Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Published by Social Science Monographs, Center for Hungarian Studies and Publications.
2019 marks the 30th anniversary of what in Hungary is sometimes referred to as the "annus mirabilis" or year of miracles -- the fall of the iron curtain which was rapidly succeeded by the end of the cold war. In that year a series of events, some planned from above and others organized from below, brought about the dissolution of the Soviet empire in eastern Europe and the freeing of nations which had been held in bondage and coercion in the Soviet orbit for more than four decades. One of the joys of my Fulbright in Budapest this year has been the opportunity to take part in many commemorations of the events that unfolded 30 years ago.
But the world is now 30 years beyond that era. And as tensions rachet, institutions are tested, and power balances shift in the current moment, it is worthwhile to reflect upon another set of lessons: lessons from the tumultious years that marked the transition point from World War II to the Cold War. And to understand those events, there are perhaps few more intriguing vantage points than the Hungarian experience. During WW II Hungary had fought the Soviets, attempted shifting sides, been occupied by the Germans, and been liberated by the Red Army. In the aftermath of the war, it was the only country in what would become the Soviet block to hold nearly free elections, a late 1945 ballot in which communists won less than 20 percent, even under Red Army occupation.
Fülöp's book introduces the reader to the complicated interplay of understandings and and actions that shaped the policies...
Economists usually obfuscate the facts about international trade in their zeal to promote free trade. They ignore the fact that some countries deliberately seek a trade surplus, to export more than they import, to accelerate their rates of economic growth. But their growth is at the expense of countries which import more than they export. They ignore the fact that the trade deficits the U.S. has been experiencing for decades have converted the U.S. from being the world’s leading creditor nation to the world’s leading debtor nation, has caused U.S. growth to stagnate, and have caused millions of American workers to lose good-paying manufacturing jobs.
Prof. Rodrik is not one of those who ignores the negative impact of international trade on the U.S. economy, but he does not blame the trade deficits. In his preface, he writes that economists have overstated the magnitude of aggregate gains from trade and elsewhere he writes, “Economists do not fully understand why expanded trade has interacted with the macroeconomy to produce the negative consequences for wages and employment that it has. “Adam Smith and David Ricardo”, he writes, “would turn over in their graves if they read the details of, say, the Trans-Pacific Partnership” agreement. (All the multi-lateral agreements involve substantial losses of sovereignty with topics ranging from child labor, minimum wages, global warming, compulsory arbitration, etc., etc.. Some have even created new international institutions like the World Trade Organization.)
Prof. Rodrik does not limit himself to the economists’ views on trade but addresses many other economic and political issues. Industrialization was, he writes, “traditionally a powerful growth engine” but developing countries “typically have neither numbers nor resources on their side” and “low-income countries are running out of industrialization opportunities” for export-led growth. This is an opinion we do not share. As though export-led growth was the only means to achieve growth!. In large part, the book reads like an essay because of similar non-sequiturs.
Nevertheless, the Rodrik's insights are worth considering. He talks about “premature globalization” caused by the creation of the World Trade Organization and ensuring trade deficits which led to today’s “globalization backlash”. Imposition of any tariff is called “protectionism” by economists and the media. But he is wrong to describe tariffs intended to remove a trade deficit as protective. In our view globalization is a nonsense goal. Our goal should be balanced trade, the exchange of domestically produced goods for an equal value of foreign-produced goods. When trade is balanced both trading nations gain from trade. Those sectors that are injured in each country can be compensated by those who gain leaving a net gain overall....
Book Review: Henry M. Paulson, Dealing With CHINA (NY, Hachette Books, 2015)
The book shows that Henry Paulson, former Goldman Sachs president, is a fabulous salesman, a friend of the Chinese oligarchy and helped create China as an efficient economic power. As he writes in his preface: “Today’s China is a land of superlatives. It is home to the world’s fastest supercomputer, the biggest wind-power base, the longest sea bridge. It produces and uses nearly half of the world’s coal, cement, iron ores, and steel; it consumes 40 percent of the aluminum and copper. Forty years ago most Americans wouldn’t have imagined owing China one red cent. Now it is the U.S.’s biggest creditor, owning just under $13 trillion of our government’s debt.” And “The Chinese are formidable competitors. But we should not fear competition or shrink from it.”
The first part of his book is devoted to Goldman Sachs' successful attempt to give key Chinese industries access to international capital markets. He describes his meetings with an important Chinese leader, Zhu Rongji, in charge of directing China’s economy, former Mayor of Shanghai and a protegé of Deng Xiaoping the leader of China whose reforms beginning in 1978 led to the spectacular double-digit growth of the Chinese economy during the succeeding decades. The meeting led to Goldman Sachs being appointed to take the nations’s telecom business private, and Goldman Sachs became well-known in China and the rest of Asia.
He deals with the efforts to privatize China’s state-owned oil company which was a conglomerate, including petro-chemicals, gas stations, and many other business activities, and had responsibilities for workers’ housing, health and other social services for several hundred thousand employees. It was an enormous task to create a company that met SEC requirements for an IPO. An optimist, he believed that China’s embrace of markets over central planning would inevitably lead to more economic and political freedom there. He wrote in an op-ed article published in the New York Times, “The case for permanent normal trade relations with China is the story of PetroChina repeated a hundred-fold or a thousand fold.... The individual freedom, initiative, and responsibility inherent in free markets are, by their very nature, at odds with authoritarian rule.” Time will tell. He does not mention that the U.S. and China seem to be on a collision course in the Spratlys. He writes in Ch. 6. Cleaning the Stables in Guangdong, that China had embarked on reforms but the reforms required changes that led to “waste, mismanagement, fraud, and corruption on a massive scale.”...
Peter Navarro is a professor in the School of Business at the University of California. Irvine campus. He has written previous books about China including Death by China, Seeds of Destruction, Always a Winner, and The Coming China Wars. In the prologue he writes the “each chapter that follows will provide and important clue presented in the form of a key question leading off each chapter. Each question will then be followed by possible answers across the range of opinion and thought”.
Ch 1.” Based on the historical record, how likely is war between a rising power like China and an established superpower like the United State?” As Thucydides wrote in his History of the Polynesian War, “What made the war inevitable was the growth of Athenian power and the fear which this caused in Sparta.” The war destroyed both states. Citing the competition between England and Germany for hegemony as the cause of WWI, he concludes that war between China and the U.S.A. is likely but not inevitable.
Ch. 2. Which countries have invaded China over the past two hundred years? France, Germany, Britain,. Japan, Russia, and the USA, an “indelible history of humiliation”. “China’s military buildup is not the end of our detective story—it is simply the beginning.”
Ch.3. “Is China building up its military to guard the trading routes and global investments it needs for robust economic growth.” China embarked on a mercantilist “state capitalism” strategy, encouraging exports and restricting imports. China’s huge oil imports and its exports move through the Malacca Strait.
Ch. 4. “Should China truly fear an oil embargo by the United States and its allies?” The U.S. did that to Japan and it led to our war with Japan. The USA also imposed an embargo on U.S. trade will China which lasted twenty years after China invaded Korea. And more recently, it imposed sanctions on Russia for its annexation of the Crimea. Similarly, China has to fear the closing of the Suez Canal to Chinese shipping. And the U.S. maintains dozens of naval and air bases in the countries surrounding China.
Ch. 5. “Will China become a 'revisionist' power or a 'status quo' power?”...
Book Review: Ha-Joon Chang, Economics, the User’s Guide (New York: Bloomsbury Press, 2014.
The author, Ha-Joon Chang, Reader in the Political Economy of Development, Faculty of Economics, University of Cambridge, states in the Prologue that this is a book without the economic jargon that makes economics appear to be more difficult than it needs to be. Economics, he writes, cannot be a science like physics or chemistry. In this regard, he fails to distinguish between economic theory and economic policy. Determining economic policies is not a science. But in theorizing about economics, economics uses scientific methodology just as the physical sciences do. The prologue is a bad beginning. So is the first chapter which is entirely devoted to defining economics. Prof. Paul Samuelson in his introductory textbook, Economics, which was the leading bestseller in the world for many decades takes half a page and his definition, five lines, includes the essentials of all textbook definitions, economics is the study of the conditions for an efficient allocation of the world’s scarce resources among alternative uses. To Chang, economics is the study of “money, work, technology, international trade, taxes, and other things that have to do with the ways in which we produce goods and services, distribute the incomes generated in the process and consume the things thus produced -- rather “than ‘Life, the Universe, and Everything’ or ‘almost everything’, as many economists think.” Try urging people to “economize” using Chang’s definition. No wonder he thinks economics is not a science?
He defines capitalism, as Karl Marx did, as an “economy in which production is organized in pursuit of profit.” Most individuals spend yeas and substantial money to educate themselves in pursuit of a higher income. They make an investment in themselves. Producing products that people want requires an investment by an entrepreneur, who provides the capital, thereby a capitalist. The economy should be called the investment economy or, as I prefer, a competitive market economy in which anyone can compete to distinguish it from socialism which is a closed market economy, permitting no competition. Nowhere does Chang refer to monopolistic competition or to Prof. Chamberlin who described our economy as a monopolistic competitive economy. Instead he devotes less than a page to what Prof. Ursula Hicks called icksHicks “imperfect competition” but he seems unaware that there is nothing imperfect about a monopoly and few, if any, firms that are perfectly competitive. Every firm has some monopoly power ranging from nearly perfect monopoly in cases of patents and copyrights to illusory product differentiation achieved as a result of advertising to hardly any monopoly power, individual farmers. ...
Allan Blinder is a Princeton professor of economics and a former vice chairman of the Federal Reserve Board. As he states in his preface, the American people still don’t quite know what caused the Great Recession, how and why it happened, or what the authorities did about it.
He acknowledges that the housing bubble was not the only contributor to the financial crisis that followed. He writes that seven key weaknesses predated the recession:
He does not mention that the Community Investment Act of 1977, which is still the law, which forced the banks and Fannie Mae and Freddie Mac, government-sponsored private entities, to make millions of subprime loans. Nor does he mention that the Federal Reserve Board was made responsible by the Act for ensuring that mortgage lenders maintained lending standards, but that it failed to do so and thereby itself helped worsen the recession. He does not mention the explosion of our trade deficits that resulted from foolish trade agreements and were a drag on economic growth.
The inflated asset prices he criticizes were caused by the low long-term interest rates, partly caused by the inflow of foreign government loans which caused the trade deficits. As every economist knows lowering interest rates inflates asset prices, real estate and corporate stock especially. There was lax financial regulation alright, but the Fed and the other bank regulators did not use the powers they had to regulate financial institutions. Yes, there were disgraceful banking practices. As for perverse financial incentives, banks rewarded executives for taking risks and producing profits as long as the bubble continued. When the bubble burst, Treasury Secretary Paulson bailed out all but Lehman Bros. Its failure precipitated a collapse in the securities markets....
The book is not about the death of money but it is about the coming collapse of the dollar and the end of the dollar as the international monetary standard. The author predicts an “inevitable” decline of the dollar as the international medium of exchange. Until World War II, most currencies were convertible into gold and the world was then on a gold standard. As one country after another abandoned the gold standard, the U.S. dollar became the preferred medium of international exchange. Except for a short period in the late 1970s when inflation created a lack of confidence in the future of the dollar and even the US Treasury issued bonds payable in Swiss Francs, the dollar was the dominant medium of international exchange and continues to be so until today. In fact the value of the dollar increased in 2014 which seems to contradict Rickard’s predictions. The high value of the dollar makes American goods more expensive to foreigners and puts American manufacturers at a serious disadvantage while making foreign-made goods cheaper and encouraging imports. Rickard’s thesis is that a lack of confidence in the dollar is a necessary outcome of dysfunctional US economic policies.
Inflation increases imperceptibly and gains a foothold before it is recognized but inflation is not the Federal Reserve’s worst nightmare. Deflation is, because it may result in an outright default on the national debt”, a market collapse, bankruptcies and depression. The result would be international chaos. A new monetary standard would become inevitable. The world’s leading powers seem to be pressing for the IMF’s SDRs, Special Drawing Rights, to be the international medium of exchange to succeed the dollar.
The book has three parts. Part I on Money and Wealth has two chapters, one on Prophecy, dealing with our increased capability of detecting early attacks on the US dollar, acts of terrorism, and efforts to crash US financial markets. The second chapter, entitled The War God’s Face, deals with the nature of future wars. Future wars will be wars relying on computers, including precision guided missiles and drones but also cyber wars, designed to cause a collapse of the value of the currency, collapse of securities markets, and a country’s economy. ...
The author attempts to prove that “a market economy based on private property, if left to itself, contains powerful forces” that result in increasingly, unequal distribution of income and wealth which is “potentially threatening to democratic societies and to the values of social justice on which they are based … The principal destabilizing force has to do with the fact that the private return on capital, r, can be the significantly higher for long periods of time than the rate of growth of income and output, g.” Many economists agree that with his conclusion that income or wealth inequality has been increasing and some disagree with his methodology, his data, his conclusions, or his policy proposals. One noted economist has said, “So what?” Capitalism has made possible the huge increase in the welfare of workers and the middle class. As Keynes concluded in 1920, you cannot have economic growth without income inequality.
Piketty differs from Marx who argued that the capitalist contradiction was that the rate of return tends to fall, not increase, over time. Piketty’s view is just the opposite although some have called him a Marxist because of his policy proposals. What all the critics and supporters and Marxists alike seem to lack is an understanding of the reason economies keep growing which maintains the rate of return on capital. The reason is innovation and invention. To induce invention and innovation, governments grant patents and copyrights, legal monopolies, for a limited number of years. And the monopoly rate of return is greater than the competitive rate as a rule. Failure to recognize this fact is what makes Piketty’s Capital just a political tract....
BOOK REVIEW: Ha-Joon Chang, Economics: the User's Guide (New York: Bloomsbury Press 2014)
The title of the book is Economics but aside from learning some terminology the reader will learn little economics from it. He writes that his book “differs from other economics books in that it contains a lot of information on the real world.” Much of the world he describes is the fantasy world of Marxists and leftists. He describes a multitude of old and new economic problems but there is no economic analysis in it but a lot of assertions. It has a lot of definitions of economic concepts and a bit of economic history, selected from a Marxist point of view. Not a single statement of how much the standard of living has gone up under capitalism
He defines economics as the “study of rational human choice” and defines capitalism as an economy organized in pursuit of profit, a dirty word to Marxists. Income would be a better word than profit but workers are also interested in income. A better definition of capitalism appears in Merriam-Webster’s Collegiate Dictionary 10th Ed., namely, “an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market.” ...
Jason L. Riley, Please Stop Helping Us, How Liberals Make It Harder for Blacks to Succeed (NY:Encounter Books, 2014)
This book is a must read for everyone, white or black, just as another great book by a distinguished black economist, Thomas Sowell’s Black Rednecks and White Liberals (NY: Encounter Books, 2005) is also a must read.
Riley begins by noting that 90 percent of more of black voters continue to support Pres. Obama even though blacks have suffered more from his economic policies than any other ethnic group. He writes that the President and Attorney General Holder and the NAACP oppose voter ID laws as discriminating against blacks even though “in places like Georgia and Indiana minority turnout increased after the laws were passed.”
He contrasts the positions of black historical figures W. E. Du Bois and Booker T. Washington, the latter urging blacks to focus on independent black schools and businesses, on acquiring “property, industry, skill, economy, intelligence, and character” while the Du Bois “argued that civil rights are more important because political power is necessary to protect any economic gains.”
Du Bois’s strategy was achieved political success as indicated by the fact that the number of black officials grew between 1970 and 2001 from “fewer than 1,500 to more than 9,000.” Meanwhile, the poverty rate among blacks declined from 87 to 47 percent from 1940 to 1960 before the civil rights victory but grew not at all between 1972 and 2011 after the civil rights victories and black welfare dependency.
The author contrasts the economic success of Asians who have tended to avoid politics and the Irish, who achieved success in politics but it was only after the decline of the Irish political machines that their “average Irish incomes began to rise” relatively. He points out that black political leaders often voted for policies which denied jobs and benefits to the persistent black underclass....
Book Review: Paul Krugman, End This Depression Now (WWNorton, 2012)
The best part of this book is its dedication which shows Prof. Krugman’s heart is in the right place. It reads, “To the unemployed, who deserve better.” Indeed they do, but the public policies recommended by the book have not and will not help them at all! This is a book written by a Nobel prize-winner in economics. But there is not an original thought in the book. Krugman is a Keynesian circa 1950 but Keynes, had he lived to read it would not subscribe to it. Keynes showed an ability to learn from historical reality while Krugman does not. ...
Book Review: Benn Steil, The Battle of Bretton Woods, John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton, N.J., Princeton University Press, A Council on Foreign Relations Book, 2013)
Two international institutions, the World Bank and the International Monetary Fund, were created at a conference of the nations allied in the war against Hitler Germany, Fascist Italy, and feudal Japan called by the United States at Bretton Woods New Hampshire in the midst of WWII. The principal negotiators, notwithstanding the multitude of countries in attendance, were Harry Dexter White, an under-secretary of the U.S.arry Treasury Department, and John Maynard Keynes, the great English economist, representing Great Britain. The purpose of the conference was to create a world monetary system that would promote free trade and a system of stable monetary exchange rates to prevent the manipulation of exchange rates for foreign trade gains. Both the principal negotiators sought, in the International Monetary Fund, an institution that would ensure that exchange rates would not be manipulated for competitive trade advantage. They succeeded in creating the IMF but it never measured up to this expectation.
The Roosevelt administration had to overcome the isolationist proclivities of most Americans as represented by the opposition to lend-lease of Republican Senator Taft and Democratic Senators James Byrnes and Harry Byrd. Sen. Taft was prescient in denouncing membership in the monetary fund as “like pouring money down a sewer.” White and Keynes clashed as the former successfully pushed for an end to the policy of “imperial preference” by which Britain secured privileged trade access to the markets of its colonies and dominions. Steil describes it as a ploy to ensure that “war-ravaged Britain would remain wholly dependent on American succor to pay for imports vital to its survival.” The British had been anxious to see themselves as partners with the Americans in creating the ground rules for the postwar order but the Americans kept reminding them that “there was no room in the new order for the remnants of British imperial glory.”...
Edward Luce, Time to Start Thinking: America in the Age of Descent (NY: Atlantic Monthly Press, 2012)
Democrats have finally come to realize that America is in decline but they haven’t faced the fact that the policy-makers in Washington, including the U.S. Supreme Court, plus the liberal educational establishment have contributed to it. The author, Edward Luce, was a speech writer for Treasury Secretary Larry Summers during the Clinton administration and now works as the chief U.S. columnist for the Financial Times of London. The book is worth reading because the author does an excellent job of reporting what the problems are. But don’t look for solutions.
The author starts out by stating that the dominant characteristic of American policy-makers was pragmatism but “America, at least in terms of how it governs itself, is no longer very pragmatic.” Liberals are nostalgic for the 1960s when the middle class grew and “the federal government sent people to the moon.” For conservatives, “the past is wrapped up in the godly virtues of the Founding Fathers.” And that is the weakness of the book. He attributes the growth of America’s economy to Roosevelt who got us out of the depression by making war and to Democratic policies. It was America’s weak federal governments that enabled the private sector to innovate and invest.
The book is very well-written and filled with interviews that introduces you to some of the principal actors and thinkers on all the problems accompanying America’s decline. Unfortunately, he has a liberal bias and considers all Republicans as Neanderthals. Nevertheless, government policies, whatever the source, come in for a great deal of criticism....
John Stossel, No they can’t, Why Government Fails –But Individuals Succeed (New York: Threshold Editions, 2012)
This is a book all liberals should read because it challenges the myths they believe in. Many conservatives share some of these same myths. John Stossel is well-known for his Network show, Stossel, and his contributions to Fox News, He has won many Emmy Awards and is a five-time National Press Club honoree. He writes about “Fixing” the Economy, fairness myths, political correctness, education, the War on Drugs, conservationist extremes, food faddists, globalization and a host of other topics and host of other issues everyone is concerned about.
Throughout the book, he inserts a box related to the topic he is discussing, with the heading, “What Intuition Tempts Us to Believe In” and “What Reality Taught Me”. But these should be read while reading the text. A few examples:
Intuition, “It’s good for government to encourage home ownership” and the reality “When government interferes in a market … Bad things happen.”
This book is more than a year old but it is not out-of-date. Peter Navarro and Greg Autry may be accused of China bashing but as they write, “It’s not China bashing if it’s true”. And they have their facts right. Peter is a professor of economics and public policy at the University of California at Irvine and Greg Autry is an economist for the American Jobs Alliance and the Coalition for a Prosperous America. They accuse China of every trade sin from marketing defective products, employing tariff and non-tariff barriers and export subsidies, engaging in currency manipulation, attempting to monopolize rare earths, stealing American technology, and engaging in cyber sabotage. This has cost millions of American jobs and diminished American economic and military power. Both parties are guilty of paying too little attention. And the American press and politicians are accused not only of turning a blind eye but justifying doing nothing by embracing free trade as an ideology.
If you have not been following our relations with China carefully this past decade, this book is MUST READING. ...
Book Review of "Here Come the Black Helicopters!" by Dick Morris & Eileen McGann
Dick Morris & Eileen McGann, Here Come the Black Helicopters! UN Global Governance and the Loss of Freedom (Broadside Books, 2012).
Dick Morris and Eileen McGann, in this book, warn us that the magnificent USA that our founders created is in danger of merging into a totalitarian world government sponsored by the United Nations and other world agencies that we created since WWII. Moreover, world government will be a menace to our liberty and our democracy and our self-government, not only at the national level but at the state and local level. None of its advocates suggest that the UN be elected and be responsible to the electorate and if they were by what process. To whom is the UN hierarchy accountable? As the authors write, “the globalists and socialists—who run the United Nations” focus on “environmental problems, such as climate change and ocean acidification .. to implement an agenda of socialist central planning..to curb the.. sovereignty of nation-states, and force them into a global regulatory scheme.” But their real goal, according to the authors “is to establish a one-world government—dominated by bureaucrats accountable to no one..
Book Review: A Leftist Approach to America's Economic Problems
Donald L. Barlett and James B. Steele, The Betrayal of the American Dream (NY:Public Affairs, Perseus Books, 2012)...
Book Review of Dick Morris and EileenMcGann, SCREWED! –How Foreign Countries Are Ripping America Off and Plundering Our Economy – and How Our Leaders Help Them Do It (Broadside Books, Harper Collins, 2012)
The movement toward world government has always had as it principal objective the weakening of the United State of America. As the authors state in their introduction, "A newly fashionable dogma of globalism –enthusiastic support for an economic and cultural view of “the world as one” – has supplanted a fundamental concern for the interests and needs of American citizens in the priorities of our national government."
The principal tool of the globalism strategy is international treaties.
In the G-20 whose decisions the US routinely agrees to is in effect a world legislature in which we have one vote and the European Union has five. The authors call it is “a German and French power grab.” Moreover it includes countries like Turkey, Indonesia, Saudi Arabia, Argenina, S. Africa each with less than $1 trillion of GDP and Mexico and Korea with $1 trillion. The IMF, largely financed by the U.S., “working through the G-20 .. sets the policies the Fed is obliged to follow.” We do not control our trade policies, the World Trade Organization does that. We don’t control land use policies, the global environmentalists do that.
The authors take a dim view of all the treaties proposed by unelected international bureaucrats, particularly the proposed Law of the Sea treaty which besides requiring that half the royalties from offshore drilling are to go to the UN, require the U.S. to share its offshore drilling technology and limit the freedom of the seas of the U.S. Navy and our fishing vessels and a treaty creating an International Criminal Court whose authority would be above our own Supreme Court focusing on genocide, crimes against humanity, war crimes, and aggression. Endorsed by 112 nations but mainly directed against the US. UN envoys to the Climate Change Conference in Durban, SAfrica, recently proposed a global climate court which would inter alia require nations to cut emissions and compensate poor nations. Guess where the money would come from? ...
The Economic Views of John Stossel as revealed in his book No They Can’t – Why Government Fails But Individuals Succeed (New York, Threshold Editions, Simon & Schuster, 2012)
John Stossel is well-known as the host of a one-hour weekly Fox Business Network show and his one-hour special on Fox News but is best known as the journalist who cries “the king is naked” when people succumb to the image of a demagogue masquerading as a man possessing a solution to a problem. A self-described libertarian, he attacks popular fallacies of the right, the left, and center. His book is must reading for everyone regardless of political persuasion because he forces the reader to think for himself to sustain his beliefs. It should be read by every political independent and by all our representatives in federal, state, and local legislatures. As a retired professor of Public and International Affairs, I agree with my mentor, the late Milton Friedman, that Stossel was “that rare creature, a TV commentator who understands economics, in all its subtlety.” Stossel modestly acknowledges that there is much that he does not understand. As an economist, I can testify that there are many academic economists who do not understand economics in all its subtleties either.
He begins with the widespread belief that increased government spending stimulates private spending and is capable of getting the economy moving again after a recession. The media are baffled by the fact that the president’s economic stimulus spending of nearly a trillion dollars since 2009 “has not paid off” especially since, as the Washington Post noted, “Companies were sitting on billions of dollars of cash.” The fact is that as soon as the “new deal” cut back its spending, the economy slid back into recession in 1937. The economic stimulus of increased government spending may give temporary employment bu only as long as the spending lasts. ...
Beginning with his preface, Prof. Stiglitz, author of a popular textbook for the introductory college course in economics, reveals that he confuses economics and politics. He writes: “Whenever one sees problems as persistent and pervasive as those that have plagued the U.S. financial system, there is only one conclusion to reach: the problems are systemic.”
My own experience is that there are no persistent and pervasive problems. Every economic problem can be solved using the tools of economic analysis. The one that liberal economists consider persistent and like to talk about is the unequal distribution of income. Economists can explain why some households have low incomes and others high incomes, why some countries are poor and others rich, why average incomes have been rising in Communist China, why even the poor in the U.S. have incomes greater than the median income in many countries.
Stiglitz seems to have no idea. Indeed, the title of this book, Free Fall: America, Free Markets, and the Sinking of the World Economy, raises questions about his analytical capacity. The U.S. is not in a free fall, the only U.S. markets that are not free are those that government controls, and the world economy is rising, not sinking. We shall look at what he calls fundamental flaws and, subject to limitation of time and space, analyze his arguments. We shall analyze his solution, restructure the economy and impose world government.
That the Federal Reserve System has occasionally pursued foolish and costly policies cannot be denied. But since the end of the gold standard, it has provided a stable money supply that is modestly inflationary, That such foolishness is inherent in the FRS is deniable. The notion that government or global bureaucrats can do better, to which Stiglitz a former international bureaucrat, subscribes, is baseless. We subscribe to the theory that government policies are at the root of most financial crises including the one that precipitated this Great Recession....
One of Nouriel Roubini’s genuine claims to fame was his prediction on September 7, 2006 in a talk at the International Monetary Fund in Washington, D.C. that the nation’s economy would soon suffer a once-in-a-lifetime housing bust that would be followed inevitably by a deep recession. Roubini was not alone. Distinguished Yale Professor Robert Shiller, whose name appears in the authors’ acknowledgements, called the stock market bubble in 2000 and the housing bubble in 2005. Roubini has developed a reputation as a contrarian and I was looking forward with great anticipation to this book which I expected to be full of new and creative ideas.
Unfortuinately, I found the book very disappointing. There is very little in the book that does not represent conventional liberal ideas. He exhibits little faith in the free market, ignores the huge costs of environmental policies, has no solution to the jobs lost to outsourcing abroad. etc
In their book, the authors could not bring themselves to blame the government or the FED for the housing bubble although the FED’s failure to contain the bubble before it became such a threat does come in for criticism. But they downplay the role of the Community Reinvestment Act of 1977, one of whose administrators was the FED itself. The FED should have rejected the appointment to maintain its freedom of action vis-a-vis the banks. We agree that it was not the act itself that caused the bubble; it was the actors who implemented the act over the decades of the bubble. Pres. George H.W. Bush, for example, made it possible for ACORN and other leftist neighborhood organizations to “blackmail” the major banks by requiring an annual open meeting at which consumers could complain about the inadequacy of the banks response. ACORN and other leftist organizations succeeded in actually gaining contracts with the banks to initiate and process mortgages, in the process earning millions of dollars and strengthening their political power. And the left in Congress, Barney Frank, et. al., pressed Fannie Mae and Freddie Mac to buy mortgages made to unqualified borrowers. ...
The Insights and Outsights of Clyde Prestowitz -- A review of his 2010 book: The Betrayal of American Prosperity
Clyde Prestowitz, The Betrayal of American Prosperity: Free Market Delusions, America’s Decline, and How We Must Compete in the Post-Dollar Era (NY: Free Press, 2010)
In some matters, Clyde Prestowitz displays a brilliant mind. His account of how we went from the world’s leading creditor to the world’s leading debtor is better than anything that we have read. But when it comes to finding a solution to our chronic trade deficits that our foolish domestic and foreign policies have caused, he suddenly becomes “politically correct” –lacking a single original thought. The first eight chapters are must reading for the intelligent layman and economists could profit from them. His solutions are another story; they are worth less than nothing.
In the introduction, he writes of the contrast between the incoming and outgoing cargo at the port of Long Beach. “The imports.. include everything from shoes..to computers..and photo voltaic panels for generating solar energy. The exports, though are few, consisting mostly of scrap metal and waste paper—this millennium’s dung, you might say.” Clearly U.S. government policies have been completely ineffectual and are Trading Away Our Future, the title of our 2008 book.
He notes the popular myth that the Smoot-Hawley tariff passed in 1930 exacerbated the recession. He argues that it was not “the disaster of conventional mythology”. We agree with him and have so argued on this site. He notes that the nearly equally high Fordney-McCumber tariff of 1922 was followed by the boom of the 1920s.
Foolish domestic policies have been compounding the errors of our international trade policies. In the foolish domestic policy known as “cash for clunkers”, Prestowitz estimates that about half the cash paid went for imported autos or parts. Likewise the continuing subsidies for wind turbines in the green energy programs went largely for purchases of wind turbines from China, hardly a stimulus to domestic employment....
Obama picks a progressive lawyer for top economist -- we're published in today's American Thinker
Here's how we conclude:
Gene Sperling didn't understand trade in his 2005 book
Last week, President Clinton named former Clinton advisor Gene Sperling to replace Lawrence Summers as his National Economic Advisor. So I checked out Sperling's 2005 book The Pro-Growth Progressive: An Economic Strategy for Shared Prosperity to get a feel for his position on trade.
I was dismayed that he was caught up in the free trade vs. protectionism dichotomy, not even realizing that the balanced trade position exists! He made his ignorance clear when he discussed what he considered to be all of the alternatives in the following hypothetical situation:...
Book Review: Trickle Up Poverty by Michael Savage
This is an extraordinary book that exposes Pres. Barack Obama’s policies to fierce and justified criticism. Michael Savage argues that Pres. Barack Obama has deliberately failed to secure our borders and seeks amnesty for the millions of immigrants who entered the U.S. illegally. He has weakened the U.S. militarily by signing a one-sided nuclear treaty with Russia and conceding Russian leadership in space. He has done nothing to reduce our trade deficits which have cost American workers millions of good-paying jobs in manufacturing.
He begins by noting that Barack Obama was unqualified for the position of President of the United States, that he had no experience in government administration and only a very brief tenure in the Senate of the U.S. In both the Illinois and US Senate, he often voted “present”. And worse, that Obama believes in the “failed Sugarplum Fairy fantasies of Leninism and Marxism.”
He writes about Obama’s Marxist-Leninist Roots: “ … for decades Obama has had ‘friendly associations with communists and terrorists …Frank Marshall Davis in his youth in Hawaii to communist terrorists Bill Ayers and Bernardine Dohrn in Chicago.” He writes: “Contrary to what Marx taught and Obama believes, spreading the wealth around impoverishes us …Taking money from you and me to give to someone who is looking only for a handout, a bailout, or a way out, removes our incentive to excel, to grow, to risk investment, to invent, and to dream big dreams.” ...
BOOK REVIEW - Made in the U.S.A. by Barr McClellan
Barr McClellan, Made in the U.S.A. -- Global Greed, Tax Laws and the Exportation of America’s Future; Why and How You Support America. (Arizona, Hannover House, 2010)
The author, Barr McClellan, published Blood, Money & Power: How LBJ Killed JFK, which became a best-seller in November 2003. In the book McClellan presented the theory that Lyndon B. Johnson and Edward Clark were involved in the planning and cover-up of the Kennedy assassination. He is also known as the father of Scott McClellan, Pres. George W. Bush’s press secretary. Blood, Money, and Power created a sensation. His new book Made in the USA is not likely to create a sensation but it is a book that everyone concerned about the loss of millions of American jobs to China, the deindustrialization of the U.S., and subordinating the USA to a world government antagonistic to traditional American values should read.
In his Introduction, he writes about how the U.S. and British elites established a new world order following WWII, financed by the U.S. As he writes, the UN was formed in 1945 to be the heart of the new world order but “Unfortunately, the United Nations and its related international organizations did not work.” The book was prompted by the “results of globalization since 1945.” He writes, “The world’s leading nation is no longer America.” The assault on America is never-ending.” We were successful “because of a capitalist business and commercial economy and because of a democracy based on law.” The key for restoration of a strong and healthy U.S. is international relations “based on parity, on a level playing field and fair competition.”
He devotes the first two chapters on people like the “trillionaires”, Gates, Buffett, and Boeing and political personalities like Kay Bailey Hutchinson, Amb. John Bolton, and the media all of whom were “globalists”. ...
Book Review of Ian Fletcher's Important Book Attacking Free Trade
Ian Fletcher, Free Trade Doesn’t Work: What Should Replace it and Why (Washington, D.C.: U.S. Industrial and Business Council, 2010)
Edward Luttwak, Senior Fellow at the Center for Strategic and International Studies, writes in the Foreword “it is hard to imagine how America can rebuild its manufacturing and rebalance its trade, without repudiating free trade –to some carefully chosen extent. If nothing else, the need to neutralize foreign mercantilism demands this.” Ian Fletcher in this book proceeds to demolish the myth perpetrated and perpetuated by economists that “free trade” is good and protectionism is harmful. This is a must read book. It covers more ground than our book, Trading Away Our Future (Ideal Taxes Assn., 2008). We disagree with some of his arguments but applaud his attack on free trade which has cost the U.S. millions of industrial jobs, caused wages to stagnate, worsened the distribution of income, and contgributed to the current economic crisis.
His introduction is entitled, “Why We Can’t Trust the Economists.” While admitting that all trade deficits are not bad, he castigates the huge U.S. trade deficits of 2006, 2007, and 2008 as obviously a critical problem and yet “Americans remain afraid to do anything about it.” Economists have made protectionism a dirty word and “so we remain paralyzed in the face of the crisis.” On the other hand, the trade deficits were not created by accident. “Foreign governments treat trade as war and use every trick in the book—legal and illegal under international agreements—to grab their industries a competitive advantage.”...
Review of Baumol and Gomory's book: Global Trade and Conflicting National Interests
[This review was origininally published on our old blog on July 14, 2009]
Among the relatively few economists who view the loss of American industry to foreign countries as a catastrophe in the making is Prof. Ralph Gomory, Research Professor at the Stern School of Business at New York University and President Emeritus of the Alfred P. Sloan Foundation. Prof. Gomory is no ordinary academic. His Ph. D. is in mathematics and he made his mark as Senior Vice President for Science and Technology at IBM.
He is the co-author with Prof. William Baumol, distinguished former Professor of Economics at Princeton University, of a seminal work published in 2000, Global Trade and Conflicting National Interests. In their book, they took issue with the theory of comparative advantage that explained what products nations specialize in and the gains from trade when countries specialize in producing what they do best.
They showed that countries can acquire a “comparative advantage” by specializing in any industry in which they can obtain economies of scale, a wide range of possibilities. With acquired advantages playing a decisive role, Japan could specialize in autos and the U.S. in airplanes or Japan could specialize in airplanes and the U.S. in autos. Who is first to achieve economies of scale in an industry is likely to continue specializing in that industry and potential foreign competitors have a high hurdle to overcome to compete successfully.
Their analysis, like the traditional analysis it displaced, presumes that in equilibrium, trade will be balanced. They do not discuss or analyze whether there can be chronic trade deficits such as the U.S. has been experiencing for more than two decades. Here is what they say in a footnote to chapter 6:...
Review of: Ha-Joon Chang, Bad Samaritans:The Myth of Free Trade
Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (New York, Bloomsbury Press, 2008)
If you are a skeptic and believe economics cannot be a science, or if you are a Marxist, or just hate America or capitalism, or you believe your country’s backwardness is all the fault of the Americans and Europeans, or all of the above, this is the book for you. The author attacks what he describes as neo-liberal economic beliefs, the principal belief being the advantages of “free trade”. He describes himself as an economist but not a “neo-liberal” economist. If he is not a neo-liberal economist, what kind of economist is he? Neo-liberal is not an economic term but a political one, like calling economists by the policies they recommend. You are a Keynesian or non-Keynesian, a Marxist, a neo-classicist, a free trader, or, God-forbid, a protectionist in a rich country. The author’s thesis is that it is all right to be a protectionist in a poor country....
Richard Duncan is currently chief economist at Blackhorse Asset Management. He has worked or served as a consultant for ABN\AMRO in London, the World Bank in Washington, Capel Securities and Salomon Brothers in Bangkok, and for the IMF in Thailand during the Asian Crisis of the late 1990s. His previous book, The Dollar Crisis: Causes, Consequences, Cures, published by John Wiley (Asia) in 2003, dealt with the instabilities that the “dollar standard” that Pres. Nixon inaugurated by going off the gold-exchange standard in 1971 caused in the world economy. Capital flows to the Asian Tigers led to hyperinflation of financial assets and real estate, bubbles that could not be sustained, and caused the Asian Crisis. The capital flows from China, Germany, and Japan by their reinvestment of their trade surpluses in the U.S. produced the American stock market and real estate bubbles which he confidently predicted were unsustainable and that the disequilibrium must eventually result in plunging the world into the “most severe downturn since the Great Depression.” Events proved him right.
The current book goes into great detail of the forces at work. Duncan’s description of the causes of the current crisis, the New Depression as he calls it, makes this almost a great book. But, as a Keynesian, his prescription for emerging from the depression is misguided economically and politically.
Book Review of Weyrich and Lind, The Next Conservatism
Paul M. Weyrich & William S. Lind, The Next Conservatism (South Bend, Indiana: St. Augustine’s Press, 2009)
In a column he wrote on the day he died at the age of 66 in December, 2008, Paul Weyrich wrote, “It is the worst of times because conservatives appear lost and without a serious agenda or a means of explaining such an agenda to the Public. It is the best of times because … the Next Conservatism .. should ignite a meaningful debate about the future.” This review joins that debate.
The simplest way to define conservatism is that it is the policy of preserving institutions and policies that are good and resisting changes that are bad. Some environmentalists consider themselves conservatives, wanting to retain nature in its pristine form wherever it can. At the same time, they want to roll back man’s intrusions into that pristine environment. There is cultural conservatism that wants to preserve Judeo-Christian religious values and beliefs and rejects challenges that weaken such values and beliefs. Then there is political conservatism which wants to preserve the policies that have made the U.S. powerful, our constitution and the free market that have enabled our economy to innovate and create the highest living standards in the world.
The “next conservatism” includes most of the social and political positions of the old conservatism. It opposes abortion but the authors would not make abortion illegal. It supports traditional marriage. It advocates lower marginal tax rates and reduced government spending and a balanced budget. It advocates a strong national defense. It wants better control of our borders and wants English to be the only official language. These old goals remain important but there are new challenges, they believe, that require changes which they call the “next conservatism.”
The “next conservatism” must deal not only with dangers by the state but dangers to the state. The dangers by the state, we agree, are constant. The continuing growth of government and weakening of the constitutional restraints on government’s growing intervention in the economy require strong action by conservatives. But we disagree fighting terrorists poses a threat to our liberties. They ask, “What indignities will we have to undergo to get on an airplane after the first terrorist employs an explosive suppository.” [How prescient!] But we believe the greater danger is from those who want to extend our civil rights to enemy terrorists and try them in our civil courts. In our view, they should have no right to trial or release until the war is over; in this case, the war on terror. As for invasion of our privacy and civil liberties believed by the government to be necessary to expose and fight terrorism, conservatives can argue against the abuse of the information collected, i.e., using it for purposes other than the war on terror.
The authors rightly ascribe many societal ills to multi-culturalism which equates good cultures and bad ones. It equates a culture based on Judea-Christian values with voodooism; it equates an economy that brought hundreds of millions of people out of poverty with one with communist-fascist values that murdered tens of millions and impoverished hundreds of millions on its way to failure. They believe there is a need for “retroculture,” restoration of Judeo-Christian culture to counteract cultural conservatism. Conservatism they write is a way of life, not ideology. We believe that conservatism is essential both to progress and stability.
They argue that we need to substitute conservation for environmentalism, conservatives should support family farms, farmers’ markets, and organic farming, that conservatives should be against autos and favor trolleys. We believe that none of the foregoing are a matter of conservatism. All of these have to justify themselves. Conservatives should ask, “Do these require a government subsidy to sustain themselves?” If so, there have to be other reasons why taxpayers should support them. We do not see a conservative position on conservation versus environmentalism. Any government policy must justify itself by an evaluation of all its benefits and costs. These need not be monetary, but social benefits should not be overvalued.
They argue against foreign wars and adventures. They write that we cannot force democracy on the rest of the world. But there are some just wars, World War II for example. They argue that our invasions of Iraq and Afghanistan were wrong. Some of those advancing that argument approved of our invasion of Kosovo and the bombardment of Bosnia. These are all political, not conservative decisions. The conservative position is don’t go to war unless you can win it at a justifiable cost and your reason for going must meet the test of the first conservative principle: conserve what is good and be careful about what you change.
They reject the national security state, as represented by the Patriot Act enacted after 9-11which increased the ability of law enforcement agencies to search telephone, e-mail communications, and financial records and gave law enforcement authorities the power to detain immigrants suspected of terrorism-related acts. How far the state should go domestically in fighting its foreign and domestic enemies is a policy issue that has to do with survival. We believe that this is not a conservative vs. leftist issue.
The ACLU position appears to be that even terrorists are entitled to civil rights. The authors do not go that far but believe conservatives should oppose invasion of the privacy of Americans. Pres. Lincoln suspended the right of habeas corpus. His action is still being debated. Fortunately for him (and the country), the Union won the war. What if we lose the war on terror? We would lose all our rights, including the right to speak English!
They appear to be for term limits, for referendum, initiative, and recall, and a level playing field for elections. In our opinion, these often run counter to conservative values. Sometimes, they achieve results that conservatives support. But they are not intrinsically conservative values. We believe that the essence of government in the U.S. is that it is a republic, that our representatives make the laws.
They believe our failure to achieve conservative values may force conservatives to secede and create our own homogenous islands like the home-schoolers, the Amish, and so on. We understand homeschoolers wanting to avoid the brain-washing of the multi-culturists and the Amish wanting to preserve their culture, but that is no solution to the national need to promote conservative values for the preservation of the United States.
We are in full agreement with their position on international trade. They write:
If economic efficiency means, for example, that America should send all its manufacturing jobs overseas, as free trade seems to demand, the next conservatism should not say, “Oh, well, I guess we have to go along with it.” Better we toss our sabots into free trade’s grinding gears. Economic security requires that people be able to get good-paying jobs, which means manufacturing jobs.
As economists, we maintain that nothing in economic theory justifies the foolish unilateral free trade policy we’ve followed the past three decades which cost millions of industrial workers their good-paying jobs, caused the wages of American workers to stagnate, worsened the distribution of income, and contributed to the current recession. That is the case we made in our book, Trading Away Our Future (Pittsburgh, PA., Ideal Taxes Association, 2008)
On the other hand, we take exception to their approval of “a new infrastructure of bus routes, streetcar line, electric interurban railways,” as a means of freeing America from dependence on foreign oil. The environmental extremists say the same but they are not conservatives. Let the free market and freely fluctuating prices decide which mode of transportation is most efficient and let American households and businesses decide for themselves. The authors are on a slippery slope here.
We believe we have plenty of domestic energy resources but the man-made climate change environmentalists have been successful in preventing the successful exploitation of our oil and gas reserves and nuclear energy production. Eventually we shall begin to run-out of fossil fuels and the ensuing rise in prices will encourage the exploitation of alternative fuel sources. But to do it prematurely is like building an apartment building and keeping it vacant for fifty years.
They argue for tort reform and so do we, and not only because it increases the cost of health care. Our opposition is based on the fact that juries are awarding punitive damages to plaintiffs. But punishment should be decided in a criminal proceeding with the fine paid into the government treasury, not into the pockets of the plaintiff. Civil proceedings should be based upon the principle of fairness, and should not involve punishment.
Weyrich and Lind have opened a debate that should be joined by all who consider themselves conservatives. They have put forward a number of arguments that conservatism has to change to meet the changing conditions that our country faces. They have suggested changes they call the “next conservatism.” Some are true conservative principles but others are policy issues that need to be evaluated based upon a careful analysis of the costs and benefits.
True conservatism never changes. It is the system of thought that tells us that the past has much to teach us about the present. It is the study of the good forces that have contributed to human well-being and of the bad forces that have been harmful. Conservatism doesn't provide all of the answers. Often we must engage in a careful analysis of the costs and benefits of a policy action, including the unintended consequences. But conservatism allows us to conserve what is good in the world, and fight what it is evil.
A Review of Ron Paul's End the Fed
[This review was initially published on our old blog on October 12, 2009]
Congressman Ron Paul has just published his latest book, entitled End the Fed (NY: Grand Central Publishing, 2009). He writes:
The Federal Reserve should be abolished because it is immoral, unconstitutional, impractical, promotes bad economics, and undermines liberty. Its destructive nature makes it a tool of tyrannical government. … The Federal Reserve’s monetary policy has brought us to where we are today – in a tragic economic mess.
Not a word of this is true. What brought us to the mess we are in is without doubt the economically illiterate Presidents of the United States and economically illiterate majority of Senators and Representatives of the Congress of the United States, in which “august” group Rep. Paul finds himself.
The Federal Reserve is the central bank of the United States, a quasi independent institution that Congress established in 1913 to regulate the supply of money and supervise the banks. Until its creation, money consisted of the banknotes issued by the individual private national banks which by law were redeemable in gold or in the coins and currency issued by the U.S. Department of the Treasury. When a recession occurred, caused usually by too many private banks making too many risky loans, they were faced with bankruptcy as they began to run out of gold or Treasury money. Most of the money in circulation or in the banks today consists of banknotes issued by the Fed.
Rep. Paul ignores the fact that while we were on the gold standard, we experienced the Great Depression, the panic of 1907, often credited as the principal reason for the creation of the Fed, not to mention the recessions in the 1890s, the 1870s, and the panic of 1857 and earlier periods of recession.
The Fed consists of a Board of Governors appointed by the President, currently chaired by Chairman Ben Bernanke, the Federal Open Market Committee which buys government bonds when the Board votes to increase the money supply and vice versa when it wants to decrease the money supply, twelve Federal Reserve Banks owned by the member banks in their districts, and the private member banks which are required to subscribe to non-transferable stock in the Federal Reserve Bank of its district.
Under the Full Employment and Balanced Growth Act of 1978, the Fed is charged in Section 108 with making an annual report to the Congress setting forth a review and analysis of recent economic trends, the objectives and plans of the Board and the FOMC with respect to the ranges of growth or diminution of the monetary and credit aggregates, and submit the report to the Senate and House committees on banking, finance, and urban affairs. The purpose of the act was to achieve and maintain full employment, growth, and “reasonable” price stability, with proper attention to national priorities.
Congress Caused this Mess, Not the Fed
Rep. Paul states, “I’ve written this book to explain why I think the system of Fed domination must come to an end.” According to the Full Employment Act, the Fed reports to the Congress. It is Congress that dominates the Fed not vice versa. You could make a much better case to abolish the Congress than the Fed. The Fed did not cause this mess; Congress did. It was Congress that passed the Community Reinvestment Act in 1977 and Presidents GHW Bush, Clinton, and GWBush who strengthened it.
Fannie Mae and Freddie Mac were encouraged to provide a secondary market for bad mortgages. Congress brought pressure on banks to make mortgage loans to unqualified borrowers. Why not make mortgages available to everyone? Democrats wanted the poor to own their own homes and Republicans wanted every family to own its own home because homeowners tend to be conservative.
The CRA enabled community groups like ACORN to blackmail the banks and to get paid by the U.S. government to do so! Wall Street soon saw a way to profit from such government policies, but when the housing bubble burst, the entire financial system was about to go under.
The Treasury used TARP money to bail out the banks and the Fed did as much as it could to reduce interest rates and increase the money supply to prevent a collapse of the economy. It has little to apologize for. Congress should apologize; the CRA has not even been repealed.
It is Congress that does the decision-making and the appropriating. And the Fed is bound by the rules of the game to do the best it can to minimize the harm that wasteful government expenditures cause.
Ron Paul Ignores Trade Deficits
The other major causes of our economics problems are our chronic trade deficits, which are also the primary cause of the dollar's weakness. These trade deficits on goods rose to the enormous sum of over $800 billion dollars in 2008, and cost 5 to 7 million industrial jobs, thus worsening the distribution of income.
Rep. Paul is proud of being a free trader. Free trade works when there are no barriers to trade as in the USA. It does not work when our trading partners like China pursue mercantilism as a policy, with all kinds of barriers to our exports and all kinds of subsidies to their exports to us, including refusal to let her currency fluctuate and to allow her citizens the dollars to buy our goods. (See our book, Trading Away Our Future, 2008).
Unilateral free trade is not a sound policy no matter what Ron Paul and his teachers of the Austrian school say. The purpose of trade is to buy goods one values more in exchange for goods of equal value one values less. Most American economists in academia unfortunately have been brain-washed to extol free trade. None of them face international competition, the same goes for Congressmen and their staffs and government employees.
The Fed and Money
Rep. Paul states that his great teachers belonged to the Austrian school of economics. I am in total agreement with the Austrian school that the growth of government is a threat to individual liberty. Yet someone has to produce goods and services that are worth doing and which the private sector cannot do, will not do, or cannot do as well, like public goods.
One of the services that the government must do if it is to be done well is to maintain the quantity of money at a level that promotes price stability and is adequate for sustained growth and full employment. An independent agency free from political bias is required. The Fed was created to do the job. I know of no agency or institution, certainly not the free market that is better structured to do the job. Federal consumption of goods and services plus investment as a proportion of GDP was 7.5 times greater in 2008 than it was in 1929. Not too bad a record.
The Fed when it creates money does so because it believes it to be necessary for growth of the economy, or to prevent unemployment, or to stimulate investment or consumption or both. Its decisions may be wrong but they are not always wrong. Given the growth of the economy since 1929, it has erred more by making money easier that by keeping the expansion in check. The median change in GDP from 1929 to 2008 was 3.6 percent annually. Not a bad record, we believe, given the number of negative years in depression and recession.
The Fed and War
Rep. Paul argues that central banks facilitate war: "It is no coincidence,” he argues, “that the century of total war coincided with the century of central banking.”
In his view, central banks make it easy for governments to raise money. Aside from the fact that nothing stops a government from printing money itself without issuing debt, the reason for wars has nothing to do with the supply of money. It would be more accurate to say that economic growth creates the ability to wage expensive wars. Financing wars by domestic debt or printing money simply allocates a larger share of the national income to the government to use as it sees fit.”
Governments do often finance their war on borrowed money. What is the central bank supposed to do? Veto the government?
Hitler argued that Germany needed “lebensraum” which he thought could only be accomplished by force. Economic growth is what enabled Germany to do as well or better post-war as territorial acquisition could or would have. Wars are the result of political decisions. We were involved in WW II? Did our central bank cause it? The German, the Bank of England, the French?
The Way Out
What does Ron Paul suggest we do after we abolish the Fed? He fails to make a philosophical or economic case for ending the Fed. His chapter entitled “The Way Out” continues to blame the Fed for our debt when it clearly was the Congress and the Executives that must bear the responsibility. He writes: “In a post-Fed world, we will still have the dollar, banks, ATMs, online trading, Web-based systems of fund transfer” and so on. “What will be added to the system will be vastly more financial options that are currently being kept at bay, including trading and contracting in many different currencies and new, sounder investment opportunities.”
Money would be “a market-created good that emerged out of trade … whether that be beads or animal skins or jewels or precious metals. Gold became money because it had all the properties people look for in a good money. Government had nothing to do with it.” “At the same time, the dollar would be reformed so that it again would be redeemable in gold.” Where will the gold come from?
Whatever this is, it is not economics. Physician, heal thyself, or take some courses in money and banking or even Econ 101 from a teacher who is not a member of the Austrian school. This book makes the Austrian school look bad. The book has no index, no footnotes. It is not a book worth reading.
We are attracted by the Rep. Paul’s consistent conservative record in the Congress on spending. We disagree on some foreign policy issues including his view that wars are all bad. We’re glad that we are not forced to speak German or pray to Allah. But thanks to the Congress, not the Fed, all of us had better be learning Chinese!
Corporate Income Tax
Economy - Long Term
Economy - Short Term
Last 100 Years
Real Estate Taxation
Journal of Economic Literature:
Atlantic Economic Journal: