The Free Market and Economics
Understanding Economics | Walter E. Williams
<<Suppose a family is fleeing a pending hurricane and has a half-tank of gas, plenty to get them to a safe destination, but they would feel more comfortable topping off the tank. If the price of gasoline remained at a pre-hurricane price of $3 a gallon, they might do so.
But if the price shot up to $5, they'd wait until they arrived at their destination. Their decision has the effect of making more gasoline available for others. So here's my question: Which alternative is preferable for a family, fleeing the hurricane with their gas gauge showing nearly empty, gasoline available at $5 a gallon or gasoline unavailable at $3?>>
The free market efficiently allocates resources; government intervention through price controls (to prevent "gouging") do not.
Keeping Business Honest | John Stossel
<<Established businesses always try to use government to handcuff competition. [We call these types of established businesses "crony capitalists."] When margarine was first developed, the dairy industry got Wisconsin legislators to pass a law making margarine illegal. ...
When supermarkets were invented, small grocers tried to ban them. "A&P will dominate the grocery business and destroy Main Street," the grocers claimed. Minnesota legislators responded by passing a law that forbade supermarkets to put food "on sale."
Established capitalists are often capitalism's biggest enemies.
I used to believe that licensing doctors and lawyers protected consumers, but now I realize that licensing is always an expensive restraint of trade. It certainly hasn't barred quacks and shysters.
Licensing is unnecessary. It creates a false sense of security, raises costs, stifles innovation and takes away consumer choice.>>
Hugo Salinas Price warns: “Italy and Spain have already imposed a limit on cash transactions. Any transaction above 2,500 euros has to be paid with a credit card. Now that’s ominous. It confirms the socialist trend because in socialism you have very little use for money. Everything is supplied by means of ration cards.
That’s what I see coming, and I see it in the United States as well. Take, for example, the fact that there are 46.5 million people on food stamps. You already have the ration card in action there.”
"...The current economic crisis: we did not have unbridled, serious capitalism before the crisis hit ... we had enormous government interventions that subsidized risk ...encouraged an over-investment in housing...interfering with capitalism generates financial crisis [and] recessions...whenever government bails out people who took excessive risk, it encourages people to do more of that in the future...and not pay the price of all that excessive risk-taking they engaged in."
Almost Everything We're Taught Is Wrong | John Stossel
"We grow up learning that some things are just bad: child labor, ticket scalping, price gouging, kidney selling, blackmail, etc. But maybe they're not.
What I love about economics is that it can show that what seems harmful is actually good for society. It illuminates what common sense overlooks....This is all covered in the eye-opening book "Defending the Undefendable" by economist Walter Block," and summarized in Stossel's article (click here or title).
(Economy takes off after tax cuts kick in.)
“You’ve got to get rid of all federal taxes in the extreme and replace them with a low-rate flat tax on business net sales, and on personal unadjusted gross income. That’s number one.
“Number two, you have to have spending restraint. Government spending causes unemployment, it does not cure unemployment.
“Number three, you need sound money. Ben Bernanke is running the least sound monetary policy I’ve ever heard of," Laffer said.
“Number four you need regulations, but you don’t need those regulations to go beyond the purpose at hand and create collateral damage. The regulatory policies are really way off here.
“And lastly you need free trade," Laffer said. "Foreigners produce some things better than we do and we produce some things better than foreigners. It would be foolish in the extreme if we didn’t sell them those things we produce better than they do in exchange for those things they produce better than we do.”
"Taxes are about $2½ trillion, government spending is about $4 trillion and we have about $10 trillion in net national debt. I don’t see that as being a AAA country."
"If you pay people not to work and tax them if they do work, don’t be surprised if you find a lot of people not working."
"...Since minimum wage laws discriminate against the employment of the least-skilled worker, it shouldn't be surprising to find 16-to-24-year-old male high school dropouts its primary victims...The best way to sabotage chances for upward mobility of a youngster from a single-parent household, who resides in a violent slum and has attended poor-quality schools is to make it unprofitable for any employer to hire him...Imagine that a worker's skill level is such that he can only contribute $5 worth of value per hour to the employer's output, but the employer must pay him a minimum wage of $7.25 per hour, plus mandated fringes such as Social Security, unemployment compensation and health insurance. To hire such a worker would be a losing economic proposition. If the employer could pay that low-skilled worker the value of his skills, he would at least have a job and a chance to upgrade his skill and earn more in the future...." Get WEW's biography: Up from the Projects. I can testify it's an easy-to-read and illuminating book.
In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year
"...Emmerich analyzes disposable income and economic benefits among several key income classes and comes to the stunning (and verifiable) conclusion that "a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year." And that excludes benefits from Supplemental Security Income disability checks.
And if that wasn't enough, here is one that will blow your mind:
If the family provider works only one week a month at minimum wage, he or she makes 92 percent as much as a provider grossing $60,000 a year..." HT ZeroHedge
"The government price controls in America’s healthcare system always push prices up." Read why. "...Prices must respond to both the supply and demand sides of the market to allocate resources to their best use. Medicare ignores the market, setting prices for physician services based on an academic theory with its roots in the Soviet Union and implemented by the American Medical Association. Those prices do not reflect the value patients receive from their care, and they do not reflect shifts in the demand for particular kinds of services...Some prices are too low, requiring patients to wait for treatment or even go without as the demand for those services exceeds the supply. Some prices are too high, unnecessarily raising the cost of Medicare to the taxpayer as physicians respond to the incentive to use more expensive services—even when those services do not produce better outcomes for patients. If the prices are not right, the consequences are unavoidable...": High and ever-increasing cost.
The Great Depression Revisited [Lessons Learned?]
Amity Shlaes was co-winner in 2002 of the Frederic Bastiat Prize, an international award for free-market journalism. She is also the author of two national bestsellers, The Greedy Hand, a profile of the tax code, and the bestselling history of the Great Depression, The Forgotten Man.Her two Hillsdale College Imprimis articles are worth reading. Links and excerpts below...
The Legacy of the 1936 Election
..."the presidential campaign of 1936 ... marked the virtual end of old-fashioned American federalism and the rise of a new kind of politics. It was 1936 more than any other campaign that created modern interest groups and taught us that Washington should subsidize them." Read why Amity argues this...Of interest: "In 1932, total federal spending was still only five percent of gross domestic product. Spending by states and local governments represented by contrast ten percent of GDP... [still, that's a total of 15% of GDP! Also,] Sumner employed an algebra to explain what he meant [by The Forgotten Man, a phrase co-opted by FDR]: A and B want to help X, he wrote. This is the charitable impulse. The problem arises when A and B band together and pass a law that coerces C into co-funding their project for X. [In other words, they agree to steal from C for their cause.] Sumner identified C as the forgotten man. He is the man who works, the man who prays, the man who pays his own bills, the man who is “never thought of.”
A New History of the Great Depression: The Rules of the Game and Economic Recovery
"...FDR’s floating advisory group—Felix Frankfurter, Frances Perkins, George Warren, Marriner Eccles and Adolf Berle, among others—was sometimes known as a Brain Trust. The mystery had something to do with a shortage of money, we are told, and in the end, only a Brain Trust’s tinkering with the money supply saved us. The corollary to this view is that the government knows more than American business does about economics...In short, the prolonged Depression can be put down to government arrogance—arrogance that came at the expense of economic common sense, the rule of law, and respect for property rights...[The National Recovery Administration (NRA)'s mission] included the idea that prices needed to be pushed up to make recovery possible, whereas competition constrained recovery by driving prices down. [In other words, its mission meant its members strove to write rules and regulations to make us PAY MORE for our needs and wants, under the misguided idea that paying more meant a faster recovery! Bunk! When I pay more for something than I did before, I can't buy as much, and my quality of life goes down.] ... FDR took the U.S. off the gold standard in April 1933, and by summer he was setting the gold price every morning from his bed. Morgenthau reports that at one point the president ordered the gold price up 21 cents. Why 21, Morgenthau asked. Roosevelt replied, because it’s 3 x 7, and three is a lucky number. 'If anyone knew how we set the gold price,' wrote Morgenthau in his diary, 'they would be frightened.'"
"... Instead of going down a path toward protectionism and yet more government control of our economy, we must return to our nation’s strengths: free trade, the rule of law and a commitment to free enterprise. We must make the United States a better place to do business. Cutting the corporate tax rate, reducing government involvement in commercial decision making, reining-in runaway spending and deficits, freeing our businesses from red tape, and unleashing our natural resources to meet our energy needs: this is what Congress should be doing to return us to economic prosperity..."
The Key is a Free Market - Not Keynes
We Are Now Paying for the Funeral of Keynesian Theory | Eric Sprott via ZeroHedge
"...the global financial crisis in 2007 ignited a resurgence in Keynesian thought that resulted in the American Recovery and Reinvestment Act, TARP, TALF, Cash for Clunkers, Quantitative Easing, etc., all of which have been proven ineffective, ill-advised and whose benefits were surprisingly short-lived... Stated simply, ‘borrowing to stimulate’ has never worked as planned because the cost of paying back the borrowed funds surpassed the immediate benefits of the stimulus... the US government has spent more on stimulus and bailouts, in percentage of GDP terms, than it did in the Gulf War, Operation Iraqi Freedom, the Vietnam War, the Korean War and World War I combined.5 All that spending was justified by the understanding that it would generate sustainable underlying growth. If it turns out that that assumption was wrong, have the governments made a fatal mistake?"
Clunker School of Economics | George Will
"...The Boston Globe's Jeff Jacoby reports that a study by Edmunds.com shows that all but 125,000 of the 700,000 cars sold during the clunkers program would have been bought even if no subsidy had been available. If this is so, each incremental sale cost taxpayers $24,000...."
...Onset of Hyperinflation in as Little as 6-9 Months | John Williams via ZeroHedge
"...Systemic Turmoil is Unthinkable, Unacceptable but Unavoidable. Pardon the use of the Aerosmith lyrics in the opening headers, but the image of tap-dancing on a land mine pretty much describes what the Federal Reserve and the U.S. Government have been doing in order to prevent a systemic collapse in the last couple of years. Now, as business activity sinks anew, much expanded supportive measures will be needed to maintain short-term systemic stability. Such official actions, however, in combination with global perceptions of limited U.S. fiscal flexibility, likely will trigger massive flight from the U.S. dollar and force the Federal Reserve into heavy monetization of otherwise unwanted U.S. Treasury debt..."
Free [Market] Cities | Newt Gingrich
With Hong Kong's success as a guide, Newt proposes: "The U.S. should negotiate a series of bilateral treaties with receptive governments, carving out undeveloped sites the size of Hong Kong. Then a joint venture between the host government and the U.S. would launch brand new Free Cities in these places, with a complete set of American-style freedoms and responsibilities, guaranteed by treaty for 50 years."
A reader's comment: <<As a merchant mariner who serves on a ship that carries free US grain to places Libya and Sudan I can personally attest to UN food aid workers arriving in Mercedes Benz... I have seen brand new sedans with gold trim parked next to a man sweeping the ground for kernels of grain that slip off the conveyor belts. The workers who drive the trucks don't hide the fact that around a third of the trucks are going to the military, where the food will be re-sold to their own people.
Not to mention that in many places like Libya, the people had no idea that the grain was a gift from the American tax payers to the Government of Libya, not even the dock workers believed it was free. When we delivered to North Korea, the government went so far as to produce a pamphlet claiming that the grain was reparations for war crimes! To forward the idea that we need to get more bang for our overseas aid bucks is an idea that is long, long, over due.>>
Dr. Walter E Williams addresses HS students YAF
Highlights of his talk in my words (not verbatim):
Positive sum game: "If you make me feel good, I'll make you feel good" (e.g., I like your product and price, so I'll give you my money).
Zero sum game: "If you don't make me feel good, I'll make you feel bad" (e.g., by shooting you or preventing you from drilling or penalizing you for not paying taxes).
Our right to happiness and freedom includes having the power to Increase our voluntary relationships and to reduce the involuntary relationships in our lives.
What kind of power do big evil companies have over you?! None!!! The only way they can control us is to go to the politicians and have them force us to interact with them through taxes and regulations, etc.
What kind of power does the government have over you?! Unlimited, if we allow it! Gov't officials can threaten you, throw you in jail up, take your property, force you to do business with companies you don't want to, and even kill you. [Voluntary exchange is not part of this scenario. There's nothing voluntary about it.] Taxes represent government claims on private property and, hence, your freedom (under Communism, they claim all of your property).
Tax Hikes & the 2011 Economic Collapse | A Laffer
"On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15% [Are the Seniors on fixed incomes paying attention?!], the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts. ... [as a result, taxpayers] will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be ... Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10% at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984 ... It has always amazed me how tax cuts don't work until they take effect. [See graph.] Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011."
Tax Hikes & the 2011 Economic Collapse | A Laffer
"On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15% [Are the Seniors on fixed incomes paying attention?!], the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts....[as a result, taxpayers] will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be...at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011"
Doomsayers beware... NYT 5/17/10
Trade inspires invention and increased quality of life. "...Dr. Ridley writes...People traded goods, services and, most important, knowledge, creating a collective intelligence: 'Ten individuals could know between them ten things, while each understanding one.'” Trade also inspired early Sumerians to invent checklists and numbers to keep track of inventory! Western Civ's roots are deep and fascinating!
Walter E. Williams | Future Prospects for Economic Liberty
"...Most of what they [America's Founders] understood as legitimate powers of the federal government are enumerated in Article 1, Section 8 [of the Constitution]. Congress is authorized there to do 21 things, and as much as three-quarters of what Congress taxes us and spends our money for today is nowhere to be found on that list. To cite just a few examples, there is no constitutional authority for Congress to subsidize farms, bail out banks, or manage car companies....The fact is that it's unreasonable of us to expect even principled politicians to vote against things like crop subsidies and stand up for the Constitution [because they fear being voted out of office]. This presents us with a challenge. It's up to us to ensure that it's in our representatives' best interest to stand up for constitutional government." Keep the T.E.A. parties growing! Aside to Nancy et al: Astroturf doesn't grow, but our grassroots do! Thanks to Hillsdale College and its Imprimis.
Sharon Harris | The Invisible Hand Is a Gentle Hand
Invisible hand or government force? The "invisible hand is a gentle one. A free market is a gentle market. A free society is a gentle society. A cooperative, compassionate, and generous society. An abundant and tolerant society...There are built-in incentives in the marketplace for service, courtesy, respect. The invisible hand becomes a friendly handshake between cooperating adults...We don’t have a dog-eat-dog business world; we have a dog-eat-dog government." Aside: I want to read a Socialist description of the true Utopia working like a charm. What would a socialist utopian world be like to live in?..Soylent Green comes to mind.
John Stossel | "Real Jobs Create Wealth"
"...What is difficult for government is creating jobs that produce wealth. Pyramids, holes in the ground and war do not produce wealth. They destroy wealth. They take valuable resources and convert them into something less valuable." Government jobs do not equal private sector jobs. Find out why by reading this article on Patriot Post.
Quotes: Ludwig Von Mises
"Income no longer stemmed from the process of supplying the wants of the consumers in the best possible way, but from the taxes levied by the states apparatus of compulsion and coercion. He [crony capitalist in bed w/ gov't] was no longer a servant of his fellow citizens, subject to their sovereignty; he was a partner of the government which ruled the people and exacted tribute from them." - Human Action
"The distinction between an economic sphere of human life and activity and a noneconomic sphere is the worst of their fallacies." - [i.e., everything is related to economics] Theory and History
"History does not provide any example of capital
accumulation brought about by a government. As far as governments invested in the construction of roads, railroads, and other useful public works, the capital needed was provided by the savings of individual citizens and borrowed by the government."
Walter E. Williams | "Economic Miracle"
"The idea that even the brightest person or group of bright people, much less the U.S. Congress, can wisely manage an economy has to be the height of arrogance and conceit." Read this column (and "I, Pencil") and you'll begin to see the miracle of the invisible hand that drives the free market.
Leonard E. Read | "I, Pencil"
Uses the construction of a lowly pencil to illustrate how “the invisible hand” functions in a free market. Easy-to-understand must read for every American starting in 7th grade. Click here to read "I, Pencil."
Walter Williams | "How can it be?"
"Here's Williams' roadmap out of poverty: complete high school; get a job, any kind of a job; get married before having children and be a law-abiding citizen. Among both black and white Americans so described, the poverty rate is in the single digits." Squelches the argument that the "rich are getting richer and poor are getting poorer." Tip: Commit time to reading Williams' archived articles. Click here to read this article
Thomas Sowell | "A Letter from Venezuela"
"...the consequences of price controls. The government of leftist President Hugo Chavez has imposed price controls -- and seems to be surprised that lower prices have led to reduced supplies, even though price controls have led to reduced supplies in countries around the world and for thousands of years." Makes sense, no? Then, why don't we get it? Read more. Tip: Read other articles about this topic and others by Sowell.
Stephen Moore | "Atlas Shrugged: From Fiction to Fact in 52 Years"
Whether you are an Ayn Rand fan or not, find out why her Atlas Shrugged has such a profound impact on so many leaders. This article is also a great summary for this long book. Click here to read this article. SparkNotes also has a good summary of the book.
Robert Fulsom | Myth of the Robber Barons
Friedrich A. Hayek (1899-1992) | "The Use of Knowledge in Society"
For the PhD in you. "If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders." Leave it to the invisible hand. Click here to read the entire article.