Is Extremism in the Defense of Liberty Justified?

In a word, (well, more than a few words, according to Hayek!): YES!!!

“The preservation of a free system is so difficult precisely because it requires a constant rejection of measures which appear to be required to secure particular results, on no stronger grounds than that they conflict with a general rule [of non-government intervention], and frequently without our knowing what will be the costs of not observing the rule in the particular instance. A successful defense of freedom must therefore be dogmatic & make no concessions to expediency, even where it is not possible to show that, besides the known beneficial effects, some particular harmful result would also follow from its infringement. Freedom will prevail only if it is accepted as a general principle whose application to particular instances requires no justification. It is thus a misunderstanding to blame classical liberalism for having been too doctrinaire. Its defect was not that it adhered too stubbornly to principles, but rather that it lacked principles sufficiently definite to provide clear guidance . . . .”

“People will not refrain from those restrictions on individual liberty that appear to them the simplest & most direct remedy of a recognized evil, if there does not prevail a strong belief in definite principles. The loss of such belief & the preference for expediency is no part the result of the fact that we no longer have any principles that can be rationally defended.”

~F. A. Hayek~
“Law, Legislation, and Liberty,” vol. 1: ‘Rules and Order’ (1973)

Markets & Emergence of “Just” Social Order

Seeking to fulfill one’s own life purpose, guided by purposive self interest, leads to an imperative to cooperate with other individuals that are carrying on in much the same manner.

In turn, this leads us, each & all, to seek out & engage in market exchanges that are an instrument of individual empowerment that tend to lead to a “just” social order given that these outcomes (transfers) emerge out of voluntary consent.

Alas, most social scientists focus on collectivist views that model a forest while failing to grasp the importance of nurturing the (individual) trees.

As such, it is naive & misleading to speak of markets as involving atomistic individuals when markets are the outcome of humans acting to seek cooperative arrangements with other humans.

A Forecast that “Austrian” Economists Can Agree With!

“The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or 2, all nations & most of humanity will be at or above today’s Western living standards.

I also speculate, however, that many people will continue to think & say that the conditions of life are getting worse.”

~Julian Simon~ (Author of The Ultimate Resource)

ObamaCare: Law of the Land?


Concerning opposition to ObamaCare, one must be careful not to confuse politics with principles. Obstructing a law is not “wrong”, per se.

In all events, it is wrong to depict ObamaCare as the “law of the land”.

In the first instance, the US Constitution is THE Law of the Land.

Second, it is the nature of contested elections that individuals will find themselves on different sides of any given issue.

Thirdly, it can be a matter of conscience to oppose “bad” laws, e.g., Jim Crow laws of the not-so-distant past in the US.

As it is, if enough members of the Democratic Party & GOP had been “obstructionists” against the Patriot Act, we would all be better off. Neither should opposition to draconian implementation of anti-drug laws be considered to be undemocratic or unpatriotic.

As it is, jury nullification is/was an entrenched right & obligation concerning citizens’ voice against bad laws.

As for ObamaCare, it was neither read nor almost-certainly not written by members of Congress but by & for lobbyists or special interests.

To portray ObamaCare as legislation serving “social justice” by assuring “reasonable & fair” access to health care ignores that there will be as many losers as winners. And it undermines individual freedom & involves paternalistic diktat”.

In all events, it is an empty gesture for anyone to pretend to be magnanimous is caring for the poor in this regard when there are no costs to them!!!

Shutting Down the US Federal Government Did NOT Cause “Net” Economic Losses

According to Standard & Poor, the American economy lost $24B as a result of the shutdown of the federal government. But the suggestion is without substantiation & fails as a matter of economic logic.

It turns out that the shutdown merely shifted or diverted spending from one destination to another or changed its timing. As such, there is no significant net change to the overall economy since it was mostly about a redistribution of spending from place to place or across time.

Among the identified “losses” are wages by federal employees & contractors as well as the value of lost government services.

While business owners that depend on tourists visiting shuttered federal facilities, their losses are offset by gains elsewhere. While some firms might have lost money or visitors during the shutdown, some other businesses must have had more customers than they might have as holidaymakers went elsewhere. Or if they cancelled their vacations or did not spend the money, they will have saved those funds, making them available for lending to boost investments.

The notion of “lost” spending reflects an inverted lapse of logic revealed in Bastiat’s “broken window fallacy” that depicts receipt of money spent on fixing a broken window as a net gain to the economy. Inasmuch as those funds would have been spent elsewhere in the economy were they not used to repair the window, they cannot involve a net economic gain.

In a similar, albeit inverse manner, whatever went unspent in one sector of the economy during the shutdown was either spent elsewhere then or will be in the future.

As it is, the notion of “lost” wages is poppycock since federal employees will receive back pay despite not having worked during the shutdown so that spending by them is merely deferred from then to now or later.

Perhaps only federal contractors will lose wages as a consequence of the shutdown, but whatever is not paid for them does not evaporate and will either lower the deficit or be spent elsewhere by the federal government.

Keynes versus the Keynesians: Inflation & Cognitive Dissonance

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, & does it in a manner which not one man in a million is able to diagnose.”
~J.M. Keynes~

“Weighed against the political, social and economic risks of continued slow growth after a once-in-a-century financial crisis, a sustained burst of moderate inflation is not something to worry about, It should be embraced.”
~Kenneth S. Rogoff~

In a move to give some credibility to a really & truly stupid idea, the NYT has rounded up a gang of economist-fabulists to explain why everyone should learn to love, now wait for this, HIGHER PRICES.

Those foolish souls among you that believe that LOWER prices are good will find this a “must read”.

Of course, much of this is to give cover to Janet Yellen, the presumptimve nominee to head the Fed as of next year. For her part, he on record declaring that a “little inflation” is useful when the economy is weak. Presumably, the reference is to a rising (consumer) price index that itself is one of the several possible outcomes from central bankers inflating the money supply, which is the original definition of inflation.

In a bit of tortured logic, firms love rising price levels as a means to boost profits. But this only works if input costs (e.g., wages & salaries) rise less rapidly than output prices. Yet the same workers whose wages lag behind prices are supposedly earning (phantom?) wage hikes so they are better able to repay debt. (Like Keynes, this arguments shows an inclination to have it both ways.)

And then there is, the tried-and-true canard that consumer price inflation induces households & firms borrow more money & spend it more quickly. What this overlooks is that banks, as now, may find it cheaper & less risky to buy sovereign debt or purchase other financial assets rather than lend to small businesses or consumers.

While the US government is a clear beneficiary of a rising price level in repaying its debt with dollars that buy less than those originally lent to it, this is only advantageous if the debt is rolled over at the same interest rate, an unlikely outcome if price hikes are substantial.

Of course, Yellen is in concert with her likely predecessor, Ben Bernanke, who believes that “… falling & low inflation can be very bad for an economy.” This bit of inanity is beyond the pale in presuming that incrementally small rises in price levels could collapse into to a sharp decline the price level. Yet this sort problem only arises when central bankers monumentally mismanage the money supply as they did after the Stock Market Crash of 1929.

Just in case you tuned out, HIGHER prices are always good & LOWER prices (even smallish increases in prices) are always bad!?!

Dubious Comments From a Professor of Constitutional Law!?!

“The (US) Constitution is a charter of negative liberties. It says only what the government cannot do to you, not what the government is obligated to do on your behalf.”
~Barack Obama~

The author of this statement reveals a profound ignorance of misinformation about the US Constitution.

It provided a set of powers available to the government of the newly-formed Republic such that whatever is not listed is not a permissible act by the federal government, i.e., it is “unconstitutional” since there is no constitutional authority for government to act beyond those specific powers.

As it is, the Constitution specifies 18 enumerated powers available to the American federal government.

Indeed, any high school civics student would know that the Bill of Rights were amendments that outlined certain liberties or rights. Even so, the Bill of Rights was written to serve as an injunction against government interfering with such certain freedoms.

The “Maestro” Blows Smoke To Deflect Blame from His Willful Ignorance

Alan Greenspan spoke to the WSJ about his new book & both seem to be an attempt to launder his career that ended on a rather dubious note as architect of the housing “bubble” that brought on the Great Recession. His masterly manipulations of interest rates massively under-priced risk & artificially-cheap credit sparked an artificial boom that pumped air into the prices of various assets & commodities.

The rot began on Sir Alan’s watch in 1997 when he was rolled by Robert Rubin, then US Treasury Secretary, to flood global capital markets with liquidity after a credit crunch in financial market in countries in East and Southeast Asia leading to exchange rate meltdowns. Rubin, an insider whose expertise is “fixing deals” rather than understanding how markets function, insisted that the inherent instability of capital markets made it necessary to intervene.

Doubtless, the good Treasury Secretary was just as worried about his pals on Wall Street as when he helped engineer similar interventions to the Tequila Crisis of 1994. As it is, much of the high-interest bearing Mexican debt was distributed by Rubin’s former firm, Goldman Sachs, or was being held by other Wall Street financial interests. In turn, a controversial use was made of the US Treasury’s Exchange Stabilization Fund (along with other assistance from IMF).

As a keen observer of Asian economies prior to the 1997 debacle there, it was my impression that propping up Mexico’s “Tesobonos” created “moral hazard” in providing precedence for taxpayers being put on the hook for financial-sector misbehavior. Indeed, it could be said that the response to the “Tequila Crisis” provided a template for bail-outs since then, including the TARP in the aftermath of the 2007 housing crash.

It is unsurprisingly that Greenspan deflects blame from central banks, & by implication himself, by conjuring up explanations for bubbles based on “pop-psychology”. In his interview he adds “fear” as a human element to join his famous quip about “irrational exuberance” to explain what he views as part of mass hysteria that supposedly drove housing or other asset prices to unsustainable levels.

Of course, a good & honest economist would turn to economic explanations for “bubbles” available in Austrian Business Cycle Theory (ABCT). It turns out that ABCT lays the blame squarely at the feet of Sir Alan & his ilk that would play god with money & interest rates to provide the fuel that pumps air into asset or commodity bubbles.

Perhaps Greenspan’s greatest economic sin was his guise as an omniscient “central planner” to engage in the equivalent of price-fixing to set interest at increasingly-absurd low rates. In so doing, it set into motion a variety of distortions that even an undergraduate student of economics would have warned against.

For his part,, Greenspan & his successor Ben Bernanke, are responsible for one of the most massive destruction of wealth in the history of mankind. And by introducing “financial repression” to keep interest rates far below market (“natural”) rates, income disparities have widened in favor of financial sector insiders & those with the means to leverage their debts. With so few new loans made to start-up firms, labor remains in excess supply, keeping down real wages increases so that the disparity looks even worse.

And so long periods of artificially-low interest rates also prompted a cycle of economic “financialization” whereby resources were diverted away from the real sector into the banking sector & to facilitate the ballooning of sovereign debt around the world as other central bankers joined the game.

As it is, there has been very little growth in bank loans to the private-sector since 2007. This is because bankers find lending to governments to be less risky & to be cheaper since there is no need to hire loan officers to evaluate loan requests or collateral.

The Fed policy of hyper-low interest rates provided liquidity that drove down the returns on cash, so that investors sought other assets to gain higher income, driving up the value of almost every class of assets.

Of equally destructive force is the impact of under-pricing credit invites
interest rates to artificially-low levels will cause distortions in the production structure of the private economy. Pumping newly-printed money and cheap credit into the economy provide funding for weak business plans with low rates of return that would not be able to secure financing at higher interest rates.

Indeed, allowing access to borrowing at temporarily-cheap credit will doom many business ventures with low rates of profitability that will be washed away in a tide of rising credit costs. This is because it is impossible for interest rates to be suppressed forever without either sparking massive increases in consumer & producer prices.

Alas, this is all likely to end very badly once expectations shift towards higher interest rates, causing a rapid reversal from inflated valuations that will wipe out enormous amounts of capital.

It might be said that Alan Greenspan is a either a heinous villain that willfully sought to weaken the US economy & destroy the credibility of the dollar or he is so impervious to logic that he is a …(the reader is invited to fill in their own noun here)… .