become so fraught with abuse and corruption that it will be ineffective at doing its job. In short order, instead of going after legitimate fraud and abuse and coercion perpetrated by business, the government will begin to "plan" the economy through punishing certain businesses but not others.

As to poorer people not being able to afford to bring suits against larger corporations, a far better answer to this problem is concerned citizens such as yourself forming private non profit groups that bring legal cases against abusive corporations on behalf of a number of victims.

And we don't need each and every individual to get his or her case represented, we merely need a certain number of high profile cases to be brought against an abusive corporation and business that committed fraud or aggression to make it clear that the supposed benefit of a scam or unfair business practice is not worth the cost.

Not to mention, that in a free market, the incentives are to treat costomers well and provide a good product. Competition and public pressure will already punish those who are trying to scam people by having them lose customers to their competitors.

Like I have already said, in the absence of government protection or collusion, corporations are forced to curry favor with the consumers and they have no incentive to abuse those individuals they rely on for their own survival in the marketplace.

What are you saying? It seems like when you began writing, you realized the problem I was addressing, and said that despite it, the government solution is worse. You then went and say there are these 'incentives' which mitigate consumer fraud and abuse, as if you didn't understand what I was saying.

The point is that corporations can abuse consumers when and if they can get away with it. They can do it because information has a cost - often a very high one. Your solution - leaving it to non-profit groups - just like your solution to everything - seems weak and ineffective. In fact, that seems to be your general rhetorical argument . Free markets are wonderful, and when proven they are not, you say 'well the government is worse'! Why not just say the government is worse to begin with, then people won't have to buy your naive capitalist mantras? But you really aren't going to learn anything until you start reading both sides of the argument.

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Dr. Econ
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Of course. "If men(sic) were angels we would need no government." Unless the rights and equality are instituted and established as well as protected, they will be worth the paper we can print them on. We can have government and the State designed to support the moral democratic balance the lib utopians describe, but the balance is not going to survive just because it is moral and natural.

As in the line Thom uses, "a necessitous man is not a free man," Dr. Econ has answered jrodfeld completely and finally.

drc2
Joined:
Apr. 26, 2012 11:15 am
Quote jrodefeld:
Quote ah2:
Quote jrodefeld:
Quote ah2:
Quote LysanderSpooner:
Quote Dr. Econ:
Quote LysanderSpooner:

Those textbook economists are the ones who have supported policies for the past 100 years that have put us in the fix we're in now.

My point is intead of saying 'you don't understand economics' you should have said 'I disagree with the standard economics you understand so well'.

As to your '100 year' theory - I might remind you once again that the US became an economic and military superpower in those years.

As to your economic theory of 'malinvestment' I have shown that to be false elsewhere. It requires the financial industry to be irrational - which contradicts your 'Free Markets Are Better Than Sex' theory.

Keynesianism, Marxism, interventionism, socialism, fascism and mercantalism are all failed economic theories. We have never had a truly freed market, but anytime the market has been somewhat free, been allowed to work somewhat, there was great prosperity.

Government spending to create jobs is ALWAYS wasteful. Government created "jobs" destroy more than they create. All that you're doing is taxing money from the people, spending it somewhere else, and taking a cut for the bureaucracy.

Read "Economics in One Lesson" by Henry Hazlitt. He'll answer all of your questions.

See this is just a lie. I have been reading through this entire thread and thinking about how to thoughtfully respond and when it all comes down to it, it seems these discussions always come back to some basic lies Libertarians tell themselves and this is the worst.

The policies that led to BOTH the Great Depression and our recent Great Recession were identical - deregulate financial markets, lower top marginal tax rates, repress labor conditions, etc. etc. This combination has and always will and forever lead to economic collapse. The rise of the middle class in this country and the US as a superpower coincided with three things - the GI bill and other massive investment human resources of the country, the raising of the top marginal tax rates for INDIVIDUALS (corporate and capital gains were not so high) - and we are talking about in teh 70-90% range, and, finally, strong labor and civil rights movement (IE - investment in, rather than repression of, labor).

The moment those things changed in the 1980s, you begin to see the fall of the middle class - lower salaries, smaller numbers, and lower standards of living. Not only that but you see other economies, such as China, begin to overtake us.

None of this is a mistake and your claim is a flat out lie.

I won't claim that YOU are lying because you probably believe what you are saying. Nevertheless, what you are saying is patently false on every level.

Exactly how much time have you spent studying the Austrian School economists? If you haven't spent a reasonable amount of time reading the works of Mises, Rothbard, Hazlitt, Seinholz, or any of the great intellectuals who divised the theories that support their claims, you CANNOT make the claim that what we are saying is a "lie". Rather than simply stating that, you should try to show why the Austrian School economics is incorrect.

Even mainstream non-Austrian commentators are moving away from Keynes and embracing large parts of the Austrian expanation for what has happened.

But let me ask this. In your list of what caused the crisis, you conveniently omit any reference to the Federal Reserve system. Are you honestly disagreeing with a majority of economists and commentators (not just Austrians) who claim that Alan Greenspan and Bernanked contributed heavily to the crisis by keeping interest rates too low for too long?

That is not even a slightly controversial view. But you don't agree with that. You don't think artificially low interest rates fueled the creation of the housing bubble? You don't think Fanny Mae and Freddy Mac and government guarantees contributed to the problem?

No your case is that we had lower taxes on "the rich" and we "repressed labor conditions" and this caused the problem. Even if both cases are true, how on earth did they cause the business cycle and the economic crisis?

As far as "deregulation", there were no major regulations that could have prevented this crisis. Glass Steagal probably should have stayed but it wouldn't have made a difference when we have a secretive Federal Reserve that manipulates interest rates and bails out banks and corporate interests in secret. Or government policy that encourages over investment in housing.

I suggest you read Tom Wood's book "Meltdown" to learn about the real causes of the economic crisis.

You also might explain to me how the Austrian school economists were able to predict this crisis a decade ago while others were so clueless as late as 2007 and early 2008.

You can be childish and claim everything I say is a "lie" or you can critique the theories in a more constructive way.

Glass-Steagal.

Making banks have more than 10% cash on hand to garauntee loans they've made.

Regulating the derivative market. IE - make it illegal to stack derivative on top of derivative on top of derivative.

Regulations on predatory leading (IE most of the stuff in Dodd Frank that has been retroactively nerfed by Congress).

Fining the crap out of Moodys and S&P for their failure at rating MBSs prior to the crisis - may not prevent but maybe it will make them a little more diligent in the future. And boy would it feel good...

Making it more difficult for primary mortage loan originators to dump their crappy loans on other banks, including but not limited to Fannie and Freddie. Notably, before the crisis Fannie and Freddie had a much lower rate of toxic loans than most other private banks because the restrictions on what loans they will take is much higher. In fact, the main reason Fannie and Freddie were taking on these loans at all is because as a GSE they have to maintain stock prices within a particular margin. They had to take on these loans to maintain market share and the private market was being flooded with them.

http://useconomy.about.com/od/criticalssues/a/Fannie_Cause.htm

I have no love for the Federal Reserve but to point to that as the singular cause is overly simplistic - which I know you like. Simple explanations lend themselves to simple solutions which are so easy and expedient, but often useless.

It is not overly simplistic. And I don't say that the Federal Reserve is the singular cause of the crisis, only the largest cause.

Are you aware of any high profile liberal or Democrat who has even mentioned the Federal Reserve as a leading cause of the crisis? They don't even mention it.

The real problem is that their view is far too simplistic. They are making the case that there are no real fundamental problems with the US economy that a few more regulations couldn't have fixed. There is nothing wrong with monetary policy and the secretiveness of the Federal Reserve creating trillions of dollars out of thin air to loan to banks at zero percent interest. Regulations couldn't even touch it because it was done completely in secret bypassing Congress and elected leaders.

Here are two posts made on Tom Woods blog about the subject:

Although we’ve heard a great deal about how “deregulation” caused the financial crisis, specific cases of repealed legislation that would have prevented it are few and far between. The one some progressives seem to have settled on is the “repeal” of the Glass-Steagall Act of 1933, which separated commercial from investment banking. The “repeal” involved only one provision of the Act, the one preventing the same holding company from controlling both a commercial bank and an investment bank.

I’ll try to write more on this when I have time (for now, I’ll note that I cover the subject in Rollback, my book from earlier this year). When we recall that stand-alone institutions, both commercial and investment, also failed during the crisis, and that all of them acquired mortgage-backed securities (which they had always been allowed to do, by the way), the Glass-Steagall “repeal” looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place.

(The problem with those who point to Glass-Steagall is not that they’re radical. It’s that they’re not nearly radical enough. They think the system as is, shot through with moral hazard at every level, and presided over by a market-defying central bank, is of its nature stable and without fault; we just need a few regulations.)

Because Glass-Steagall was passed during the Depression, it is assumed that it was addressing a pressing need of the time. In fact, the lack of government-enforced division between commercial and investment banking had precisely zero to do with bank problems during the Great Depression. The 9,000 bank failures during the early 1930s had far more to do with the damage done by government regulation — namely, the unit-banking laws that made it difficult for banks to diversify their portfolios (by limiting them to a single office and making branching illegal) — than with a lack of regulation. These were small banks, not the behemoths for which Glass-Steagall would have been relevant. Canada had none of these stifling regulations, and had zero bank failures. (Incidentally, Canada also avoided all the post-Civil War bank panics that struck the U.S., even though Canada did not have a central bank until 1934 — yet again, reality refuses to conform to the where-would-we-be-without-our-wise-overlords comic-book version of events.)

The Glass-Steagall-did-it crowd is the same crowd that likes to claim Canada avoided the worst of the U.S. crisis because it was so much better regulated. But they can’t have it both ways — Canada did not have a Glass-Steagall law!

And a second post on the subject:

"Deregulation Caused the Financial Crisis"

Sick of that one? Me too. Here’s the quick note I sent someone who asked Professor Walter Block this very thing.

“I cover this in detail in my forthcoming (February 7) book Rollback. For now, I’d ask your friends for specific examples of deregulation that led to the present crisis. They can’t name one. There isn’t a repealed regulation that would have prevented the securitization of mortgages, or prevented banks from holding such securitized mortgages as investments. Banks were allowed to do this all along. If they cite the so-called repeal of Glass-Steagall they are even more clueless. The partial lifting of barriers between commercial and investment banking had exactly zero to do with the financial crisis. (Much more on this in my book.)

“Moreover, who could possibly look at banking and think this was a deregulated industry? Regulation is absolutely everywhere. No one seems willing to consider the possibility that regulation may simply have failed, that regulators may be human beings rather than demigods, etc. Walter is right: banking is the most heavily regulated industry in America. There are already 115 agencies regulating the U.S. financial sector. Your friends think things would improve if there were 116. They are stuck in an interventionist worldview they cannot break free of. The thought never occurs to them that the very institutions that are supposed to provide stability may be the sources of instability — beginning with the Federal Reserve. This story is told in my book Meltdown, which Walter recommended.”


What you need to understand is that the problems are far more fundamental and require more sweeping change that you understand. The problems we are having require vast reform of the monetary system.

jrod, can you please point to the post where I say that Glass-Steagal caused the crash? You are arguing (and so is the person you are quoting) against an argument that HAS NEVER BEEN MADE BY ANY LIBERAL I KNOW. Glass-Steagal has been referenced insofar as that it was its repeal that allowed the financial crash to literally decimate retirement funds and other savings of the common citizen. While the author addresses this by saying stand alone institutions crashed, too, this does not really address the issue. Stand alone institutions were effected by the fact that other institutions were mixing the pot. You can't act like those stand alone institutions are isolated from the rest of the market. Now, I am fully willing to accept that personal savings and retirement accounts would have taken a hit anyway, but it would not have been nearly to the same degree because the banks would not be able to gamble directly with that money.

Why don't you address my REAL argument where I list about 5-6 policies that could have been in place rather than pretending that all I said was Glass-Steagal. In fact, the ONLY person who has sad that was the sole policy that would have made a difference is YOU. My post was in direct response to that comment showing you that there were NUMEROUS things that could have been done, not just Glass-Steagal. So, apparently you are arguing with yourself.

ah2
Joined:
Dec. 13, 2010 9:00 pm
Quote jrodefeld:
Quote ah2:
Quote chilidog:
Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

That's a whole lot of time and a whole lot of history and a whole lot of different laws and policies. Why don't you just say 1700 to 1960?

I don't think the USA was building ANY type of middle class, vibrant or not, from 1860 to 1900. And the period 1945 to 1964, well, maybe someone else can explain that...

I just caught this comment. The US did not have any significant middle class until after World War 2. There was NO middle class until about 1880 but even then it was really quite small, dwarfed by the elites and the working poor. As I stated in my previous post, the middle class did not become a central component to American life nor was the US even considered a world power until WWII, the GI Bill, unionization, and social programs that engage in targeted human resource development nationally.

This is absolutely incorrect. Let me ask you this. Would you rather live in the United States in 1840 or 1900? Do you think the poorer classes were better off after the Industrial Revolution? Of course they were.

The problem is that compared to today, a "middle class" person in 1900 would be living in desperate poverty. A first reaction might be that we should have had a "new deal" type of program in 1880 that would surely have improve the standard of living of those people? But that doesn't make any sense if you think about it.

What is important is that prior to the founding of our country probably 95% of the world lived in desperate poverty. It was the common state of affairs the world over. It was only the introduction of market economics and capitalism that emerged from the enlightenment era, what was termed "liberalism" that allowed for the first time the conditions that allowed the production of material goods and the efficiency that allowed the poor to get wealthier and wealthier generation over generation. For the first time in recorded history, in a generation or two a family could lift themselves out of poverty and have enough to eat and provide a better life for their children.

Today, we might look at working conditions for a poorer person in 1870 and find them deplorable. The reality however, was that was the best job available in the economy and compared to what the alternatives were, they were more than happy to take that job.

It was FAR better than anything else that had been available to a common person in most countries. There was no government program or "new deal" policy that could have improved that person's life. It was the market economy that was already improving the wealth of the family that that individual belonged to. His son might work at a better job and make a little more money.

We seem to think that when a government puts a policy into place, everything that follows that policy is because of that policy rather than despite that policy. For example, what really eliminated child labor? Was it a government ban on child labor? No, it was the fact that a family became prosperous enough that they could afford to have their children NOT work.

Even today, progressive politicians have pushed for "progressive" laws to be introduced in third world countries such as banning child labor laws. And some have been introduced. You know what frequently happens? Instead of working a legal job, many children are forced into prostitution. Does that make you feel better?

No one sends there children to work because they want to. They did it because they could not survive without all members of the family working. The way out of these kinds of problems are policies that encourage economic prosperity so workers can become more efficient, prices become lower and families can do without their kids working. Then they can do without both parents working and a family is able to eventually make ends meet on a single income. That is ideal.

To evaluate the policies of the late 19th century we need to compare the average workers life to what it was like before. What was the rate of progress? How fast was economic growth?

In fact, the Industrial Revolution provided the most rapid economic growth in recorded history. Comparatively speeking, the average life was infinitely better at the turn of the twentieth century than it was in 1840.

The middle class might have been better off in 1950 and it certainly is today, but that has very little to do with government policy. It has to do with continued technological progress that continues despite some very bad government policy that hinders economic growth.

So you cannot possibly say that there was no middle class to speak of before the New Deal. The truth is that increases in prosperity were largely the result of the market economy and the increasing efficiency of the American worker due to technological breakthroughs and investment in capital equipment.

The fact that we never again had economic growth so rapid as during the Industrial Revolution up to 1910 or so indicates that if we had a similar market environment and a commodity backed currency we could do much better.

Do you now understand why you cannot fairly compare the middle class of 1950 to the middle class of 1880? And why you cannot credit the New Deal for "the creation of the middle class"? The creation of the modern middle class was happening already.

It just might have been accelerated if progressive policies and the creation of a central bank didn't divert resources to fighting two world wars and created a fifteen year depression.

Wow that was a complete history rewrite. I don't even know how to address this because virtually every sentence was either a lie or factually incorrect.

First off, the concept of "middle class" is a relational category that is completely mutually exclusive from poverty. To say something like "The problem is that compared to today, a "middle class" person in 1900 would be living in desperate poverty." is a complete paradox. But I am glad you brought up poverty rates because those can illuminate to some degree the size of the middle class.

In the 1920s the poverty rate in the US has hit an all time low of approximately 20% and during the Great Depression it climed back closer to 40%. In the late 1800s, it was common for somewhere around 50% of the population to be in poverty. The poverty rate dropped to about 10% in the 1950s. Why do you think that might be? Oh yeah, all of a sudden the middle class appears and poverty is reduced.

There are other trends that are pertinent here. The industrial revolution, indeed, was the cause of the middle class because it introduced a new class of worker to the world - the managerial class that was to oversee mass production. Prior to that time, the "middle class" more commonly referred to as Bourgeois at that time, was primarly comprised of specialized tradesmen, merchants, academics, and the like. This class of individual in the early to mid 1800s was relatively small. By the same token, the aristocracy which basically became the capitalist class was much larger than it is now. There were significantly more private investors and entrepreneurs during this period (1850s and later). This number started to dwindle in the 1920s much like it has in the last 3 decades or so. The consolodatiion of wealth is not so good for the economy because it leads to hording, monopolisitic behavior, a lot of inefficiency and noncompetitive markets. In the 1900s, they called these individuals Robber Barons. Today the conservatives call them "job creators" and Thom calls them "banksters."

Your vision of what things were like through these periods of history is simply ill informed. While there were more people in "poverty" during the 1800s, that does not necessarily translate to quality of life. If you asked me if I wanted to be poor in the agrarian economy of 1840 vs poor in the industrialized economy of 1900, I would chose the former every day of the week and twice on Tuesdays. What it meant to be poor in the innercity and working for a factory circa 1880-1920 was not good at all. A lot of death, a lot of unhealthy exposure to chemicals, smoke, etc., literally no labor restrictions (what is a 40 hour work week?). The list goes on. To each their own, but I would rather be in a cotton field.

It was not until around 1950 or so with the GI bil where you created an entire generation of college educated workers that you see the rise of the middle class to prominence. Note that I didn't say it did not exist prior to this time, it simply was not a significant part of our economy or work force. Some of this has to do with technology and some of it has to do with policy.

Basically, your fallacy is that you have taken the term middle class and rendered it meaningless in your argument. You simply apply it to whomever you wish to make a point. The middle class, is a very specific relational class location. It has a very specific historical tragectory and origin. The way you have applied it makes me think that you would have no problem saying that ancient Egypt had a middle class. It simply isn't true. In fact, if you really want to look at how the term was historically appplied, "the middle class" or bourgeois, prior to 1900s was largely used for extremely wealthy merchants that were not aristocrats (of noble birth). In many cases, they were richer than the aristocracy. What we would now consider millionaires or billionaires. So, your application of the term has not only rendered it meaningless, it is completely historically innacruate.

I urge you to read a little more history so that you have a better idea of what living conditions actually were during these periods. As for the class thing, check out the work of Erik Olin Wright. He has a very clear discussion of how one might define the middle class and its modern usage in his book "Class Counts."

ah2
Joined:
Dec. 13, 2010 9:00 pm

My limited understanding of U.S. history is that farmers who owned their farms were considered middle class, so that from 1621 to the mid-1800's the middle class was expanding (at the expense of the indigenous peoples.) Then with the industrial revolution we started allowing a lot of poor immigrants to work in the factories, they owned nothing, and their standard of living was far below that of the farmers, so the proportion of Americans considered "middle class" was decreasing. This accelerated after the Civil War and through the Gilded Age until Teddy Roosevelt started talking about his Square Deal.

chilidog
Joined:
Jul. 31, 2007 3:01 pm

Well, this is getting ridiculous. jrodefeld re-writes history by making implausible correlations, ignores key points, and then when all else fails he simply makes up whatever facts he wants (the inflation rate). What can you do?

America is both an example of the evil of Government but also the example of penultimate capitalist development. Cherry your pick.

Recessions are caused by previous expansions - which are caused by the Federal Reserve setting the overnight window interest exactly wrong all the time. And they set it wrong because they are evil.

And the entire financial system - hiring teams of PhD Economists and Mathematicians, is irrationally accepting this artificially low rate. And through some mysterious power the FED controls the banks long term rates as well, and the banks completely outside the Reserve Bank system.

The entire developed world industrialized (and created a middle class) with a mixed economy, but it was just a coincidence. Further, the 'government' part of the economy would be so evil it would lay dormant for generations - allowing the greatest output and middle class the world has known - then suddenly springing back to life to cause Bush's Great Recession. I told you it was evil.

The deregulation and welfare reform of the last 30 years never happened. The fall of the real minimum wage never happened. The deregulation of the housing industry, the reduction in the standards for housing loans, the Bush policy of 'Ownership Society' never happened. As the financial world started using unregulated instruments like derivatives, this either did not happen or actually was a good thing - take your pick.

Free Market rewards hard work - Paris Hilton works really hard for her money.

The Free Market is wonderful, except when it isn't, and then the government couldn't do any better. Except sometimes when states and local governments do a great job of it - although I think J just says that to get the states' rights people behind him. If you someone slugs you - the government can help. If you are starving, just wait for a charity. No problem!

Free Market competition ensures that prices reflect costs, yet owners are allowed whatever profit the market gives them with huge salaries. There are no start up costs - if people don't like something in the market, they can make it themselves. I don't like to sit on the Tarmac for 6 hours, I will start my own airline company.

Oh, if corporations do make cars that have gas tanks that blow up, you can sue the corporation!

And it's ok for firm to fire you and let nature starve you - you can go somewhere else to find a job. But if the government taxes you for welfare spending, that's an evil 'force' - you can't go somewhere else.

Dr. Econ's picture
Dr. Econ
Joined:
Jul. 31, 2007 3:01 pm
Quote jrodefeld:
Quote LysanderSpooner:

Jrodefeld,

Well stated!

I appreciate the comment. I have to commend you on the user name you chose for this forum. I happen to greatly admire the work of Lysander Spooner. An abolitionist and libertarian who fought against injustice not through seeking government power, but by condemning slavery and racism by expanding the concept of liberty and using the text of the Constitution to bolster his argument.

In contrast to the new Republican party of Lincoln, Spooner was not interested in trading one form of slavery for another. He seemed to offer a saner and less costly way to get rid of slavery without the bloody Civil War and without compromising the Constitution.

I find his books indispensable.

Randy Barnett runs a Lysander Spooner website.

I always find it interesting how nationalistic progressives are. Every issue has to have a national solution. Without a central government protecting rights, the whole country will go to pot. They never see the flip side: what if you give power to the central government and it abuses rights? What is your recourse? A world government? And what if that fails to protect rights?

I think Tom Woods calls progressives "neoconservatives with sandals".

LysanderSpooner's picture
LysanderSpooner
Joined:
Jul. 31, 2007 3:01 pm

The claim that the great recession was caused by govt regulation is so ridiculous on its face. The call for less regulation now is even more so. That's like saying, after a 50 car pileup in the fog, we should remove speed limits. In an industry where money is involved, time has shown again and again that greed will cause people to go beyond the ethical, fair, legal and transparent in the drive for limitless riches. Having no regulations would be like giving a 16 year old boy the keys to a Corvette-odds are he will go too far and out of control. If what the financial sector did only affected themselves that would be different-but when they screw up they bring the rest of us down. Now they even suffer few consequences and have socialized their debts on the rest of us.

DynoDon
Joined:
Jun. 29, 2012 9:24 am
Quote Niall Ferguson:

The rule of law in the U.S. has become, at some level, dysfunctional. One reason for that is the way Congress works. It is a honey pot for lobbyists. The result is that complex legislation is riddled with ambiguities that—guess what?—only lawyers can resolve. Dodd-Frank is designed to improve regulation, but what it actually does is institute a massive job-creation scheme for lawyers. There isn’t a financial institution in this country that doesn’t now require its compliance department to retain a whole bunch of lawyers to explain to them what this 2,000-plus-page monster means for their business. That concerns me.

I love it when people who make this argument will in the same breath repeat the talking point that the economy is still bad because business cannot predict what laws and regulations might be coming down the pike. Because we need to encourage more risk taking. In this case, the person making the argument is a Harvard professor. I think I'll stick with Thom Hartmann University.

Quote Niall Ferguson:

The model that is gaining ground wants to see more privatization of state-run enterprises, increasingly flexible capital accounts, and an end to the manipulation of the exchange rate. If this happened, not only would hot money come into China, but actually a lot of Chinese money would leave. If you wanted to make a single thing happen to stabilize the U.S. property market, it would be liberalizing China’s capital account.

Also a fascinating argument given that China is second only to the Social Security Administration in investment in U.S. bonds. But wait, there's more...

Quote Niall Ferguson:

I don’t think we’ll see multiparty democracy in China in our lifetimes, because the Chinese are right when they say our system can’t work for a fifth of humanity at this stage of China’s development. They would be very foolish to rush into the kind of things we periodically say they should do, such as allow political opposition to form. The Chinese know how dangerous that is.

Nevermind the massive street protests happening in China every day. But the point to my mind is that our good friends the libertarians have a similar view about political parties. Once the middle-class (we'll take them at their word that this is where libertarian's interests lie speaking outside the realm of political morality and ethics) has taken over, there won't be any need for political parties. It'll be all about the "hot money". Blackjack anyone?

nimblecivet's picture
nimblecivet
Joined:
Jul. 31, 2007 3:01 pm
Quote ah2:
Quote jrodefeld:
Quote ah2:
Quote chilidog:
Quote jrodefeld:

If we look back in our history to when we had a more limited federal government and a (relatively) free market, you will see that corporatism was far less of a problem. If you look at 1880 through 1960, for example, we had a robust industry and produced products and services that made our lives better. We built the strongest and most vibrant middle class that the world had ever seen and, unlike today, it was not even disputed during that time period that the United States was the best country in the world to live in.

My point is that from roughly the industrial revolution to the 1960s we were the best country in the world to live in. Economic policies were closer to what I would advocate. Certainly not perfect by any stretch but just comparatively better than today.

That's a whole lot of time and a whole lot of history and a whole lot of different laws and policies. Why don't you just say 1700 to 1960?

I don't think the USA was building ANY type of middle class, vibrant or not, from 1860 to 1900. And the period 1945 to 1964, well, maybe someone else can explain that...

I just caught this comment. The US did not have any significant middle class until after World War 2. There was NO middle class until about 1880 but even then it was really quite small, dwarfed by the elites and the working poor. As I stated in my previous post, the middle class did not become a central component to American life nor was the US even considered a world power until WWII, the GI Bill, unionization, and social programs that engage in targeted human resource development nationally.

This is absolutely incorrect. Let me ask you this. Would you rather live in the United States in 1840 or 1900? Do you think the poorer classes were better off after the Industrial Revolution? Of course they were.

The problem is that compared to today, a "middle class" person in 1900 would be living in desperate poverty. A first reaction might be that we should have had a "new deal" type of program in 1880 that would surely have improve the standard of living of those people? But that doesn't make any sense if you think about it.

What is important is that prior to the founding of our country probably 95% of the world lived in desperate poverty. It was the common state of affairs the world over. It was only the introduction of market economics and capitalism that emerged from the enlightenment era, what was termed "liberalism" that allowed for the first time the conditions that allowed the production of material goods and the efficiency that allowed the poor to get wealthier and wealthier generation over generation. For the first time in recorded history, in a generation or two a family could lift themselves out of poverty and have enough to eat and provide a better life for their children.

Today, we might look at working conditions for a poorer person in 1870 and find them deplorable. The reality however, was that was the best job available in the economy and compared to what the alternatives were, they were more than happy to take that job.

It was FAR better than anything else that had been available to a common person in most countries. There was no government program or "new deal" policy that could have improved that person's life. It was the market economy that was already improving the wealth of the family that that individual belonged to. His son might work at a better job and make a little more money.

We seem to think that when a government puts a policy into place, everything that follows that policy is because of that policy rather than despite that policy. For example, what really eliminated child labor? Was it a government ban on child labor? No, it was the fact that a family became prosperous enough that they could afford to have their children NOT work.

Even today, progressive politicians have pushed for "progressive" laws to be introduced in third world countries such as banning child labor laws. And some have been introduced. You know what frequently happens? Instead of working a legal job, many children are forced into prostitution. Does that make you feel better?

No one sends there children to work because they want to. They did it because they could not survive without all members of the family working. The way out of these kinds of problems are policies that encourage economic prosperity so workers can become more efficient, prices become lower and families can do without their kids working. Then they can do without both parents working and a family is able to eventually make ends meet on a single income. That is ideal.

To evaluate the policies of the late 19th century we need to compare the average workers life to what it was like before. What was the rate of progress? How fast was economic growth?

In fact, the Industrial Revolution provided the most rapid economic growth in recorded history. Comparatively speeking, the average life was infinitely better at the turn of the twentieth century than it was in 1840.

The middle class might have been better off in 1950 and it certainly is today, but that has very little to do with government policy. It has to do with continued technological progress that continues despite some very bad government policy that hinders economic growth.

So you cannot possibly say that there was no middle class to speak of before the New Deal. The truth is that increases in prosperity were largely the result of the market economy and the increasing efficiency of the American worker due to technological breakthroughs and investment in capital equipment.

The fact that we never again had economic growth so rapid as during the Industrial Revolution up to 1910 or so indicates that if we had a similar market environment and a commodity backed currency we could do much better.

Do you now understand why you cannot fairly compare the middle class of 1950 to the middle class of 1880? And why you cannot credit the New Deal for "the creation of the middle class"? The creation of the modern middle class was happening already.

It just might have been accelerated if progressive policies and the creation of a central bank didn't divert resources to fighting two world wars and created a fifteen year depression.

Wow that was a complete history rewrite. I don't even know how to address this because virtually every sentence was either a lie or factually incorrect.

First off, the concept of "middle class" is a relational category that is completely mutually exclusive from poverty. To say something like "The problem is that compared to today, a "middle class" person in 1900 would be living in desperate poverty." is a complete paradox. But I am glad you brought up poverty rates because those can illuminate to some degree the size of the middle class.

You are completely misunderstanding what I am saying. These are really relative terms. When I talk about a "middle class" person in 1900, I am referring to an average person who is able to live well in comparison to most people in the world and relative to his grandparents. I am referring to an accumulation of material abundance and a market economy that increases in efficiency such that products that only the rich could afford become available to average people.

The middle class, the rich and the poor are all relative terms that relate only to a specific time period. Even the poorest person today has access to luxuries that even a king three hundred years ago could not have.

My point in looking back at that time period in our history, and there is plenty to criticize, is that there is a tendency to look from our vantage point and say that we would never want to live like someone in 1880 because they were poorer than we are therefore the entire economic system was at fault and what they lacked was more government redistribution.

This is a blatently unfair way to judge the situation. We need to instead compare the rate of progress and the decline of poverty rates and the rate of economic growth.

Quote ah2:

In the 1920s the poverty rate in the US has hit an all time low of approximately 20% and during the Great Depression it climed back closer to 40%. In the late 1800s, it was common for somewhere around 50% of the population to be in poverty. The poverty rate dropped to about 10% in the 1950s. Why do you think that might be? Oh yeah, all of a sudden the middle class appears and poverty is reduced.

You cannot claim the middle class only appeared suddenly in the 1950s as a result of post WW2 progressive policies. There was a middle class in the 1920s and before as well.

And given that there were no real progressive policies designed to help the middle class prior to FDR, how is it that poverty rates that you claim were around 50% at the end of the 19th century go down to 20% in the 1920s without massive government subsidization?

What you also need to understand is that poverty rates, calculated the same way, in 1800 were greater than 90%. Liberty, a market economy and sound money and the industrial revolution caused poverty rates to continually drop until the Great Depression.

Not only that, but while it is true that following WW2 we did have a GI bill and a few other programs, the lions share of government anti poverty measures only occured after Lyndon Johnson created The Great Society in the late 60s. And if you measure the statistics on that, you will see that it has been a resounding failure on every level. Poverty rates have flatlined.

Quote ah2:

There are other trends that are pertinent here. The industrial revolution, indeed, was the cause of the middle class because it introduced a new class of worker to the world - the managerial class that was to oversee mass production. Prior to that time, the "middle class" more commonly referred to as Bourgeois at that time, was primarly comprised of specialized tradesmen, merchants, academics, and the like. This class of individual in the early to mid 1800s was relatively small. By the same token, the aristocracy which basically became the capitalist class was much larger than it is now. There were significantly more private investors and entrepreneurs during this period (1850s and later). This number started to dwindle in the 1920s much like it has in the last 3 decades or so. The consolodatiion of wealth is not so good for the economy because it leads to hording, monopolisitic behavior, a lot of inefficiency and noncompetitive markets. In the 1900s, they called these individuals Robber Barons. Today the conservatives call them "job creators" and Thom calls them "banksters."

The truth is that you need to learn to make a distinction between a market entrepreneur and a political entrepreneur. A true market entrepreneur succeeds financially by selling a newer, better, or less expensive product on the free market without any government subsidies, direct or indirect. The capitalist's success is predicated on his ability to please the consumer.

A political entrepreneur succeeds by influencing government to subsidize his business or industry, or to enact legislation or regulation that harms his competitors. The truth is that the American economy has always included a mix of market and political entrepreneurs. And it is not uncommon that some who achieve success as market entrepreneurs in one period of their lives later become political entrepreneurs.

The distinction is critical because market entrepreneurship is the hallmark of genuine capitalism but political entrepreneurship is not.

There are some cases where entrepreneurs who are labeled "robber barons" did indeed profit from exploiting American customers but these are NOT market entrepreneurs.

Because of historians who fail to make this critical distinction, most Americans have an inaccurate view of American capitalism.

Market entrepreneurs should be encouraged and political entrepreneurs should be discouraged. Some of the "robber barrons" really were exploiters but you CANNOT blame capitalism and indict the market economy.

What you are doing is painting a very simplistic picture that fails to take into account the crucial distinction I outlined here. The failure in the 19th century was for government to not adequately prevent the political entrepreneurs from using the system to exploit their customers.

The conclusions that many progressives want to draw is that the gold standard failed, the market economy failed, capitalism failed, etc. That is absolutely fallacious.

I do find it curious that you admit that the industrial revolution DID cause the creation of the middle class yet earlier you attribute the rise of the middle class to progressive poliicies following World War 2.

It never fails to amaze me that progressives can look at history and see examples of Corporatism and fascism and always blame the free market, when they really should be indicting cronyism and favoratism that is granted by politicians. If we have a "mixed" economy it is always the market that is blamed and never the government or the political entrepreneurs that subvert the market.

If capitalism can be described as market entrepreneurship where the consumer is king and calls the shots, we should be favoring a system where that is encouraged and the cronyism and corporatism is discouraged.

Quote ah2:

Your vision of what things were like through these periods of history is simply ill informed. While there were more people in "poverty" during the 1800s, that does not necessarily translate to quality of life. If you asked me if I wanted to be poor in the agrarian economy of 1840 vs poor in the industrialized economy of 1900, I would chose the former every day of the week and twice on Tuesdays. What it meant to be poor in the innercity and working for a factory circa 1880-1920 was not good at all. A lot of death, a lot of unhealthy exposure to chemicals, smoke, etc., literally no labor restrictions (what is a 40 hour work week?). The list goes on. To each their own, but I would rather be in a cotton field.

I will grant you this that in the 19th century government did not always do its job in terms of honest courts that could promote justice on behalf of those that were legitimately injured. As is common throughout history, the courts and the law is not always impartial and fair.

However, I don't believe you that you would rather be poor in 1840 than in 1900. Some industrial jobs were dangerous, but nobody would force you to work there. You could choose to have a rural job picking cotton or something, you are free to do that. The fact that in addition to those kinds of jobs there were also industrial job opportunities, not to mention the products that were being produced that raised the standard of living of everyone meant that your life would be substantially better in 1900 regardless of where you worked.

I have absolutely no problem criticizing governments and certain corporations during the 19th century and it was certainly not perfect by any stretch of the imagination but there has been a concerted effort to demonize liberty and the market economy by central planners through revisionist history that is taught in public schools.

You might want to gain some critical faculties and think if maybe what you think you know about this period in American history might be, at the very least, purposely misleading by interests that hold an anti-market and anti-freedom agenda.

Quote ah2:

It was not until around 1950 or so with the GI bil where you created an entire generation of college educated workers that you see the rise of the middle class to prominence. Note that I didn't say it did not exist prior to this time, it simply was not a significant part of our economy or work force. Some of this has to do with technology and some of it has to do with policy.

Basically, your fallacy is that you have taken the term middle class and rendered it meaningless in your argument. You simply apply it to whomever you wish to make a point. The middle class, is a very specific relational class location. It has a very specific historical tragectory and origin. The way you have applied it makes me think that you would have no problem saying that ancient Egypt had a middle class. It simply isn't true. In fact, if you really want to look at how the term was historically appplied, "the middle class" or bourgeois, prior to 1900s was largely used for extremely wealthy merchants that were not aristocrats (of noble birth). In many cases, they were richer than the aristocracy. What we would now consider millionaires or billionaires. So, your application of the term has not only rendered it meaningless, it is completely historically innacruate.

I urge you to read a little more history so that you have a better idea of what living conditions actually were during these periods. As for the class thing, check out the work of Erik Olin Wright. He has a very clear discussion of how one might define the middle class and its modern usage in his book "Class Counts."

My definition of middle class is those who are not rich and not poor relative to the time period we are referencing. Not hard to figure out. If we had, say 70% or 80% poverty rates in 1820, for example, but that number was reduced to 40% or 50% in 1880, then I would say that those who escaped poverty are now "middle class" relative to the time period. Yes some of them might have struck it rich and actually made it into the very rich class, but a majority would be living better and able to live beyond mere subsistence and struggle for survival.

Our specific definitions of "middle class" are not critical for you to understand my central point. If poverty rates were continually dropping during the 19th century and the average person was able to live better as time progressed due to their increased productivity in the economy because of industrialization and rapid economic expansion, then I would consider the economic system of the time period to be structurally sound and beneficial.

Now, if we look at the later part of the 20th century and we see a middle class that is far wealthier in comparison, but the decrease in poverty rates has flatlined and economic growth is much slower, then I would consider that economic system to be inferior.

I would recommend that you contemplate the fact that a significant amount of your understanding of US history might be incorrect or misleading based on biased textbooks and propaganda from sources that have an agenda.

There WERE things to criticize about the 19th century but the real source of the problems are not what you are generally taught.

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jrodefeld
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Oct. 15, 2011 1:24 am

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The Death of the Middle Class was by Design...

Even in the face of the so-called Recovery, poverty and inequality are getting worse in our country, and more wealth and power is flowing straight to the top. According to Paul Buchheit over at Alternet, this is the end result of winner-take-all capitalism, and this destruction of the working class has all been by design.

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