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This is a good follow-up to that last item about an economy based on lies and crony capitalism. If elected to office, Kevin Black is likely to be the crony of many (hat tip BA).
Those of you with the most delicate of sensibilities might want to make sure the volume is at an appropriate level.
After a stretch of time when you could find one or two commentaries every week on such topics as sound money, Austrian Economics, or just some good’ ol bashing of the Federal Reserve, the op-ed pages of the Wall Street Journal have been relatively devoid of this fare more recently, or so it seems. Gerald P. O’Driscoll of the Cato Institute begins to make up for that shortfall in this piece from today’s paper.
Free markets depend on truth telling. Prices must reflect the valuations of consumers; interest rates must be reliable guides for allocating capital across time; and a firm’s accounts must reflect the true value of the business. Rather than truth telling, we are becoming an economy of liars. The cause is straightforward: crony capitalism.
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In the U.S today, we are moving away from reliance on honest pricing. The federal government controls 90% of housing finance. Policies to encourage home ownership remain on the books, and more have been added. Fed policies of low interest rates result in capital being misallocated across time. Low interest rates particularly impact housing because a home is a pre-eminent long-lived asset whose value is enhanced by low interest rates.
Distorted prices and interest rates no longer serve as accurate indicators of the relative importance of goods. Crony capitalism ensures the special access of protected firms and industries to capital. Businesses that stumble in the process of doing what is politically favored are bailed out, leading to moral hazard and more bailouts. And those losing money may be enabled to hide it by accounting chicanery.
If we want to restore our economic freedom and recover the wonderfully productive free market, we must restore truth-telling on markets. That means the end to price-distorting subsidies, which include artificially low interest rates. No one admits to preferring crony capitalism, but an expansive regulatory state undergirds it in practice.
Piling on more rules and statutes will not produce something different than it has in the past. Reliance on affirmative principles of truth-telling in accounting statements and a duty of care would be preferable. Deregulation is not some kind of libertarian mantra but an absolute necessity if we are to exit crony capitalism.
This is where I normally get lost with Libertarian arguments for even less regulation than we currently have, but, as I understand it, those calls normally assume a return to sound money and the end of the Fed as we know it which, when you think about it, makes a good deal of sense – restrict the expansion of money and credit and, with only a few exceptions, let people and businesses do what they want, letting the market sort it all out.
Let’s see, China’s got a small inflation problem and India’s got a huge one with prices now rising at an annual rate of 10 percent per this report at the BBC. This story in the Telegraph details the latest inflation data from the British Isles where the trend is definitely up.
The Consumer Price Index climbed 0.6pc in the month compared with February and is now 3.4pc higher than a year ago, figures from the Office for National Statistics showed today. City economists had expected inflation to come in at 3.1pc.
Other measures of inflation also accelerated last month. The Retail Price Index, which is the measure widely used to calculate pay settlements – climbed 0.7pc on the month and is now up 4.4pc on the year.
As is the case for inflation in the U.S., there are still a few months to go before the worst of the annual energy price increases are behind us, though, the way it looks now, we won’t see inflation rates anywhere near four percent stateside.
Of course, across the pond, BOE Governor Mervyn King must now write a letter to Chancellor Alistair Darling explaining why inflation has been allowed to exceed the three percent mark.
As is usually the case, Arianna Huffington makes some very good points in this commentary about the bigger picture as it relates to the ongoing financial crisis and efforts at reform.
Shorting The Middle Class: The Real Wall Street Crime
The press is all abuzz with news of the SEC suing Goldman Sachs for fraud. While this is certainly big news in itself, even more important is what it says about what the financial elite has been doing to America for the last 30 years: shorting the middle class.
The SEC’s action is a perfect moment for us to look at the bigger picture of how the American people were sold on the promise of never-ending prosperity while Wall Street was overseeing a massive transfer of wealth from the middle class to the richest Americans.
The results have been devastating: a disappearing middle class, a precipitous drop in economic and social mobility, and ultimately, the undermining of the foundation of our democracy.
Thirty years ago, top executives made an average of 30 times what their workers did — now they make 300 times what their workers make.
Those familiar with such works as Paul Kennedy’s The Rise and Fall of Great Powers might argue that policymakers had little choice in the matter decades ago and opted for twenty or thirty more years of faux prosperity rather than letting U.S. standards of living immediately begin the painful adjustment toward those in the rest of the world.
But, that would be giving elected officials far too much credit for having any foresight at all, that is, beyond the next election.
This photo seems to be popping up all over the place. It was last spotted as part of this photo series at Spiegel Online and reminds me of our visits to Scotland a few years back – not the ash cloud, but the structures that are similar to what you seen in the U.S. but just different enough to make you do a double-take.
It looks as though, just when flights were about to resume throughout Europe, Eyjafjallajökull began erupting again, bringing into doubt the travel plans of those who have been stranded for days – the longest closure of airspace over Europe since World War II.
TOP STORIES
Goldman Sachs profits top $3bn – BBC
Inside a Goldman Sachs Abacus Deal – HuffPo
Fraud and Fecklessness on Wall Street – New Yorker
BofA Could Cover Unemployed Borrower Mortgages for 9 Months – Housing Wire
The US Financial Media Does Not Disappoint, But Obama Probably Will – Jesse’s Cafe
Shorting The Middle Class: The Real Wall Street Crime – Huffington, HuffPo
Skipping the risk mismanagement – Salmon, Reuters
Why I Think Goldman Is Guilty – Sense on Cents
End the Mandate – Ron Paul
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MARKETS/INVESTING
Oil rises above $82 on risk appetite, flights – Reuters
Gold Rebounds as Buyers May Emerge After Price Drop, Inflation – Bloomberg
When Wall Street Deals Resemble Casino Wagers – Sorkin, NY Times
Hard to see how Goldman’s difficulties lead to gold weakness – MarketWatch
Debunking the Precious Metals Fear Mongering Campaign – iTulip
Don’t Wait for May to Go Away – Saut, Raymond James
By Tim Iacono, Since 2005
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