A group of people are reading Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse . I read the first chapter, which is short and though there is little discuss at this point, I'll share my thoughts thus far.
The elephant Mr. Woods is refering to (the title of his first chapter) is the Federal Reserve. People are blaming greed and the free market, but the main culprit, the Federal Reserve, is hardly mentioned except as our savior. The same people who got us into the mess and laughed at Peter Schiff(Here is a good link.) are the ones who are going to get us out? He points out that:
1) There has been no serious discussion of the Fed in public life for nearly a century
2) We were told we had to have a bailout and the money would be used to buy up bad assets or else the economy would collapse, then the money was approved and it was not used to buy up bad assets.
3) We are being asked to prop up an unsustainable system based on borrowing and consumption, instead of encouraging people to live within thier means as the market is now trying to do.
4) The two major-party candidates for president in 2008 agreed on the bailout package and the American people were offered no real choice.
5) There is nothing the Fed or the government can do to help the current situation and a great deal they can do to make the problems last longer.
6) We can't expect the situation to improve until we understand how we got here.
Woods promises a layman's overview of where the economy is and what should be done next.
Friday, July 3, 2009
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8 comments:
I'll wait to see where he goes from here, but one thing he hasn't really mentioned is that the decades of central bank / Fed dominance have been a period of unprecedented economic flourishing and plenty, even taking into account the latest troubles.
Good point, Ambrosius. The free market people might argue that it was not the Federal Reserve that caused the growth. I know for sure they would say that some of the growth has been artificial (e.g. see the first interview with Peter Schiff at the link above). But it will be interesting to see what he has to say about that.
One thing I have been thinking about is that our economy (based on debt and spending) is not sustainable. I can live like I'm making $200,000 a year--for a while--by going into debt, but eventually all the bills come due. If I can't afford to pay cash for all my toys, how is it that I can pay that amount plus interest?
I think Americans have been living to high on the hog for us to keep this up. Maybe there is a flaw in this example, but here is something to think about: Farmers can't make it because they buy large equipment that costs more than their house. Wouldn't it make more sense to buy a smaller tractor? They can't do that because they don't have the manpower. So we have a shortage of labor? Not at all, according to the New York Times, unemployement hit a 26 year high of 9.5 last week (an of course it is like 25% in certain areas).
What is the Austrian School of Economics and how is it different than other "Schools"?
Well, the Fed has been operating for 90+ years now, during which time the US has become the wealthiest and most powerful consumer society ever to exist. Which has many possible problems, but it's not all just a big illusion.
Has there been excess over the past few years, caused by an aggressive - irresponsible, you might even say -- low-interest policy by the Federal Reserve? Sure, I can agree to that. But that's not exactly a secret and esoteric opinion, an Elephant in the Room -- it gets discussed by, inter alia, the Wall Street Journal practically daily. But the Fed making mistakes and the Fed *being* a mistake are distinct claims, and it will take more evidence than Woods has so far presented to make the case that the Feds very existence is a bane to economic flourishing, as the bare facts of our national prosperity simply refute any simplistic claim in this way (not that I accuse him of being simplistic -- just that I will need to see a more targeted accusation made, with more data, before I'll assent to his prescriptions).
We can never know what would have happened.
We may have had unprecedented economic flourishing +, if it had been done without the fed.
The issue is does the Fed allow for free people to engage in a free market or is it a planned economy that is exploited by those in control.
Ambrosius:
You may be right. I have an open mind either way. You are approaching it with some skepticism about the Austrian School of Economics, and with some skepticism about the wisdom of the Fed. That's probably a healthy combination.
A couple of thoughts: Like Northron said, it might have been better without the Fed. Also, just because the Fed has been in existence during this period of prosperity does not mean it is the cause. We're in a recession this year. That doesn't mean the recession is causing the drought (aside: note that there was a dust bowl with the great depression and a horrific draught with the 1980 recession).
The other thing to consider about the Fed is how many people have been victimized by the manipulations? Has the manipulation helped some and hurt others?
Yet another thing about the Fed and prosperity is that even if it caused prosperity is it sustainable or has America ridden an economic bullet train that is destined to derail and if it is going to derail is staying on the train wise?
It would be interesting to define what we mean by prosperity. How is it measured? Any thoughts?
I can tell you one way we are worse off than we were 90 years ago: 90 years ago the mass of people were small businessmen and farmers who were more independent. They made enough that they could save capital for rainy days for themselves, their families and their neighbors (and PEOPLE, i.e. families and communities, took care of the poor, not the State—something at which it is horribly inefficient). Today the mass of people are dependent on either an employer or the government and live hand to mouth.
Also 90 years ago people could save money with the expectation that it would retain value. Today a person who saves money will at best lose some value and it appears our currency may in fact become valueless in the short term.
I meant to say:
"You are approaching it with some skepticism about the Austrian School of Economics, and *I* with some skepticism about the wisdom of the Fed. That's probably a healthy combination."
BTW, I'm not 100% on board with the Austrian School. I'm really kind of on the fence about economic theories. I probably tend to agree with distributists, but not 100% and think that an economic system has to take into account current realities.
Ambrosius, your blog looks top notch. I'm going to have to take a look around.
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