The Daily Bell - Richard Ebeling on Higher Interest Rates, Collectivism and the Coming ... - 0 views
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shared by Gary Edwards on 17 Jun 13
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The "larger dysfunction," as you express it, arises out of a number of factors. The primary one, in my view, is a philosophical and psychological schizophrenia among the American people.
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While many on "the left" ridicule the idea, there is a strong case for the idea of "American exceptionalism," meaning that the United States stands out as something unique, different and special among the nations of the world.
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the American Founding Fathers constructed a political system in the United States based on a concept on which no other country was consciously founded:
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But the American Revolution and the US Constitution hailed a different conception of man, society and government.
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n the rest of the world, and for all of human history, the presumption has been that the individual was a slave or a subject to a higher authority. It might be the tribal chief; or the "divinely ordained" monarch who presumed to rule over and control people in the name of God; or, especially after the French Revolution and the rise of modern socialism, "the nation" or "the people" who laid claim to the life and work of the individual.
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the idea of individual rights.
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That is, as long as the individual did not violate the equal rights of others to their life, liberty and property, each person was free to shape and guide his own future, and give meaning and value to his own life as he considered best in the pursuit of that happiness that was considered the purpose and goal of each man during his sojourn on this Earth.
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Governments did not exist to give or bestow "rights" or "privileges" at its own discretion.
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Governments were to secure and protect each individual's rights, which he possessed by "the nature of things."
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The individual was presumed to own himself. He was "sovereign."
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The real and fundamental notion of "self-government" referred to the right of each individual to rule over himself.
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Each individual, by his nature and his reason, had a right to his life, his liberty and his honestly acquired property.
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during the first 150 years of America's history there was virtually no Welfare State and relatively few government regulations, controls and restrictions on the choices and actions of the free citizen.
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But for more than a century, now, an opposing conception of man, society and government has increasingly gained a hold over the ideas and attitudes of people in the US.
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It was "imported" from Europe in the form of modern collectivism.
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The individual was expected to see himself as belonging to something "greater" than himself. He was to sacrifice for "great national causes."
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He was told that if life had not provided all that he desired or hoped for, it was because others had "exploited" him in some economic or social manner, and that government would redress the "injustice" through redistribution of wealth or regulation of the marketplace.
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If he had had financial and material success, the individual should feel guilty and embarrassed by it, because, surely, if some had noticeably more, it could only be because others had been forced to live with noticeably less.
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left on its own, free competition tends to evolve into harmful monopolies and oligopolies, with the wealthy "few" benefiting at the expense of the "many."
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They are the crises of the Interventionist-Welfare State: the attempt to impose reactionary collectivist policies of political paternalism and redistributive plunder on a society still possessing parts of its original individualist and rights-based roots.
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it is in the form of communism's and socialism's critique of capitalism.
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Unregulated capitalism leads to "unearned" and "excessive" profits; unbridled markets generate the business cycle and the hardships of recessions and depressions;
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These two conflicting conceptions of man, society and government have been and are at war here in the United States.
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And if it cannot be gotten and guaranteed through the redistributive mechanisms of the European Union and the euro, well, maybe we should return power to our own nation-states to provide the jobs, the social "safety nets" and the financial means to pay for it through, once again, printing our own national paper currencies.
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This is the political-philosophical bankruptcy of the West and the dead ends of the collectivist promises of the last 100 years.
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Ludwig von Mises's book, Socialism: An Economic and Sociological Analysis, originally published in 1922, demonstrated how and why a socialist, centrally planned system was inherently unworkable.
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The nationalization of productive property, the abolition of markets and the prohibition of all competitive exchange among the members of society would prevent the emergence and operation of a price system, without which it is impossible to know people's demands for desired goods and the relative value they place on them.
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It also prevents the emergence of prices for the factors of production (land, labor, capital) and makes it impossible to know their opportunity costs – the value of those factors of production in alternative competing uses among entrepreneurs desiring to employ them.
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Without such a price system the central planners are flying blind, unable to rationally know or decide how best to utilize labor, capital and resources in productively efficient ways to make the goods and services most highly valued by the consuming public.
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Thus, Mises concluded, comprehensive socialist central planning would lead to "planned chaos."
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And, therefore, there is no guarantee that the amount of investments undertaken and their time horizons are compatible with the available resources not also being demanded and used for more immediate consumer goods production in the society.
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As a consequence, financial markets do not work like real markets.
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Thus, the interventionist state leads to waste, inefficiency and misuses of resources that lower the standards of living that we all, otherwise, could have enjoyed.
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We cannot be sure what the amount of real savings may be in the society to support real and sustainable investment and capital formation.
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Government intervention prevents prices from "telling the truth" about the real supply and demand conditions thus leading to imbalances and distortions in the market.
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We cannot know what the "real cost" of borrowing should be, since interest rates are not determined by actual, private sector savings and investment decisions.
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Government production regulations, controls, restrictions and prohibitions prevent entrepreneurs from using their knowledge, ability and capital in ways that most effectively produce the goods consumers actually want and at the most cost-competitive prices possible.
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This is why countries around the world periodically experience booms and busts, inflations and recessions − not because of some inherent instabilities or "irrationalities" in financial markets, but because of monetary central planning through central banking that does not allow market-based financial intermediation to develop and work as it could and would in a real free-market setting.
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But in the United States and especially in Europe, government "austerity" means merely temporarily reducing the rate of increase in government spending, slowing down the rate at which new debt is accumulating and significantly raising taxes in an attempt to close the deficit gap.
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The fundamental problem is that over the decades, the size and scope of governments in the Western world have been growing far more than the rates at which their economies have been expanding, so that the "slice" of the national economic "pie" eaten by government has been growing larger and larger, even when the "pie" in absolute terms is bigger than it was, say, 30 or 40 years ago.
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European governments, in general, take the view that "austerity" means squeezing the private sector more through taxes and other revenue sources to avoid any noticeable and significant cuts in what government does and spends.
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So there is "austerity" for the private sector and a mad rush for financial "safety nets" for the government and those who live off the State.
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In reality, of course, it is the burdens of government regulation, taxation and impediments to more flexible labor and related markets that have generated the high unemployment rates and the retarded recovery from the recession.
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Instead, the "common market" ideal has been transformed into the goal of a European Union "Super-State" to which the individual countries and their citizens would be subservient and obedient.
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Keynesian policies offer people and politicians what they want to hear. Claiming that any sluggish business or lost jobs are due to a lack of "aggregate demand," Keynes argued that full employment and profitable business could only be reestablished and maintained through "activist" government monetary and fiscal policy – print money and run budget deficits.
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What Britain and Europe should have as its goal is the ideal of the classical liberal free traders of the 19th century – non-intervention by governments in people's lives, at home and abroad. That is, a de-politicization of society, so people may freely work, trade and travel as they peacefully wish, with government merely the protector of people's individual rights.
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Take the benefits away and tell people they are free to come and work to support themselves and their families. Restore more flexibility and competitiveness to labor markets and reduce taxes and business regulations.
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Then those who come to Britain's shores will be those wanting freedom and opportunity without being a burden upon others.
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What was needed was a change in ideas from the statist mentality to one of individual freedom and unhampered free markets.
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In an epoch of collectivist ideas, don't be surprised if governments regulate, control, intervene and redistribute wealth.
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The tentacle of regulations, restrictions and politically-correct social controls are spreading out in every direction from Brussels and its European-wide manipulating and mismanaging bureaucracy.
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In the name of assuring "national prosperity," politicians could spend money to buy the votes that get them elected and reelected to government offices.
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And every special interest group could make the case that government-spending programs that benefitted them were all reasonable and necessary to assure a fully employed and growing economy.
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Furthermore, the Keynesian rationale for government deficit spending enabled politicians to seem to be able to offer something for nothing. They could offer, say, $100 of government spending to voters and special interest groups but the tax burden imposed in the present might only be $75, since the remainder of the money to pay for that government spending was borrowed. And that borrowed money would not have to be repaid until some indefinite time in the future by unspecific taxpayers when that "tomorrow" finally arrived.
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instability
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Keynes argued that the market economy's inherent
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arose from the
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who were subject to irrational and unpredictable waves of "optimism" and "pessimism."
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animal spirits" of businessmen
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Mises argued that there was nothing inherent in the market economy to bring about these swings of economic booms followed by periods of depression and unemployment.
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If markets got out of balance with the necessity of an eventual correction in the economy to, once again, set things right, the source of this instability was government monetary policy.
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Central banks too often followed a policy of trying to create "good times" in the economy by expanding the money supply through the banking system.
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With new, excess funds created by the central bank available for lending, banks lower rates of interest to attract borrowers.
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But this throws savings and investment out of balance, since the rate of interest no longer serves as a reliable indicator and signal concerning the availability of real savings in the economy in relation to those wanting to borrow funds for various investment purposes.
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The economic crisis comes when it is discovered that all the claims on resources, capital and labor for all the attempted consumption and investment activities in the economy are greater than the actual and available amounts of such scarce resources.
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The recession period, in Mises's view, is the necessary "correction" period when in the post-boom era, people must adapt and adjust to the newly discovered "real" supply and demand conditions in the market.
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Any interference with the "rebalancing" of the economy by government raising taxes, imposing more regulations, or new artificial government "stimulus" activities merely makes it more difficult and time-consuming for people in the private sector to get the economy back on an even keel.
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Friedrich A. Hayek, once observed, unemployment is not "caused" by stopping an inflation, but rather inflation induces the artificial employments that cannot be sustained and which inevitably disappear once the inflation is reined in.
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The recession of 2008-2009 was the result of several years of central bank stimulus.
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From 2003 to 2008, the Federal Reserve increased the money supply by about 50 percent.
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Interest rates for much of this time, when adjusted for inflation, were either zero or negative.
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Awash in cash, banks extended loans to virtually anyone, with no serious and usual concern about the borrower's credit-worthiness.
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This was most notably true in the housing market, where government agencies like Fannie May and Freddie Mac were pressuring banks to make mortgage loans by promising a guarantee that they would make good on any bad home loans.
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Since 2008-2009, the Federal Reserve has, again, turned on the monetary spigot, increasing its own portfolio by almost $3 trillion, by buying US Treasuries, US mortgages and other assets.
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So why has there not been a complementary explosion of price inflation?
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In some areas there has been, most clearly in the stock market and the bond market, But the reason why all that newly created money has not brought about a higher price inflation is due to the fact that a large part of all newly created money is sitting as unlent reserves in banks.
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This is because the Federal Reserve has been paying banks a rate of interest slightly above the market interest rates to induce banks not to lend.
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(a) general "regime uncertainty," that is, no one knows what government policy will be tomorrow; will ObamaCare be fully implemented after January 2014?;
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Among the reasons for the sluggish jobs growth in the US are:
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(b) what will taxes be for the rest of the current president's term in the White House
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(c) what will the regulatory environment be like for the next three years – in 2012, the government implemented around 80,000 pages of regulations as printed in the Federal Registry;
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(d) how will the deficit and debt problems play out between Congress and the White House and will it threaten the general financial situation in the country; an
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(e) what wars, if any, will the government find itself involved in, in places like the Middle East?
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China
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is still a controlled and commanded society, with a government that works hard to try to determine what people read, see and think.
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All these building projects have been brought into existence by a government that not only controls the money supply and manipulates interest rates but also heavy-handedly tells banks whom to specifically loan to and for what investment activities.
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Central planning is alive and well in China, with the motives being both power and profits for those inside and outside the Communist Party having the most influence and connections in "high" places.
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In my opinion, China is heading for a great economic crisis, resulting from a highly imbalanced and distorted economic system still guided far more by politics than sound market decision-making.
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global financial markets in any foreseeable future. It is a money that still primarily exists to serve the political purposes of those who sit in the "inner circles" of power in Beijing.
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One hundred years ago, in 1913, how many could have predicted that a year later a European-wide war would break out that would lead to the destruction of great European empires and set the stage for the rise of totalitarian collectivism that resulted in an even worse global war two decades later?
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Thus, whether, at the end of the day, freedom triumphs and the future is one of liberty and prosperity is partly on each one of us.
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Near the end of his great book, Socialism, Ludwig von Mises said:
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"Everyone carries a part of society on his shoulders; no one is relieved of his share of responsibility by others. And no one can find a safe way out for himself if society is sweeping towards destruction. Therefore, everyone, in his own interest, must thrust himself vigorously into the intellectual battle. None can stand aside with unconcern; the interests of everyone hang on the result. Whether he chooses or not, every man is drawn into the great historical struggle, the decisive battle into which our epoch has plunged us . . . Whether society shall continue to evolve or where it shall decay lies . . . in the hands of man."
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In my view, the idea of a "soft landing" is an illusion based on the idea held by central bankers, themselves, that they have the wisdom and ability to know how to "micro-manage" the all the changes and adjustments resulting from their own manipulations of the monetary aggregates. They do not have this wisdom and ability. So hold on for what is most likely to be another rocky road.
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It was Mises's clear vision that once society has broken the relationship between value and payment, sooner or later people would not know the price of anything.
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At this point, investment ceases and business becomes furtive and transactional.
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People cannot plan for the future because they do not understand the reality of the present.
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Society begins to sink.
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Incredible. A simple explanation that explains everything. Rchard Ebeling's "Unified Theory of Everything" is something every American can understand. If only they would take a break from "Dancing with the Stars" and pay attention to the future of their country and the world. It's a future where either "individual freedom", as defined by our Constitution and Declaration of Independence, will win out; or, the forces of fascist socialism / marxism will continue to roll and rule. Incredible read!!!!
