1. "Always and Everywhere a False God" It has been two months since Hank Paulson launched his efforts to stimulate the economy through massive government intervention. But the more stimulants Doctor Paulson prescribes, the more depressed the patient seems to get.The net result of Paulson's effort to shore up the financial markets is that the Dow
has collapsed, wiping out six years of wealth creation. The net result of his effort to revive home lending is that new home construction has
dropped to a 50-year low. And the net result of his effort to support failing banks is that the share prices of banks have collapsed even farther than the market in general.
The obvious conclusion, drawn by John Tamny in the article linked to below, is that it is precisely Paulson's belief in the necessity of government intervention that has caused economic failure everywhere he has intervened. This leads Tamny to conclude, in a very appropriate phrase, that "government intervention in the private economy is always and everywhere a false God."
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Bank Share Collapse Points to the Failure of TARP," John Tamny, RealClearMarkets, November 20 When Treasury Secretary Henry Paulson announced last month that he would use TARP funds to directly buy shares of banking firms, many on the left and right rejoiced. With an alleged run on the banks in progress, federal dollars borrowed from a private sector already short on risk capital would supposedly lead to a revivification of the banking system.
To its proponents, Paulson's plan surely sounded nice amid frightened markets, but so far the results have shown yet again that government intervention in the private economy is always and everywhere a false God. Since mid-October the shares of Bank of America, Goldman Sachs and Citigroup are respectively down 45, 51 and 60 percent. Many would note that this past month has been a difficult one for stocks generally, but over that same timeframe, the S&P 500 has fallen a relatively pedestrian 11 percent. It's also notable that the shares of San Antonio based Frost Bank, a banking concern that refused TARP funds, are down a scant 4 percent.
None of this should surprise us. By definition, federal money invested in private companies can only weaken them. Money supplied absent the sometimes rough hand of market discipline allows its unlucky recipients to delay the changes that brought them to the brink of collapse to begin with, all the while allowing the architects of those same mistakes to remain in place. It can't be stressed enough that companies don't so much fail due to lack of money as they collapse because investors lose faith in the executives in charge.
But even more problematic is that despite Paulson's protests otherwise, there is no such thing as a government handout that doesn't come with strings attached…. Treasury has made it clear that banks must aggressively lend in order to lift the economy out of the ditch. That being the case, it's very apparent that to the degree banks comply, more non-economic lending will materialize such that the seeds of the next financial crisis are being planted right now.
2.
Why Bubbles Burst I am generally skeptical about dismissing periods of economic enthusiasm—and even economic speculation—as a "bubble." It is too often used by statists as a way of dismissing the productive achievements of the free market as false or illusory, while dodging responsibility for their own role in putting an end to that period of economic growth.
The attitude I am against is the one
expressed in the comments field of the main article I link to in item #3 below: "That dream of eternal appreciation of real estate was the only thing that gave the US economic cadaver the appearance of life for the past 10 years."
Ten years of economic growth and production was an illusion, masking the fact that the economy was really dead? It is an utterly implausible idea.
What is far more plausible is that most "bubbles"—while they may include speculative excesses, particularly in certain markets—are really economic boom times driven for the most part by genuine fundamentals. What, then, causes this so-called "bubble" to burst? My own view is that the primary factor is a change in the fundamentals—typically in the form of new government action that undermines the sources of the previous prosperity.
The 1929 market crash, for example, coincided with the legislative progress of the infamous Smoot-Hawley tariff act, which practically shut down international trade and launched the Great Depression. Is this what the crash was anticipating? And will we see our own equivalent of Smoot-Hawley in this financial crisis?
An
article at RealClearPolitics ponders a potential shift by Obama and congressional Democrats toward an assault on free trade. But then again, given his reversals on virtually every issue, who knows what Obama will actually do?
But I think the bigger threat is cap-and-trade. If there is to be a new recession, cap-and-trade will be its Smoot-Hawley, the point at which Congress recklessly—or in this case, deliberately—destroys a key factor behind America's prosperity.
And here the signs are very ominous. Congressional Democrats have
replaced pro-automobile Michigan congressman John Dingell with pro-environmentalist congressman Henry Waxman as the chairman of a crucial House committee. It is a move intended to clear the way for cap-and-trade energy rationing.
And Obama is now openly endorsing this kind of legislation and promising to provide energized new leadership in promoting it.
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Obama Promises 'New Chapter' in Climate Leadership," Eoin O'Carroll, Christian Science Monitor, November 19 Barack Obama delivered a brief video message Wednesday to the Governors' Global Climate Summit in Beverly Hills, Calif., in which he unequivocally affirmed the scientific basis of climate change and vowed to take action on cutting carbon emissions, in spite of the troubled global economy….
For Obama, "the science is beyond dispute and the facts are clear." The president-elect promised a federal cap-and-trade system that would mandate that greenhouse gas emissions be reduced to 1990 levels by 2020, and then reduced an additional 80 percent by 2050….
Environmentalists welcomed Obama's commitment, which is only the second major policy announcement made by the president-elect.
3.
Bold and Persistent Experimentation FDR famously promised to fight the Great Depression with "bold, persistent experimentation." The result was ten more years of economic destruction—precisely because of FDR's bold and persistent experimentation, in which he experimented with everything except leaving individuals free to make their own economic decisions.
Unfortunately, this has also been the effect of Hank Paulson's ever-shifting plans for the TARP bailout money. In a New York Post
column, Jonah Goldberg very succinctly states the result of Paulson's fevered activity: "A main reason there's all of this 'money on the sidelines' out there among private investors is that Wall Street doesn't know what the government will do next."
Most ominously, Barack Obama is getting a lot of advice these days telling him to act like an even bolder and more vigorous FDR. See the truly appalling Richard Cohen column below, which is all the more appalling because he admits that none of this experimentation worked and that after nearly a decade in office, FDR had failed to end the Great Depression.
Will Obama listen to Cohen's advice? Goldberg provides a chilling quote from a recent Obama appearance: "What you see in FDR that I hope my team can emulate is not always getting it right, but projecting a sense of confidence and a willingness to try things and experiment in order to get people working again." Now that prospect ought to make your blood run cold.
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Finding His Inner FDR," Richard Cohen, Washington Post, November 18 Enough Lincoln. More FDR. This is my shorthand advice to Barack Obama, who in several interviews has talked about wanting to emulate Abraham Lincoln….
[T]he one quality Roosevelt had that Lincoln, at least in his popular portrayal, did not is sheer exuberance…. It was his jaunty enthusiasm and his willingness to try almost anything to break the back of the Great Depression that mattered most. It had to—after all, in the end, nothing worked.
The revisionist take on Roosevelt is contained in Amity Shlaes's book "The Forgotten Man." She argues that New Deal programs not only failed to lift the country out of the Depression, they made things worse. Shlaes has been criticized on this point, but her overall argument is beyond dispute: The New Deal did not end the Depression. World War II did….
The solution is out there...somewhere. [Ellipses in original.] But it will take time and trial to find it. Obama knows this. It was one of the things he mentioned on "60 Minutes." But what he might not appreciate is that among his many gifts, the one that might matter most is how close he can come to Rooseveltian enthusiasm—that optimism, that capacity for empathy that made so many ordinary people love this rich man and stick with him.
4.
The End of the Road In yesterday's article, I mentioned how our economic downturn is causing even worse problems for dictators like Hugo Chavez. I also came across an in-depth
article with observations on the situation in Venezuela, which describes the general view of decent folk in Caracas: "The overwhelming sentiment is that Chavez is doing so much damage to himself and the economy that he will self-destruct."
But the Venezuelans should not be so complacent, and neither should we. The evidence shows that when a nation embarks on the road to serfdom, there is no disaster that will dissuade socialism's hard-core supporters from pursuing their nihilistic ideal.
They won't stop until they achieve total collapse and total misery. And no, I am not exaggerating. If you want to see the end of the socialist road, witness the starvation and mass death in Zimbabwe. I caution, however, that the stories of life (and death) in an artificial famine can make for pretty brutal reading.
Zimbabwe is only a few steps further down the road Venezuela is traveling—and on which we have just taken our first steps. Read the article below, and be as un-reassured as you have the wits to be.
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Hungry in Zimbabwe: 'If You Rest, You Starve'," AP via MSNBC, November 19 Katy Phiri, who is in her 70s, picks up single corn kernels spilled from trucks that ferry the harvest to market. She says she hasn't eaten for three days.
Rebecca Chipika, a child of 9, prods a stick into a termite mound to draw out insects. She sweeps them into a bag for her family's evening meal.
These scenes from a food catastrophe are unfolding in Doma, a district of rural Zimbabwe where journalists rarely venture. It's a stronghold of President Robert Mugabe's party and his enforcers and informants are everywhere….
Shingirayi Chiyamite is a trader from Harare who brings household goods to the countryside to barter for crops. He says a 12-inch bar of laundry soap exchanges for 22 pounds of corn. He crisscrosses the land in search of the few villages that have corn to spare, hauls his purchases to the highway and hitchhikes back to the city. Some of the corn will feed his family, the rest he sells. He is constantly on the move.
"If you rest, you starve," he says….
Mhangura, a town of about 3,000 people, has had no running water for months. Power outages happen daily because of a lack of cash to maintain utilities. People walk about three miles to a dam to fill pails or gasoline cans….
"There's nothing here. People are dying of illness and hunger. Burial parties are going out every day," said Michael Zava, a trader in Mhangura….
The food crisis began after 2000, when Mugabe launched an often violent campaign to seize white-owned farms and give them to veterans of his guerrilla war against white rule over the former British colony….
Jackals, baboons and goats compete with villagers for roots and wild fruits.
5.
Will Mr. Rearden Do Something? What will save us from becoming Zimbabwe—aside from the pro-liberty efforts of the better politicians and intellectuals—is what has always kept the world afloat. To borrow a phrase from Ayn Rand's Atlas Shrugged, Mr. Rearden will do something. The great achievers in the realm of technology and business will continue to create the advances that keep us moving forward and prevent a collapse into a new Dark Age.
Here's another example: scientists have made another enormous step forward to being able to create whole replacement organs from scratch, grown from the patient's own stem cells. It is a major step forward in mankind's quest for immortality: the ability to simply replace damaged body parts.
Because the new windpipe was made from cells taken from Ms. Castillo's own body, using a process called "tissue engineering", she has not needed powerful drugs to prevent her body rejecting the organ.
Avoiding the use of these drugs means she will not be at an increased risk of cancer and other diseases unlike other transplant patients—another significant advance….
Scientists hailed the procedure as a breakthrough and predicted surgeons could be regularly replacing hearts with laboratory-grown organs within 20 years….
Every year more than 1,000 patients in Britain die on transplant waiting lists, prompting scientists to consider other ways to produce organs. Ms Castillo's operation required a section of windpipe from an organ donor as a "scaffold" for the stem cells—meaning the technique will not immediately solve the shortage of donor organs. However, it is hoped that eventually artificial scaffolds can be made which would avoid the need for donor organs completely.
Without the operation, surgeons would have had to remove one of Ms Castillo's lungs, which would have reduced her life expectancy dramatically, said Professor Paolo Macchiarini, who performed the surgery at the Hospital Clinic, Barcelona, in June.