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.
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I consider myself libertarian, but there are some really naive and dangerous parts to libertarian ideas taken too far. In the absence of regulation, you must have a means of moral and ethical enforcement, otherwise you get situations like in California where Enron energy traders were responsible for rolling blackouts and spiking power costs. The proper moral and ethical enforcement mechanisms don’t seem to exist in today’s society, and therefore it seems very naive and dangerous to think that deregulation is going to do anything other than make it easier to be a crook and scam your fellow man. The moral and ethical stock of a society drives the level of laws that must exist. The pre-requisite to deregulation of the financial sector is for all the participants to follow only one rule, the Golden Rule.
As a software engineer, I like that the Federal Reserve system allows a means to fine tune and provide an escape valve for problems in the economy. Having a system which does not allow for adjustments seems scary to me.
Mike – You consider yourself a libertarian? You believe in regulation and you’re ok with the Federal Reserve system. You might want to reconsider your political philosophy…
I note that the current system produced Enron (and many others like it) and the Fed is responsible for the 95% devaluation of the dollar since 1913. From my perspective, the current system of ‘regulation’ and Fed control of the economy hasn’t worked.
I consider myself a Constitutional Textualist which means we must do our best to apply the US Constitution as written if we are to be a nation of laws rather than a nation of men. If we don’t like the result, we can amend the Constitution. I prefer that to ignoring it as has been the custom for about 100 years now.
In most cases, it’s not hard to read and apply the US Constitution to reach the result dictated therein. IMHO, the more we stray from the original design of our republic, the worse things get.
As a software engineer myself, I don’t like that the Federal Reserve system allows a few people monopoly-control over the entire economy. (Kinda like the results you get when Microsoft has a monopoly.) Having a system that corrects itself is preferable to me than relying on the fantasy of “good” morals and “proper” ethics of men who will ALWAYS fail you.
For libertarianism to work one has to have an honest populace as well as government. We are a nation of crooks. In our everyday interactions we are venal, corrupt, and dishonest. Why should we expect our larger institutions to be honest?
Go try to sell something high dollar on ebay. You’ll get come-ons from crooks. Get ripped off there? Go try to get paypal to refund your money. They have pages and pages of “outs” to avoid that. Go try to offer a service to customers and watch your sleazy competitors low-ball and over-promise to get the account. Watch them cut corners and do shoddy work, only to get lost in the crowd and not even get a bad reputation for it. Ever try to collect on any of the various low-end aftermarket home, car, or other warranties out there? Good luck. Most fold before they have to start paying claims. Watch TV commercials or listen to them on the radio. Over half are making deceptive promises of some sort. “lose weight fast”. “we find you penny stocks to get rich from”.
We condone dishonesty every day. We are immersed in it. When we don’t make an effort to actively shun those who lie we give our tacit approval. Martha Stewart inside trades. She got punished, but she also got a TV show and continued riches. In an honest country people would out of principle refuse to buy her products or watch her show. But not here. We even seem to ADMIRE a skillful crook.
Disgraced whore-monger, adulteror, and Clinton abettor Dick Morris is given a prominent role on Fox News. Screw principle, the guy has dirt to dish! You can’t seperate personal and public morality. A guy who cheats on his wife will lie to you, period.
We institutionalize corruption. What do you think “campaign contributions” are other than legalized bribery? A just nation concerned with that would limit those contributions to a token amount ($1,000?) per person so that no single individual or organization could contribute enough to sway a politician’s vote. This reminds me of Rodney Dangerfield in Caddyshack handing the umpire money saying “keep it fair, keep it fair”.
Read BS “statistics” on how little doctors are paid? Well, you don’t realize that they’re LYING to you. They have an agenda to downplay earnings. Doctors can say they earn a “salary” of only $100K a year. What you won’t hear is that they pay themselves a small salary and take the rest through their corporation as dividends. Their Mercedes is a “business expense” for seeing patients and doesn’t count as salary either. And we all know how dividends are taxed vs salaries! Yet where have you ever read about this? Anyone who can do basic math and has a business background call see that a family practice MD seeing 60 patients a day 4 days a week at even an insurance-reduced fee of $35 each cannot make just $100K even after expenses. Try more like $250K. I don’t deny them that. Just don’t lie about it.
So, being a nation of crooks or abettors of crookedness(most, not all of us), we have proved that we cannot be trusted to act in our own self-interest by coming down hard on liars and crooks. In a libertarian world, we would rely on that self-interest and decency to punish wrong-doers in the marketplace. Instead, we seem to almost admire it.
If we were a nation of even moderately moral people like we once were, I might endorse a pure libertarian policy agenda. But sadly today the populace is too dangerous and too uncaring about right and wrong to trust with real freedom. It would lead to anarchy. They’re getting an onerous big government instead. I’m not sure which is worse.
Chiding this and that about the system is merely blowing spit wads at a battleship. Until we start making wrong-doers pay outside of courtrooms and prisons we’re doomed. Because you see, a nation of crooks doesn’t deserve to prosper. One never has. Go check out any third world nation. Corruption is always present. We’re headed that way fast. Unfortunately we can’t build a wall to stop the third world mentality from springing up from within.
Bruno
Sadly, I agree with every word you wrote and feel as if you somehow read my mind or vice versa!
We get the government we deserve. The nature of man is not pretty and, for those of us who strive for honesty, integrity, discipline, honor, truth, justice, etc. fight an uphill battle every day.
My wife and I have finally acquired enough capital that I’ve retired and we’ve decided to leave America and move elsewhere to show our total disdain for the system. It’s a sad end for me to finally give up on my country but I am getting older and I don’t have the energy to fight the endless corruption and stupidity any longer.
We’re looking for a simpler place where the weather is better than Oregon (where we now live) and the government is too inept to effectively run our lives and tax everything in sight. I hope I run into you and your ilk in my new digs!
Thanks for the iinhsgt. It brings light into the dark!