Archive for March, 2009
Copyrights stifle creativity.
Posted by Benjamin J. Thompson | Filed under Liberty
So says Jeff Tucker, in his article “The 100-year Sentence.” Is it really rational for a creative work to be untouchable until nearly a century after the creator’s death? It seems the legal structure intended to foster creativity can actually wind up causing a shortage.
The Big Misconception
Posted by Benjamin J. Thompson | Filed under Economics, Liberty
There is a big misconception in the public debate between free markets and government intervention, and it is this: that capitalism has no safeguards, while socialism does. Advocates of free markets are unnecessarily on the defensive, because they too have bought the lie that capitalism creates a “wild west” economy while socialism is a system of stability.
I believe the opposite to be true. Capitalism has very efficient and fair market forces as safeguards: foolish decisions produce losses, while wise decisions produce profits, and the use of force or fraud get you in trouble with the law. The entire aim of socialism is to remove those safeguards because they cause pain to those with political connections. Government intervention creates a wild, unpredictable economy where a lot of the information necessary for an entrepreneur to make a good decision is blacked out by government fiat.
The mortgage crisis was engineered by government intervention. Federal laws, and the Federal Reserve threatened banks with penalties if they did not make enough stupid loans, while Fannie and Freddie promised to remove the bad consequences of those stupid loans if the banks did make them. The Fed created a real estate mania through interest rate manipulation, and made the mortgage collapse inevitable. Socialist laws mandating that people should get home loans based on their race or geography, combined with socialist government promises to socialize the losses of said loans sowed the seeds of the mortgage collapse. In other words, government turned bad business decisions into good ones through the use of coercion and an immoral reward system.
Under pure capitalism, there is no central planner telling businesses what to do, so they are free to make business decisions that make sense. They are also free to make decisions that don’t make sense, or be greedy, or whatever you want to call it. But in a free market, no one is shielded from the huge risks that always come with greed. Greedy people are also risk-averse, so market forces do well at tempering those desires. For example, grabbing too much of your profits without reinvesting keeps you from making more profits. One of our biggest problems is that our government seeks at every turn to remove the disincentives for Wall Street to be greedy. A capitalist system would have no such coddling of the rich. None of this too-big-to-fail nonsense. If you scam people, your game is over. Period.
When the government shrank by about one third after World War II, the USA had the biggest sustainable economic boom in history. Further study of history reveals that quality of life increases almost exponentially when people are free to work and trade and save and invest without arbitrary impediments from the State. Economies also recover very rapidly when freedom reigns. There was a crash bigger than 1929 that happened in 1920, but the government did nothing to “stimulate” the economy that time. The recession was over in a year.
Those who argue that the the inevitable result of capitalism is “extreme” income inequality need to explain why they think free and voluntary exchange has such horrendous consequences. Even if the accusation were true, so what? Income under capitalism can only be obtained through voluntary trade, and is dependent on satisfying those you trade with. Your rights should not be decided by the size of your bank account! Socialists seem to think they are, which is why they seek “economic equality”, a state that can only be reached with enormous deployments of coercive force.
Capitalism is superior to this idea, because it is sustainable and enforceable. Socialism is not sustainable, and attempts to enforce it only lead to escalating tyrannical power over every facet of life.
The true scale of the AIG scandal
Posted by Benjamin J. Thompson | Filed under Economics, Essays, News
The banner story at every news outlet is about the AIG employees and the multi-million dollar bonuses they got from their company when it convinced the government to give it $144 Billion. Congress is slapping them hard with a 90% tax on that money. Everyone’s mad about those executives. They’re getting death threats, members of Congress are grandstanding with impassioned speeches about their corruption.
But I think people are straining at gnats here while the heist of the millennium goes almost completely unnoticed. The voters know they’ve been fleeced, but apparently AIG is the only raiding party whose theft was on a scale that won’t implode their brains.
I believe my friends here on RvB are very smart people, so you deserve the whole story. I don’t claim any authority on this; I’m just relaying to you the information I get buried on the nineteenth page of the news, and from the sources who predicted this whole meltdown in the first place. Years in advance.
Let’s get some perspective
I don’t know the exact numbers, but the figure I’ve seen for AIG executive bonuses was in the neighborhood of $4,000,000. Even if 1,000 executives got that amount of money, that’s still not even 3% of the total AIG bailout money. The bailout of AIG itself is literally about two orders of magnitude bigger than the executive bonuses. Think of it this way: If Congress gave away a $200,000 house, they’re demanding 90% of the hall closet back.
AIG is small potatoes
But even beyond AIG, the Federal Reserve just this week decided to create 1.3 trillion dollars out of thin air. They create money out of thin air all the time, but this particular episode is especially egregious. Since this whole business of bailouts has started, they’ve given away some 8 to 10 trillion dollars already, not to mention an unlimited line of credit for further Treasury giveaways. That’s money that the government plans on taxing out of you and me someday. The money they don’t tax out of us, they will use the stealth tax of monetary inflation to extract that money from everyone all over the globe who holds dollars. They do this when they sell Treasury Bonds to the Federal Reserve. The Fed often buys these with money they simply create with a few keystrokes on a computer.
The Fed’s Power
It’s hard to wrap one’s mind around the level of power the Federal Reserve has. It is a private banking consortium no more federal than Federal Express. It is has exactly zero regulation or oversight. Its board members have the only legal counterfeiting operation in the country, and let me say it again, they have NO accountability to Congress. The Fed arbitrarily pushes interest rates throughout the country up and down, which gives them almost godlike powers to manipulate the financial markets for their own gain. Did I mention Congress has never audited these people or demanded full accountability? It wasn’t even created by Congress. Instead it was dreamed up in secret by a cartel of the wealthiest US bankers as a means to preserve their wealth and power forever.
Orders of Magnitude
This banking consortium called the Federal Reserve has put US taxpayers on the hook for over 10 trillion dollars. That’s another two orders of magnitude bigger than AIG. To get a sense of scale, without exaggerating: If the AIG bailout is the distance from the Sun to the Earth, the overall heist by the Fed and Wall Street is the distance from the Sun to Eris, which is twice as far away as Pluto. The executive bonuses would be about half the Sun’s distance to Mercury.
Crimes of the Fed
Through their manipulation of interest rates, they’ve whipsawed the economy from boom to bust for a century, and they use the busts to expand their ownership and power over America, its economy and its government. The national debt is primarily debt owed to the Fed, not to taxpayers.The most horrifying aspect to all of this is that the income taxes you pay every year go almost exclusively to pay the interest on that debt. If our government only had the discipline to pay for its obligations without forever escalating debt, we would have no use for an income tax on individuals.
And since the last months of the Bush Administration, the Fed has been printing money like mad, sapping wealth from people all over the globe who hold dollars by making those dollars depreciate, in order to pay for Wall Street’s insanity. This printing spree has gotten so badly out of hand that the UN is about to recommend ditching the Dollar as the world’s reserve currency.
If that happens, say hello to Second Great Depression. And no, that’s not hyperbole. I’m telling you right now to stock up on essentials.
So what’s the big story NOW?
All of the above is why when someone walked up to me at work and said, “What do you think of this Madoff guy?” I said, “who?” When a team of pirates — the Federal Reserve and global bankers — is literally robbing the world and twisting the dagger in the world economy’s heart, a guy like Bernie Madoff, or the AIG executives, just don’t compare. Why worry about a fly in your soup, when the waiter just served you a giant cauldron of Shit Soup?