Recently in Economy Category

I recently read Obama’s Oil Spill To-Do List by Heritage Foundation Director of Strategic Communication, Rory Cooper and found it to be a sensible task list that identifies and enumerates things I think most on the right side of the political spectrum wish the administration were doing to address the oil “spill” in the Gulf Of Mexico.

The very first item mentioned in this list is to “waive the Jones Act,” which, as Cooper explains, “requires that all goods transported by water between U.S. ports be carried in U.S.-flagged ships, constructed in the United States, owned by U.S. citizens, and crewed by U.S. citizens.”

This law obviously restricts what ocean-bound vessels can be used in the cleanup efforts. But, the restriction can be lifted, as it was by DHS secretary Chertoff during the Hurricane Katrina aftermath. Doing so would allow a much greater diversity of equipment to be used in the cleanup effort.

In recent news, BP and the U.S. Coast Guard are apparently testing a giant Taiwanese oil skimmer. I assume using this ship, owned by a Taiwanese shipping company, will require a Jones Act waiver or exclusion. If that’s the case and they get the legal right to use this skimmer, that’s good news for everyone.

A lot of the talk about the Gulf oil “spill” has been about enormous amounts of money. It is apparently going to cost a lot of money to clean up the oil out of the water. It will apparently cost various Gulf Coast industries (fishing, tourism, etc.) lots of money in lost business. It will apparently cost the oil industry a ridiculous amount of money if the administration gets their way with these ridiculous moratoriums.

One area which I wonder if the money might be spent in vain is the cleanup efforts. I’ve read many sources that indicate that oil in water is pretty well handled by nature. We can maybe add a little fertilizer to speed up the growth of natural bacteria that break down the oil particles, but other than that, nature handles it.

The outlook becomes more muddied — no pun intended — when oil reaches land. Nature will take care of it, but it will take longer… years longer. So, it’s shocking to learn that the administration is seemingly blocking many attempts to do sand-berm dredging along the coast that would catch oil before it reaches coastal beaches and wetlands.

Finally, I completely agree with Cooper that the administration should stop using the oil “spill” as a wedge or lever issue to promote climate change (i.e. “Cap and Trade”) legislation.

Another excerpt from This Nation Shall Endure by the late Ezra Taft Benson, former U.S. Secretary of Agriculture and President of the Church Of Jesus Christ of Latter-Day Saints.

The principles behind our American free market philosophy can be reduced to a rather simple formula. Here it is:

1. Economic security for all is impossible without widespread abundance.

2. Abundance is impossible without industrious and efficient production.

3. Such production is impossible without energetic, willing, and eager labor.

4. Such labor is not possible without incentive.

5. Of all forms of incentive, the freedom to attain a reward for one’s labors if the most sustaining for most people. Sometimes called the profit motive, it is simply the rights to plan and to earn and to enjoy the fruits of one’s labor.

6. This profit motive diminishes as government controls, regulations, and taxes increase to deny the fruits of success to those who produce.

7. Therefore, any attempt through government intervention to redistribute the material rewards of labor can only result in the eventual destruction of the productive base of society, without which real abundance and security for more than the ruling elite are quite impossible.

Milton Friedman was a highly visible economist, statistician, and policy commentator during the Twentieth Century. Before he died in 2006, he wrote and co-wrote several books relating economic theory, policy studies, and statistics. He was the recipient of the Nobel Prize in economics in 1976.

I just finished reading “Free To Choose: A Personal Statement,” written by Thomas Friedman and his wife, Rose Friedman. The book is dense and full of well thought-out arguments for free markets, smaller government, and how policies that adhere to these principles will result in greater liberty and freedom for the people that live under them.

This book is almost thirty years old and it shows. Many of the numbers the Friedmans use in the book are laughable today, especially those they use as salaries for the common man or the cost of an average home.

It’s fascinating, however, they write at the end of the Carter administration that “the tide is turning.”

The failure of Western governments to achieve their proclaimed objectives has produced a widespread reaction against big government. In Britain the reaction swept Margaret Thatcher to power in 1979 on a platform pledging her Conservative government to reverse the socialist policies that had been followed by both Labour and earlier Conservative governments ever since the end of World War II.

“Free To Choose” is organized in chapters that each spend a liberal amount of print on a specific category of policy thinking. The first chapter, “The Power Of The Market” spends nearly 30 pages covering the ideals of a free market, the dangers of price controls, and the role of government with respect to markets. The second chapter is devoted to governments’ role in free trade and overall liberty and economic growth. Hint: Friedman isn’t a fan of tariffs or any other kind of government meddling with trade between nations. He offers a compelling historical argument for free trade by examining the governance and trade policies of Japan during the latter half of the 19th century and India during the latter half of the 20th century.

The third chapter, “The Anatomy of Crisis,” is perhaps the most relevant to readers today. It examines the modern banking system in the United States from the inception of the Federal Reserve in 1913, the depression nobody remembers from 1920-21, and the Great Depression of the 1930s. For those who believe we are currently at risk of suffering from the same mistakes or making greater ones today in our vulnerable financial status, this chapter offers some brilliant insights.

In the conclusion of this chapter, the Friedmans write:

In one respect the (Federal Reserve) System has remained completely consistent throughout. It blames all problems on external influences beyond its control and takes credit for any and all favorable occurrences. It thereby continues to promote the myth that the private economy is unstable, while its behavior continues to document the reality that government is today the major source of economic instability.

The fourth chapter, “Cradle to Grave,” examines the development of the welfare state beginning in Europe in the late 1800s and then in the U.S. in the 1920s. Friedman spotlights health, education, and welfare in this chapter because at the time the book was written, they fell under a single department within the federal government.

The waste is distressing, but it the least of the evils of the paternalistic programs that have grown to such massive size. Their major evil is their effect on the fabric of our society. They weaken the family; reduce the incentive to work, save, and innovate; reduce the accumulation of capital; and limit our freedom. These are the fundamental standards by which they should be judged.

The following chapter challenges the popular notions of what “equality” means. The Friedmans distinguish between the following:

• Equality of outcome
• Equality of opportunity
• Equality before God

Concerning equality of outcome, they write:

Life is not fair. It is tempting to believe that government can rectify what nature has spawned. But it is also important to recognize how much we benefit from the very unfairness we deplore.

This chapter goes on to examine the effects of egalitarian policies as practiced in the US and in other modern societies.

… a society that puts freedom first will, as a happy by-product, end up with greater freedom and greater equality. Though a by-product of freedom, greater equality is not an accident. A free society releases the energies and abilities of people to pursue their own objectives. It prevents some people from arbitrarily suppressing others. It does not prevent some people from achieving positions of privilege, but so long as freedom is maintained, it prevents those positions of privilege from being institutionalized; they are subject to continued attack by other able, ambitious people. Freedom means diversity but also mobility. It preserves the opportunity for today’s disadvantaged to become tomorrow’s privileged and, in the process, enabled almost everyone, from top to bottom, to enjoy a fuller and richer life.

Next, the Friedmans attach “What’s Wrong with Our Schools?”

It’s no surprise their position is that centralized planning is a substantial culprit of the problem with schools. Again, freedom is the answer, they say. Vouchers, for example, tied with freedom to choose public schools, are an ideal way to encourage competition between private and public schools and drive education quality up.

I found this passage about public subsidies of higher education shocking considering what we have observed in 2009:

When we first started writing about higher education, we had a good deal of sympathy for the (justification that public subsidies was an investment in future productivity and economic growth of society). We no longer do. In the interim we have tried to induce the people who make this argument to be specific about the alleged social benefits. The answer is almost always simply bad economics. We are told that the nation benefits by having more highly trained people, that investment in providing such skills is essential for economic growth, that more trained people raise the productivity for the rest of us. These statements are correct. But none is a valid reason for subsidizing higher education. Each statement would be equally correct if made about physical capital (i.e., machines, factory buildings, etc.), yet hardly anyone would conclude that tax money should be used to subsidize the capital investment of General Motors or General Electric.

Milton Friedman is undoubtedly spinning in his grave today.

Following education is the question of “Who Protects the Consumer?” This chapter discusses the development of the Interstate Commerce Commission, The Food and Drug Administration, The Consumer Products Safety Commission, The Department of Energy and the Environmental Protection Agency. The Friedmans raise some very valid questions about the government’s role in establishing these authorities and whether they are effective in their stated objectives.

For example, many are familiar with Ralph Nader’s book, “Unsafe at Any Speed,” in which he supposedly documents the safety risk the Chevrolet Corvair was to its occupants. This book ignited a firestorm that eventually crushed the Corvair out of production and resulted in new government regulations pertaining to the manufacture of automobiles. It’s difficult to argue that the outcome was a bad thing, but what about the original premise? Was the Corvair that bad? My dad was a Corvair collector and had two that he tinkered with, restored, and drove around on occasion. I always thought they were odd cars because the engine was in the back. The Friedmans point out that ten years after Nader’s book landed, “one of the agencies that was set up in response to the subsequent public outcry finally got around to testing the Corvair that started the whole thing. They spent a year and a half comparing the performance of the Corvair with the performance of other comparable vehicles and they concluded, ‘The 1960-63 Corvair compared favorably with the other contemporary vehicles used in the tests.’”

Next is “Who Protects the Worker?” Here labor unions land square in the crosshairs. Also addressed are government interventions into work such as regulations against child labor, minimum wage laws, OSHA oversight, workers compensation, and more.

Chapter 9 is about inflation. This isn’t very relevant right now, but likely will deserve a re-read in a year or so.

Here, Friedman puts his statistician muscles to work and establishes through numbers a strong correlation between monetary control and consumer prices. When the the Treasury and the Federal Reserve flood the market with money, prices respond by going up.

The final chapter is a nice capstone on the book and discusses how the U.S. Constitution relates to many of the policies discussed and how it is eroded by some.

Appendix A is an interesting inclusion. It is the party platform from the Socialist party during the 1928 presidential campaign. The Friedmans go through each of the 14 items in the platform and demonstrate that despite the Socialist Party not having a chance in Hell of ever having a candidate elected, since 1928, just about each and every one of these ideas put forth by the Socialist Party has been enacted.

That’s something to think about.

“Free To Choose” is available in paperback at a MSRP of $15.00. It’s not a quick read, but definitely an informative and educational one.

I finally got around to watching the documentary film I.O.U.S.A., which I rented from NetFlix. Wow. I recommend anybody and everybody in the U.S.A. watch this film. If you’re not up to renting it or buying it, watch the 30-minute byte-size version available on YouTube.

David Walker, former Comptroller General of the United States and head of the Government Accountability Office (GAO), now President of the Peter G. Peterson Foundation, takes on the seemingly insurmountable task of explaining our national debt and does so successfully with finesse.

I learned a lot from this film. I mean, because I’ve been pretty well plugged-in, politically, I knew our national debt was a huge problem, that the federal government’s budget deficits were only making things worse and federal programs like Social Security and Medicare only exacerbate the problem. What I didn’t know was that our trade deficit is so huge, the largest in the world, in fact.

Before watching I.O.U.S.A., President George W. Bush was not my favorite president. While he did a good job responding to the terror attacks in 2001 and going after terrorists where they operate in the Middle East, he and his administration seemed to ignore problems here at home, like the growing problem of illegal immigration and adding more liabilities to Medicare with the Part D prescription drug coverage. Overall, I think he was a mediocre president.

After watching I.O.U.S.A., I’m beginning to wonder if George W. Bush didn’t commit some kind of treason against this country by letting all things economic get so out of hand under his watch!

After watching I.O.U.S.A., I’ve developed an increased respect for the Clinton administration for how they handled economic matters by getting the federal budget under control for a couple of years. Granted, things were easier then with no War On Terror to fund and what-not.

So, what about our present president? Well, he sucks too! Maybe worse than Bush!

Walker is dead on by identifying the four big economic problems facing America:

• Federal budget deficit
• Savings deficit
• Trade deficit

And finally,

• Leadership deficit

For example, the Democrats’ healthcare reform proposal does not help our debt situation. The government’s own policy analysts show that it too will only add an increasingly large liability to an already fast-growing balance we owe. Yes, we need reform, but this ain’t what the proverbial doctor ordered.

One big chunk of our trade deficit is our dependence on foreign oil. Our president’s solution is to pull new, alternative energy solutions out of his butt to replace all energy infrastructure. You know, that might be a fine solution if we were already in a good economic situation, where we had economic surpluses to rely on as we went through the painful process of converting to a scientifically, environmentally superior form of energy generation, but in the state we’re in right now, it simply does not make sense.

What does make sense is for the U.S. to start getting more energy production from its own resources. We have lots of it. Oil. Coal. Natural gas. We’ve got gazillions of tons of it, literally, but we’re staying away from it, on principle, I guess.

Leadership deficit! We need leaders that will do what’s right regardless of what’s popular or what their party, platform, or agenda might be. President Obama wants to usher the U.S. into a new era of green-ness, environmentalism, ecological awareness, etc. etc. He needs to realize we’re never going to be able to do that unless we address our vast economic imbalance represented by our debt and unfunded liabilities.

What our government aims to do now is a classic example of cart before horse.

Here’s another tough pill I had to swallow watching I.O.U.S.A.: We probably will need to raise taxes to get out of this mess. But our legislators need to reduce the overall size of government at the same time. We’ll need to raise taxes and reduce spending.

That trade deficit thing just keeps bothering me. I want to know more about why the United States doesn’t produce much anymore. Common sense tells me it’s because other nations can produce cheaper than we can. Why? Is it high labor costs? Is it restrictive regulation?

I’ve been reading Free To Choose by Milton and Rose Friedman. This book was written in 1979-1980 and it talks about many of the important political and economic issues of that time. Friedman explains things so well and his points are still very relevant. However, as I was reading the chapter “What’s Wrong with Our Schools?” something jumped out at me. See if you can pick it out. I’ll add emphasis it to give you a hint.

When we first started writing about higher education, we had a good deal of sympathy for the [justification that public tax subsidies for state schools was an investment in the future productivity of members of society]. We no longer do. In the interim, we have tried to induce the people who make this argument to be specific about the alleged social benefits. The answer is almost always simply bad economics. We are told that the nation benefits by having more highly skilled and trained people, that investment in providing such skills is essential for economic growth, that more trained people raise the productivity of the rest of us. These statements are correct. But none is a valid reason for subsidizing higher education. Each statement would be equally correct if made about physical capital (i.e. machines, factory buildings, etc.) yet hardly anyone would conclude that tax money should be used to subsidize the capital investment of General Motors or General Electric. If higher education improves the economic productivity of individuals, they can capture that improvement through higher earnings, so they have a private incentive to get the training. Adam Smith’s invisible hand makes their private interest serve the social interest. It is against the social interest to change their private interest by subsidizing schooling. The extra students — the ones who will only go to college if it is subsidized — are precisely the ones who judge that the benefits they receive are less than the costs. Otherwise they would be willing to pay the costs themselves.

Wow. Hardly anyone, indeed. Yet, it has happened in the last year and some would argue it was unavoidable because no one in any administrative position (i.e. George W. Bush, John McCain, or Barack Obama) has/had the courage and wisdom to hold back and not “save” failing companies.

Glenn Beck's Common Sense: The Evolution of Thomas Paine's Revolution by Glenn Beck

My review

rating: 4 of 5 stars
Anyone who knows me or has read some of my previous reviews probably knows that I'm one of Glenn Beck's biggest fans, so it will come as little surprise that I now have 4 copies of this book and plan to distribute it to family and friends.

As with his previous non-fiction work, An Inconvenient Book Real Solutions to the World's Biggest Problems, this book is, for the most part, a repackaging of things Glenn says every day on his television and radio shows. It discusses the corruption in government, the loyalty to special interests among those in congress, the amassing of power by the executive branch, and the cancer that is the Progressive movement.

That being said, this is definitely a book you can give to your friends who aren't necessarily one of Glenn's biggest fans. And, encourage them to pass it on when they're done. Sign your name on the inside cover and include the date your read it and encourage others to do the same. This book is a rallying cry to all those who feel their voice is held in contempt or just plain ignored by the political class in America.

I would like to share one of my favorite parts of this book. It is very near to the end of the book (before the Thomas Paine section starts) and addresses religion in a democracy.

So why is religion so important to the proper functioning of a democracy? Well, once again, our Founding Fathers had the answer. In a letter to the president of Yale University, Benjamin Franklin once wrote:

Here is my creed: I believe in one God, the Creator of the universe. That he governs it by his providence. That he ought to be worshipped. That the most acceptable service we render to him is in doing good to his other children. That the soul of man is immortal, and will be treated with justice in another life respecting its conduct in this. These I take to be the fundamental points in all sound religion.

It wasn't about any one particular creed, dogma, or church, but rather about all religions that inspired men to selflessness, virtue. and godliness. Our Founders understood the thing that we try so hard to forget today: there is far more than unites us than divides us. Virtue, honesty, and character aren't the purview of any particular congregation; they can be found in any church that has God as its foundation. We have forgotten this lesson and instead of using religion as our anchor, we use it to shame or blame. To many in this country, those who attend church regularly aren't pillars of their community, they're freaks or extremists.

But that mind-set can be changed by setting an example of tolerance and unparalleled acceptance toward each other. Let's stop using our religious symbols to score political points. Are we that insecure in our own faith that the religious symbols or public prayers of a different religion cannot be welcomed with open arms? As Thomas Jefferson once said:

Question with boldness even the existence of a God; because, if there be one, he must more approve of the homeage of reason, than that of blind-folded fear... Do not be frightened from this inquiry from any fear of its consequences. If it ends in the belief there is no God, you will find incitements to virtue in the comfort and pleasantness you feel in its exercise...

Religions and their followers must stop turning on each other. We are a land founded through divine Providence, a land where, as James Madison said, the "spirit of liberty and patriotism animates all degrees and denominations of men."

Very well said, Glenn.

View all my reviews.

I just watched Wednesday’s (5/27) Glenn Beck TV show on Fox News that was recorded on my DVR and I have to say it was spectacular! Part of the reason it was so great was because he had Thomas Sowell on and Wayne Allen Root who both had really profound things to say.

Checking YouTube, it looks like Glenn has plenty of friends willing to encode and upload. Here’s a smattering of online clips to choose from:

• The One Thing - Great analysis on the auto industry
• Thomas Sowell
• The One Thing - “Failure is good for the soul”
• Wayne Allen Root and Joshua Cooper Ramo Part 1
• Wayne Allen Root and Joshua Cooper Ramo Part 2
• Joshua Cooper Ramo - Is China in a position now that the US was after WW1?

It’s been a while since I’ve posted anything to the Fozzolog and there are some good reasons for that: I’ve pretty much withdrawn from most of my online habits and extracurricular activities to focus on much needed areas of my life, notably my marriage, my family, my health, and my spirituality. My hope is that once I get these all tuned up, I can consider returning to some of my favorite pastimes.

With that being said, I don’t think I can let April 15 pass without at least showing up at a Tax Day Tea Party to show my support for the cause. So, if you’re at the party in downtown Salt Lake City beginning at noon, you may see me there.

Now, let me do my part to dispel some myths about these tea parties.

These tea parties are not about President Obama

While President Obama’s administration is doing almost everything wrong with regards to the economy, it would be wrong to say that people are protesting because of Obama. The problem is much larger than Barack Obama. It is the state of the federal government in general.

These tea parties are not about taxes

They’re not specifically about taxes. While the Obama administration will undoubtedly raise taxes on all of us one way or another to fund all their spending, the Tax Day Tea Parties are more about the federal government’s out of control spending, saddling the country with ridiculous amounts of debt, not allowing poorly managed companies to fail (and subsequently file for bankruptcy), and other issues.

It’s really about not listening to the people and not using common sense

Both major political parties have been actively engaged in anything and everything to gain political power at the expense of any sensible governing principles. You know, the kind espoused by the founders of our great country like “the government should not go into debt more than can be paid off in one generation.” These Tax Day Tea Parties on April 15 are the official shot across the federal government’s bow to send a message that “you work for us, remember?!” and “It’s time to get back to basics!”

Applied Economics: Thinking Beyond Stage One by Thomas Sowell

My review

rating: 4 of 5 stars
While on vacation in southern California, I hit a Barnes & Noble in Costa Mesa to look for something to read and something for my wife's birthday. I was looking for a book I'd read about like New Deal or Raw Deal? How FDR's Economic Legacy Has Damaged America, but the store I was at seemed chock-full of books about President Barack Obama, Global Warming, what was wrong with the Republican Party, and not much of anything that would interest a conservative like me. I did find, however, this book: Applied Economics: Thinking Beyond Stage One.

There was one small problem. My B&N discount card membership had expired one month prior. I'd only used it make one book purchase in that entire year and, coincidentally, it was at that same store in Costa Mesa. I wasn't about to blow more money on their stupid discount plan and I wasn't going to spend $35 on "Applied Economics". I bought a different book instead and got something for my wife's birthday and went on my way.

When I returned home, I ordered Applied Economics Thinking Beyond Stage One from Amazon along with some other books, all at much more reasonable prices. I decided to read this one first.

Thomas Sowell is a very interesting guy. He's scholar in residence at the Hoover Institution at Stanford University and has taught economics at Cornell, UCLA, Amherst and other schools. He's written several books on economics. This book is the revised (and enlarged) edition and aims to help members of the general public understand complex economic systems.

Shooting for the general public is a lofty goal. I don't think Sowell quite made it. It was hard for me to absorb some of this material and I think I've been exposed to more economics material than the average member of the general public. I think this is a testament to how difficult of a task Sowell had taken on rather than his inability to achieve his goal.

The book is divided into eight chapters, each tackling an issue from the standpoint of pure economics. The first chapter, "Politics versus Economics," serves as a primer for the rest of the book and explains the "stage one" concept in the subtitle. Sowell states that most politicians (and many regular people, for that matter) fail to consider (or admit knowledge of) the long-term effects of economic policies (or any policies, for that matter.) This is, as Sowell puts it, "stage one thinking."

Sowell's intention in this book is to help the reader understand the longer-term effects of legislation and policy decisions.

In the first chapter, Sowell explains:

Laws and policies that will produce politically beneficial effects before the next election are usually preferred to policies that will produce even better results some time after the next election. Indeed, policies that will produce good results before the next election may be preferred even if they can be expected to produce bad results afterward.

As an example, a few paragraphs later:

... it is an open question whether drug prevention programs actually prevent or even reduce drug usage, whether public interest law firms actually benefit the public, or whether gun control laws actually control guns.

Later, he examines the consequences of a series of wage and price controls instituted in the 1970s by the Nixon administration and upheld or carried further by the Ford and Carter administrations. What seemed like a good idea at the time resulted in terrible economic consequences in the long run.

Sowell points out that many politicians just feel an overwhelming need to "do something" whenever there is a crisis at hand.

Doing something almost always seems like such a good idea, to those who do not look beyond stage one, that they see no need to look back at history or to apply economics. The alternative to a "do something" approach is not to have the government always do absolutely nothing but,rather, to recognize that governments can only do something specific-- and that these specifics must be assessed in terms of their specific erffects, both immediate and long-term, as well as the general effects of extended experimentation.

The second chapter, "Free and unfree labor" begins by talking about the history of slavery. It was interesting reading a book by one of the handful of famous black people in the field of economics discussing the pros and cons of various types of slavery. Sowell actually points out that slaves in the southern United States prior to the U.S. Civil War were treated very well compared to other forced labor situations throughout history.

This chapter also touches on crime as an occuptation, and indentured servitude.

The third chapter dives into the economics of medical care. It's no surprise that Sowell makes a strong case against government-subsidized healthcare (i.e. "Universal health care"). His most pronounced argument is simply that government healthcare is another way for saying "price controls" and he already discussed the disastrous effects such controls have on a market in the first chapter. He shows these effects are obvious when you look at government health care systems in Great Britain, Canada, and other countries that offer such programs.

He also discusses the economics of malpractice insurance, pharmaceutical drugs, drug advertising, and finally an extremely enlightening treatment on organ transplants and how much sense it makes to allow a legal market for organs for organ transplantation. That was really eye opening.

Chapter Four discusses the economics of housing and illustrates how government action and regulation affects pricing. He also discusses rent control, creative financing programs, segregation in housing, and other housing issues.

Chapter Five is titled "Risky Business" and is generally about the economics of insurance, but it goes beyond just the business of insurance. Most people, and certainly some politicians, don't consider risk issues when considering an issue.

One of my favorite sections of this chapter discusses how the family was traditionally the main risk reduction instutition in people's lives. This makes perfect sense when you consider how important family honor was, say, 2-300 years ago.

...the family-- the oldest insurer of all -- cautions its members, both when they are growing up and one specific occasions afterward, against various kinds of risky behavior. When families had the burden of taking care of an unwed daughter's baby, there was more chaperoning, screening of her associates, and moral stigma attached to unwed motherhood. All these things declined or disappeared after mean of these costs were shifted to government agencies.

Sowell attacks the issues of risk and insurance from a number of surprising and enlightening angles.

In Chapter Six, Sowell takes on immigration. Expecting him to jump right into the overwhelming costs to the system the illegal immigrant issue burdens our government, I was a little taken back when I a rather comprehensive look at immigration across history. He discusses cultural implications, income implications, health implications, legal and illegal immigration, economic benefits and costs to immigrants and the society they are immigrating to. It is, perhaps, the most unbiased and clearly focused treatment on immigration I've ever read.

In his conclusions, he does touch on some points specific to the hot issues in the US illegal immigration debate. For example, in comparing import of products versus import of labor:

When Americans buy a Toyota from Japan, the Toyota does not demand that the United States accomodate the Japanese language or that Americans adjust themselves to Japanese customs in their own country, much less introduce diseases into the American population. Moreover, Toyotas do not give birth to little Toyotas that can grow up with the problematic attitudes of some second generation immigrants.

Chapter seven is about discrimination. It begins by educating the reader on the distinct differences between bias, prejudice, and discrimination. Sowell points out that bias, prejudice, and discrimination are not "bad" by themselves. There are circumstances, history, and more criteria to consider before we can judge that they are bad.

From there, Sowell discusses anti-discrimination laws, affirmative action regulations and legislation, and the pros and cons (mostly cons) of each. One statement from the summary section reads:

...those who fail to qualify for particular benefits are often said to be denied "access" or "opportunity," when in fact they may have had as much access or opportunity as anyone else, but simply did not have the developed capabilities required...
...a mental test may be characterized as "culturally biased" if one group scores higher than another, as if it is impossible for different groups to have different interest, experience, upbringing, education, or other factors that would lead to a real difference being registered, rather than a biased assessment being made.

Chapter eight discusses the economic development of nations. This chapter discusses the misnomers of "developing nations," the effects of foreign aid, the importance of formal property rights, the geographic issues related to economies as well as bunch of other implications.

As I mentioned at the beginning of this review, Sowell's book is pretty heady content, but I found it refreshing as it is so clear cut. All of his statements came down on the side of common sense. Isn't that what we all wish our policy makers employed more of?

View all my reviews.

I am reading “Capitalism: The Unknown Ideal” by Ayn Rand. It is a collection of essays by Rand and other academics from the school of Objectism. One essay, “Common Fallacies About Capitalsm,” written in 1963 by Nathaniel Branden, grabbed my attention in a particularly intense manner.

After typing for quite some time, I would like to present an excerpt from this essay: a section titled “Depression”. Boldface emphasis has been added by me.

Question: Are periodic depressions inevitable in a system of Laissez-Faire Capitalism?

It is characteristic of the enemies of capitalism that they denounce it for evils which are, in fact, the result not of capitalism but of statism: evils which result from and are made possible only by government intervention into the economy.

I have discussed a flagrant example of this policy: the charge that capitalism leads to the establishment of coercive monopolies. The most notorious instance of this policy is the claim that capitalism, by its nature, inevitably leads to periodic depressions.

Statists repeatedly assert that depressions (the phenomenon of the so-called business cycle of “boom and bust”) are inherent in laissez-faire, and that the great rash of 1929 was the final proof of the failure of an unregulated, free-market economy. What is the truth of the matter?

A depression is a large-scale decline in production and trade; it is characterized by a sharp drop in productive output, in investment, and in the value of capital assets (plants, machinery, etc.). Normal business fluctuations, or a temporary decline in the rate of industrial expansion, do not constitute a depression. A depression is a nation-wide contraction of business activity—and a general decline in the value of capital assets—of major proportions.

There is nothing in the nature of a free-market economy to cause such an event. The popular explanations of depression as caused by “over-production,” “under-consumption,” monopolies, labor-saving decides, maldistribution, excessive accumulations of wealth, etc., have been exploded as fallacies many times.

Readjustments of economic activity, shifts of capital and labor from one industry to another, due to changing conditions, occur constantly under capitalism. This is entailed in the process of motion, growth, and progress that characterizes capitalism. But there always exists the possibility of profitable endeavor in one field or another, there is always the need and demand for goods, and all that can change is the kind of goods it becomes most profitable to produce.

In any one industry, it is possible for supply to exceed demand, in the context of all the other existing demands. In such a case, there is a drop in prices, in profitableness, in investment, and in employment in that particular industry; capital and labor tend to flow elsewhere, seeking more rewarding uses. Such an industry undergoes a period of stagnation as a result of unjustified, that is, uneconomic, unprofitable, unproductive investment.

In a free economy that functions on a gold standard, such unproductive investment is severely limited; unjustified speculation does not rise, unchecked, until it engulfs an entire nation. In a free economy, the supply of money and credit needed to finance business ventures is determined by objective economic factors. it is the banking system that acts as the guardian of economic stability. The principles governing money supply operate to forbid large-scale unjustified investment.

Most businesses finance their undertakings, at least in part, by means of bank loans. Banks function as an investment clearing house, investing the savings of their customers in those enterprises which promise to be most successful. Banks do not have unlimited funds to loan; they are limited in the credit they can extend by the amount of their gold reserves. In order to remain successful, to make profits and thus attract the savings of investors, banks much make their loans judiciously: they must seek out those ventures which they judge to be most sound and potentially profitable.

If, in a period of increasing speculation, banks are confronted with an inordinate number of requests for loans, then, in response to the shrinking availability of money, they (a) raise their interest rates, and (b) scrutinize more severely the ventures for which loans are requested setting more exacting standards of what constitutes a justifiable investment. As a consequence, funds are more difficult to obtain, and there is a temporary curtailment and contraction of business investment. Businessmen are often unable to borrow the funds they desire and have to reduce plans for expansion. The purchase of common stocks, which reflects the investors’ estimates of the future earnings of companies is similarly curtailed; overvalued stocks fall in price. businesses engaged in credit, are obliged to close their doors; a further waste of productive factors is stopped and economic errors are liquidated.

At worst, the economy may experience a mild recession, i.e. a slight general decline in investment and production. In an unregulated economy, readjustments occur quite swiftly, and then production and investment begin to rise again. The temporary recession is not harmful but beneficial; it represents an economic system in the process of correcting its errors, of curtailing disease and returning to health.

The impact of such a recession may be significantly felt in a few industries, but it does not wreck an entire economy. A nation-wide depression, such as occurred in the United States in the thirties, would not have been possible in a fully free society. It was made possible only by government intervention in the economy—more specifically, by government manipulation of the money supply.

The government’s policy consisted, in essence, of anesthetizing the regulators, inherent in a free banking system, that prevent runaway speculation and consequent economic collapse.

All government intervention in the economy is based on the belief that economic laws need not operate, that principles of cause and effect can be suspended, that everything in existence is “flexible” and “malleable,” except a bureaucrat’s whim, which is omnipotent; reality, logic, and economics much not be allowed to get in the way.

This was the implicit premise that led to the establishment, in 1913, of the Federal Reserve System—an institution with control (through complex and often indirect means) over the individual banks throughout the country. The Federal Reserve undertook to free individual banks from the “limitations” imposed on them by the amount of their own individual reserves, to free them from laws of the market—and to arrogate to government officials the right to decide how much credit they wished to make available at what times.

A “cheap money” policy was the guiding idea and goal of these officials. Banks were no longer to be limited in making loans by the amount of their gold reserves. Interest rates were no longer to rise in response to increasing speculation and increasing demands for funds. Credit was to remain readily available—until and unless the Federal Reserve decided otherwise.

The government argued that by taking control of money and credit out of the hands of private bankers, and by contracting or expanding credit at will, guided by considerations other than those influencing the “selfish” bankers, it could—in conjunction with the other interventionist policies—so control investment as to guarantee a state of virtually constant prosperity. Many bureaucrats believed that the government could keep the economy in a state of unending boom.

To borrow an invaluable metaphor from Alan Greenspan: if, under laissez-faire, the banking system and the principles controlling the availability of funds act as a fuse that prevents a blowout in the economy—then the government, through the Federal Reserve System, put a penny in the fuse-box. The result was the explosion known as the Crash of 1929.

Throughout most of the 1920’s, the government compelled banks to keep interest rates artificially and uneconomically low. As a consequence, money was poured into every sort of speculative venture. By 1928, the warning signals of danger were deeply apparent: unjustified investment was rampant and stocks were increasingly overvalued. The government chose to ignore these danger signals.

A free banking system would have been compelled, by economic necessity, to put the brakes on this process of runaway speculation. credit and investment, in such a case, would be drastically curtailed; the banks which made unprofitable investments, the enterprises which proved unproductive, and those who dealt with them, would suffer—but that would be all; the country as a whole would not be dragged own. However, the “anarchy” of a free banking system had been abandoned—in favor of “enlightened” government planning.

The boom and the wild speculation—which had preceded every major depression—were allowed to rise unchecked, involving, in a widening network of malinvestments and miscalculations, the entire economic structure of the nation. People were investing in virtually everything and making fortunes overnight—on paper. Profits were calculated on hysterically exaggerated appraisals of the future earnings of companies. Credit was extended with promiscuous abandon, on the premise that somehow the goods would be there to back it up. It was like the policy of a man who passes out rubber checks, counting on the hope that he will somehow find a ay to obtain the necessary money and to deposit it in the bank before anyone presents his checks for collection.

But A is A—and reality is not infinitely elastic. In 1929, the country’s economic and financial structure had become impossibly precarious. By the time the government finally and frantically raised the interest rates, it was too late. It is doubtful whether anyone can state with certainty what events first set off the panic—and it does not matter: the crash had become inevitable; any number of events could have pulled the trigger. But when the news of the first bank and commercial failures began to spread, uncertainty spread across the country in widening waves of terror. People began to sell their stocks, hoping to get out of the market with their gains, or to obtain the money they suddenly needed to pay bank loans that were being called in—and other people, seeing this, apprehensively began to sell their stocks—and, virtually overnight, an avalanche hurled the stock market downward, prices collapsed, securities became worthless, loans were called in, many of which could not be paid, the value of capital assets plummeted sickeningly, fortunes were wiped out, and, by 1932, business activity had come almost to a halt. the law of causality had avenged itself.

Such, in essence, was the nature and cause of the 1929 depression.

It provides one of the most eloquent illustrations of the disastrous consequences of a “planned” economy. In a free economy, when an individual businessman makes an error of economic judgment, he (and perhaps those who immediately deal with him) suffers the consequences; in a controlled economy, when a central planner makes an error of economic judgment, the whole country suffers the consequences.

But it was not the Federal Reserve, it was not the government intervention that took the blame for the 1929 depression—it was capitalism. Freedom—cried statists of every breed and sect—had had its chance and had failed. The voices of the few thinkers who pointed to the real cause of the evil were drowned out in the denunciation of businessmen, of the profit motive, of capitalism.

Had men chosen to understand the cause of the crash, the country would have been spared much of the agony that followed. The depression was prolonged for tragically unnecessary years by the same evil that caused it: government controls and regulations.

Contrary to popular misconception, controls and regulation began long before the New Deal; in the 1920’s, the mixed economy was already an established fact of American life. But the trend toward statism began to move faster under the Hoover Administration—and, with the advent of Roosevelt’s New Deal, it accelerated at an unprecedented rate. The economic adjustments needed to bring the depression to an end were prevented from taking place—by the imposition of strangling controls, increased taxes, and labor legislation. This last had the effect of forcing wage rates to unjustifiably high levels, thus raising the businessman’s costs at precisely the time when costs needed to be lowered, if investment and production were to revive.

The National Industrial Recovery Act, the Wagner Act, and the abandonment of the gold standard (with the government’s subsequent plunge into inflation and an orgy of deficit spending) were only three of the many disastrous measures enacted by the New Deal for the avowed purpose of pulling the country out of the depression; all had the opposite effect.

As Alan Greenspan points out in “Stock Prices and Capital Evaluation,” the obstacle to business recovery did not consist exclusively of the specific New Deal legislation passed; more harmful still was the general atmosphere of uncertainty engendered by the Administration. Men had no way to know what law or regulation would descend on their heads at any moment; they had no way to know what sudden shifts of direction government policy might take; they had no way to plan long-range.

To act and produce, businessmen require knowledge, the possibility of rational calculation, not “faith” and “hope”—above all, not “faith” and “hope” concerning the unpredictable twistings within a bureaucrat’s head.

Such advances as business was able to achieve under the New Deal collapsed in 1937—as a result of intensification of uncertainty regarding what the government might choose to do next. Unemployment rose to more than ten million and business activity fell almost to the low point of 1932, the worst year of the depression.

It is part of the official New Deal mythology that Roosevelt “got us out of the depression.” How was the problem of the depression finally “solved”? By the favorite expedient of all statists in times of emergency: a war.

The depression precipitated by the stock market crash of 1929 was not the first in American history—though it was incomparably more severe than anything that had preceded it. If one studies the earlier depressions, the same basic cause and common denominator will be found: in one form or another, government manipulation of the money supply. It is typical the manner in which interventionism grows that the Federal Reserve System was instituted as a proposed antidote against those earlier depressions—which were themselves products of monetary manipulation by the government.

The financial mechanism of an economy is the sensitive center, the living heart, of business activity. In no other area can government intervention produce quite such disastrous consequences. For a general discussion of the business cycle and its relation to government manipulation of the money supply, see Ludwig von Mises, Human Action.

One of the most striking facts of history is men’s failure to learn from it.