Every revolution devours its children, but it's still surprising to see some of ObamaCare's keenest boosters deny paternity so soon after the birth. Witness the emotional volte-face from three top union leaders, warning that the program will "shatter not only our hard-earned health benefits, but destroy the foundation of the 40-hour workweek that is the backbone of the American middle class."
Read the complete article at The Wall Street Journal.
Thursday, July 18, 2013
Wednesday, July 17, 2013
Stop the (Obamacare) World, I Want to Get Off
The foreign competition doesn't have to pay the Obamacare fines.
Read the complete article at American Thinker.
More health reform information on the Obamacare page.
Read the complete article at American Thinker.
More health reform information on the Obamacare page.
Tuesday, July 16, 2013
GOP members debate voting for delay, partial repeal
House Budget Committee chairman Paul Ryan (R., Wis.) is backing leadership’s proposal to hold votes on delaying the employer and individual mandates in Obamacare. Some conservatives may balk, however, at supporting any measure that stops short of full repeal. “Do not get cute here,” RedState’s Erick Erickson warned Republicans in a blog post. “Americans sent Republicans to Washington to end Obamacare, not mend it. Repeal the whole damn thing, not parts.”
Read the complete article at National Review.
More health reform information on the Obamacare page.
Read the complete article at National Review.
More health reform information on the Obamacare page.
Monday, July 15, 2013
Why the President's ObamaCare Maneuver May Backfire
The president does not have the power to stop the implementation of a law. If there is one bedrock constitutional legal principle, it is that the president must "faithfully execute" federal statutes. He cannot suspend laws he dislikes on policy grounds or because he fears their political consequences.
Read the complete article at The Wall Street Journal.
More health reform information on the Obamacare page.
Read the complete article at The Wall Street Journal.
More health reform information on the Obamacare page.
Wednesday, July 10, 2013
What if President Romney had Suspended Obamacare?
What if Mitt Romney had won the election, and proceeded to disregard sections of Obamacare in precisely the manner President Obama is presently doing?
WASHINGTON – The Romney administration faces a political and legal crisis as blowback from its controversial decision to unilaterally suspend central elements of the Affordable Care Act continues to intensify...
“President Romney is openly defying the laws of the United States that he swore an oath to faithfully execute,” said the leader of an umbrella liberal interest group that was formed to promote the Affordable Care Act.
Read the complete article by Phil Kerpen at AmericanCommitment.org.
More health reform information on the Obamacare page.
WASHINGTON – The Romney administration faces a political and legal crisis as blowback from its controversial decision to unilaterally suspend central elements of the Affordable Care Act continues to intensify...
“President Romney is openly defying the laws of the United States that he swore an oath to faithfully execute,” said the leader of an umbrella liberal interest group that was formed to promote the Affordable Care Act.
Read the complete article by Phil Kerpen at AmericanCommitment.org.
More health reform information on the Obamacare page.
Tuesday, July 09, 2013
Delaying Obamacare’s Employer Mandate Is Illegal
Has Congress given Treasury the authority to waive the penalties? The answer is no. The employer-mandate penalties unequivocally take effect on January 1, 2014, and the PPACA gives the Treasury secretary no authority to postpone their imposition.
Read the complete article by Michael F Cannon at The Cato Institute.
More health reform information on the Obamacare page.
Read the complete article by Michael F Cannon at The Cato Institute.
More health reform information on the Obamacare page.
Monday, July 08, 2013
American Thinker: 'Obamacare: And Then a Miracle Happens'
To believe that Obamacare will all work out in the end is to believe that the whole is not only greater than the sum of the parts, but 180 degrees polar opposite of the sum of the parts.
Read the full article by Howard Hyde at AmericanThinker.com.
More Health care reform resources on the Obamacare page.
Read the full article by Howard Hyde at AmericanThinker.com.
More Health care reform resources on the Obamacare page.
Saturday, July 06, 2013
The Daily Caller: Obamacare economy pushes workers into part-time jobs
There’s one clear growth area in the Obamcare economy — the share of the nation’s workforce that is stuck in part-time jobs.
BLS Household Survey report for June says economy lost 240,000 full-time jobs, gained 360,000 part-time.
Read the full article at The Daily Caller.
More Health care reform resources on the Obamacare page.
BLS Household Survey report for June says economy lost 240,000 full-time jobs, gained 360,000 part-time.
Read the full article at The Daily Caller.
More Health care reform resources on the Obamacare page.
Friday, July 05, 2013
The Hill: 10 Obamacare Fumbles
The President's signature domestic policy initiative has suffered several self-inflicted wounds on the path toward full implementation.
1. The CLASS Act
2. The federal insurance exchange
3. The employer mandate
4. The small-business exchange
5. Waivers
6. 1099
7. Child-only plans
8. PCIP
9. The Basic Health Plan
10. ObamaCare for congressional staff
Read the complete article at The Hill.
More health reform information on the Obamacare page.
1. The CLASS Act
2. The federal insurance exchange
3. The employer mandate
4. The small-business exchange
5. Waivers
6. 1099
7. Child-only plans
8. PCIP
9. The Basic Health Plan
10. ObamaCare for congressional staff
Read the complete article at The Hill.
More health reform information on the Obamacare page.
Wednesday, July 03, 2013
Obamacare mandate delayed to give Dems breathing room
Does the delay in implementing the employer mandate past the 2014 midterm elections benefit more the Democrats or the Republicans?
Read the complete article at The Daily Mail.
More health reform information on the Obamacare page.
Read the complete article at The Daily Mail.
More health reform information on the Obamacare page.
Tuesday, July 02, 2013
Washington Times: Obamacare’s employer mandate put off for one year
The decision to delay one of the most controversial elements of the Affordable Care Act is sure to reverberate on Capitol Hill, where Republican lawmakers have bashed the law as a “job killer” and giddily repeated one Democratic author’s remark that the overhaul would be a “train wreck” if small business did not gain a better grasp of the reforms.
Read the complete article at The Washington Times.
Read the complete article at The Washington Times.
WSJ: Health Law Penalties Delayed
The provision of the law that requires individuals to carry health coverage or pay a fine, starting in 2014, remains in effect, the Treasury Department said. The delay only applies to the business penalties, but some experts predicted more changes could come.
Read the complete article at The Wall Street Journal.
Read the complete article at The Wall Street Journal.
The Hill: Obamacare Mandate Delayed
The ObamaCare employer mandate requiring businesses to provide their workers with health insurance will be delayed by a year, the administration said Tuesday in a stunning announcement.
Read the complete article at TheHill.com.
More health reform information on the Obamacare page.
Read the complete article at TheHill.com.
More health reform information on the Obamacare page.
Eat it, It's Good For You, Says Big Brother Senator Feinstein
We are losing our constitutional liberties and heading toward Big-Brother totalitarianism at a faster rate than at any time in the history of the United States of America, for the sake of social programs that are rammed down our throats on fraudulent premises and which can never fulfill their marketed promises.
Read the complete article at FrontPageMag.com.
More health reform information on the Obamacare page.
Read the complete article at FrontPageMag.com.
More health reform information on the Obamacare page.
Monday, July 01, 2013
Los Angeles Schools to get $1M to push Obamacare
According to the Heartland Institute, the Los Angeles Unified School District (LAUSD) will receive almost one million dollars to promote ObamaCare.
Read the complete article at PatriotUpdate.com.
More health reform information on the Obamacare page.
Read the complete article at PatriotUpdate.com.
More health reform information on the Obamacare page.
Monday, June 24, 2013
Why we Don’t Need Trade Wars
In the movie ‘L'Auberge Espagnole’ (‘The Spanish Apartment’) a French college student goes abroad to Barcelona, Spain, to learn Castillian Spanish and complete his studies of economics, with the promise of an attractive job offer from his sponsor upon his return to France. In one scene, one of the economics professors insists upon teaching the course – to his students who come from all over the world – in Catalán, the historical language of Catalonia, the region of Spain of which Barcelona is the capital. “If you want Castellano” – (the language of Castille that came to dominate Spain as a whole and South America besides – what we call ‘Spanish’) – “then go to Madrid!” he booms.
No doubt Catalán is a beautiful language with a rich literary and cultural heritage. But it is worth noting that while this business prof is training his charges in Catalán, the Chinese are teaching their business students (and 300 million of their closest friends, more than the population of the United States) … in English! Pop quiz: Who’s going to dominate the global economy in the 21st century?
This Catalonian professor was practicing what could be called cultural protectionism; insisting upon doing things his way, insulated from external realities. But his students will pay a price in diminished opportunity, for preferring the provincial to the global, blinders to eyes wide open.
And so it is with the more overt forms of economic protectionism and isolationism: tariffs, quotas, regulation that discriminates against imports, supposedly in favor of exports, etc. Most of these measures help only a few privileged or politically connected groups of people, and only for a short period of time, while injuring the welfare of the society at large, especially over the long term.
Trade Facts and Stats
Here are some facts and stats which paint a picture of the globally interconnected economic world in which we live today :
• International trade has tripled to quadrupled in the last 50 years.
• During the same two generations of expanding globalization, the US workforce and total employment have doubled. Prior to 2008, the unemployment rate averaged 5 to 6 percent. Trade is not causing loss of the number of jobs (the employment crisis of 2009 – 2011 was not caused by trade, free or otherwise).
• Trade does not cause declining wages. Real hourly compensation in America, including non-wage benefits, increased 41% on average from 1973 to 2007, and 23% from 1991 to 2007.
• Over the past 40 years or so, median US household income has increased 20%, from about $40,000 per year to about $50,000. The average size of a household was 3.2 people in 1967; 2.6 people today . Therefore those household income figures translate into more dough per individual today.
• 20% of humanity lives in China, and trade with China constitutes 15% of all US foreign trade.
• The USA spends about 2% of its GDP on goods imported from China; $260 billion in consumer goods and $60 billion in industrial goods. Two-thirds of that are products designed in the US, manufactured in Japan, Gernany, South Korea, Taiwan, Singapore, Malaysia and/or the US, and finally assembled, at the end of the chain, in China. Think Apple iPad.
• The percentage of the world’s population living in ‘absolute’ poverty ($1.25/day or less) has decreased from over 50% in 1981 to 25% in 2005. In China, 600 million people have climbed out of absolute poverty in the last 30 years.
• Quality of life has improved across the board in the developing world in this era of globalization. For example, since 1960:
- Life Expectancy: from 45 years to 65 years
- Infant Mortality: down 60 percent
- Food: from less than 2,000 to more than 2,600 calories/day
- Literacy: from less than half to over two-thirds
-- Child Labor: down from 25% to 10%.
• American companies employ 10 million workers outside of the United States. Fewer than 5% are in China; an equal number are in Germany, a country with 1/17th the population of China.
• More than two thirds of American foreign investment flows to other wealthy peer countries, not Third World ‘sweatshops’.
• Wage rates and labor costs are not the same thing. If Fatcatistan’s workers get paid twice the ducats per hour of workers in Pauperia but produce three times the value output, then Fatcatistan has the lower labor costs.
• In 1776, 97% of Americans were farmers. Now only 3% of the population works in agriculture, yet we are the best-fed (overfed? most obese?) nation on earth and the world’s leading exporter of food.
• Employment in the American Manufacturing sector declined 20% in 17 years, from 17.1 million jobs in 1991 to 13.5 million in 2008. On the other hand, employment in the Service sector during the same period increased 51% from 37 million to 56 million. Thus a decline of 3.6 million jobs in manufacturing has been offset by a 19 million-job increase in construction, professional, business, financial, education, health and other services.
• American consumers spend 60% of their discretionary income on services today, whereas two generations ago, they spent more than that proportion on manufactured goods.
• Meanwhile, manufacturing output – productivity – increased by about 60%. We’re making more stuff, producing more value, with fewer people, just as we did in agriculture in past generations.
• America (a.k.a. 250,000 companies) is the world’s #1 exporter. We make $380 billion worth of semiconductors, civilian aircraft, vehicle parts and accessories, passenger cars, industrial machines, pharmaceutical preparations, telecommunications equipment, organic chemicals, electric apparatus and computer accessories …and twice again as much more stuff. Not too shabby for a country that ‘doesn’t make anything anymore’.
• When imports go up, so do exports. When imports go down, so do exports. Anti-trade / pro-protective tariff theory predicts the opposite, and fails.
• The Trade deficit is negatively correlated with unemployment. That is, when the deficit goes up, unemployment falls / employment increases. If you are pining for the good old days, those few individual years when we got the trade deficit ‘under control’, you are a cheerleader for recessions: 1961, 1975, 1982, 1991, 2001.
• More than half of imports into the US are raw materials or intermediate products that American manufacturers use as inputs to their final product. Domestic American companies need imports.
• 97% of job displacement in the US is due to technological change, not trade. Every year, 15 million jobs disappear and another 15+ million are created. Trade-related job churn accounts for up to 500,000 of that, which is to say 3%.
• Stuff that is traded in international markets gets less expensive all the time, whereas products and services protected or insulated from competition get more expensive. Think computers on the one hand vs. college tuition on the other; TVs vs. medical services; cellphones vs Super Bowl tickets; clothing vs. car repair. Trade makes stuff cheaper for you and me.
• Two thirds of GM and Ford’s business is outside the US.
• With your outsourcing hysteria, get some IN-sourcing tranquilizer: For example, Japanese manufacturers employ about a third of all Americans who work in the automotive industry, in factories in 11 US states. The 5+ million American employees of foreign-owned affiliates here earn on average 30% more than employees of domestic companies. Ask them if they think that’s a bad thing.
• Americans own over $100 trillion worth of assets. Our negative Net International Investment Position (the difference between foreign assets that we own and American assets owned by foreigners) is less than 2 percent of that. 40% of that less-than 2% are equity positions – stocks, real estate, direct investment – that is not a debt burden; it does not need to be ‘paid back’.
• Price discrimination, like charging different prices for tickets to occupy the same movie theatre seats to adults, seniors, children and students, is a perfectly economically rational and legal practice. Yet when a foreign company sells in the US market below average cost, we call it ‘dumping’, call the international police and slap fines on the ‘criminals’. Someone please tell BMW that I would like a 2014 740iL ‘dumped’ in front of my garage with the key in the ignition and a blue bow on top. In return I promise: 1) I’ll send a check for $100 to satisfy the ‘below average cost’ requirement (including shipping, handling and gift-wrapping), and 2) I won’t sue or lobby my congressman for a redress of grievance.
• About 100,000 Americans are employed in the steel industry; about 4 million (that’s 40 times as many more) work in industries that use steel to make products. The steel tariff of 2002 may have helped the few steel workers temporarily, but it screwed everyone else, like the steel-consuming industries and you and me who buy or rent cars, machine tools, industrial equipment and office space. Thankfully the tariff was repealed in 2004 under persuasion from that evil foreign menace to our sovereignty, the World Trade Organization (WTO).
No doubt Catalán is a beautiful language with a rich literary and cultural heritage. But it is worth noting that while this business prof is training his charges in Catalán, the Chinese are teaching their business students (and 300 million of their closest friends, more than the population of the United States) … in English! Pop quiz: Who’s going to dominate the global economy in the 21st century?
This Catalonian professor was practicing what could be called cultural protectionism; insisting upon doing things his way, insulated from external realities. But his students will pay a price in diminished opportunity, for preferring the provincial to the global, blinders to eyes wide open.
And so it is with the more overt forms of economic protectionism and isolationism: tariffs, quotas, regulation that discriminates against imports, supposedly in favor of exports, etc. Most of these measures help only a few privileged or politically connected groups of people, and only for a short period of time, while injuring the welfare of the society at large, especially over the long term.
Trade Facts and Stats
Here are some facts and stats which paint a picture of the globally interconnected economic world in which we live today :
• International trade has tripled to quadrupled in the last 50 years.
• During the same two generations of expanding globalization, the US workforce and total employment have doubled. Prior to 2008, the unemployment rate averaged 5 to 6 percent. Trade is not causing loss of the number of jobs (the employment crisis of 2009 – 2011 was not caused by trade, free or otherwise).
• Trade does not cause declining wages. Real hourly compensation in America, including non-wage benefits, increased 41% on average from 1973 to 2007, and 23% from 1991 to 2007.
• Over the past 40 years or so, median US household income has increased 20%, from about $40,000 per year to about $50,000. The average size of a household was 3.2 people in 1967; 2.6 people today . Therefore those household income figures translate into more dough per individual today.
• 20% of humanity lives in China, and trade with China constitutes 15% of all US foreign trade.
• The USA spends about 2% of its GDP on goods imported from China; $260 billion in consumer goods and $60 billion in industrial goods. Two-thirds of that are products designed in the US, manufactured in Japan, Gernany, South Korea, Taiwan, Singapore, Malaysia and/or the US, and finally assembled, at the end of the chain, in China. Think Apple iPad.
• The percentage of the world’s population living in ‘absolute’ poverty ($1.25/day or less) has decreased from over 50% in 1981 to 25% in 2005. In China, 600 million people have climbed out of absolute poverty in the last 30 years.
• Quality of life has improved across the board in the developing world in this era of globalization. For example, since 1960:
- Life Expectancy: from 45 years to 65 years
- Infant Mortality: down 60 percent
- Food: from less than 2,000 to more than 2,600 calories/day
- Literacy: from less than half to over two-thirds
-- Child Labor: down from 25% to 10%.
• American companies employ 10 million workers outside of the United States. Fewer than 5% are in China; an equal number are in Germany, a country with 1/17th the population of China.
• More than two thirds of American foreign investment flows to other wealthy peer countries, not Third World ‘sweatshops’.
• Wage rates and labor costs are not the same thing. If Fatcatistan’s workers get paid twice the ducats per hour of workers in Pauperia but produce three times the value output, then Fatcatistan has the lower labor costs.
• In 1776, 97% of Americans were farmers. Now only 3% of the population works in agriculture, yet we are the best-fed (overfed? most obese?) nation on earth and the world’s leading exporter of food.
• Employment in the American Manufacturing sector declined 20% in 17 years, from 17.1 million jobs in 1991 to 13.5 million in 2008. On the other hand, employment in the Service sector during the same period increased 51% from 37 million to 56 million. Thus a decline of 3.6 million jobs in manufacturing has been offset by a 19 million-job increase in construction, professional, business, financial, education, health and other services.
• American consumers spend 60% of their discretionary income on services today, whereas two generations ago, they spent more than that proportion on manufactured goods.
• Meanwhile, manufacturing output – productivity – increased by about 60%. We’re making more stuff, producing more value, with fewer people, just as we did in agriculture in past generations.
• America (a.k.a. 250,000 companies) is the world’s #1 exporter. We make $380 billion worth of semiconductors, civilian aircraft, vehicle parts and accessories, passenger cars, industrial machines, pharmaceutical preparations, telecommunications equipment, organic chemicals, electric apparatus and computer accessories …and twice again as much more stuff. Not too shabby for a country that ‘doesn’t make anything anymore’.
• When imports go up, so do exports. When imports go down, so do exports. Anti-trade / pro-protective tariff theory predicts the opposite, and fails.
• The Trade deficit is negatively correlated with unemployment. That is, when the deficit goes up, unemployment falls / employment increases. If you are pining for the good old days, those few individual years when we got the trade deficit ‘under control’, you are a cheerleader for recessions: 1961, 1975, 1982, 1991, 2001.
• More than half of imports into the US are raw materials or intermediate products that American manufacturers use as inputs to their final product. Domestic American companies need imports.
• 97% of job displacement in the US is due to technological change, not trade. Every year, 15 million jobs disappear and another 15+ million are created. Trade-related job churn accounts for up to 500,000 of that, which is to say 3%.
• Stuff that is traded in international markets gets less expensive all the time, whereas products and services protected or insulated from competition get more expensive. Think computers on the one hand vs. college tuition on the other; TVs vs. medical services; cellphones vs Super Bowl tickets; clothing vs. car repair. Trade makes stuff cheaper for you and me.
• Two thirds of GM and Ford’s business is outside the US.
• With your outsourcing hysteria, get some IN-sourcing tranquilizer: For example, Japanese manufacturers employ about a third of all Americans who work in the automotive industry, in factories in 11 US states. The 5+ million American employees of foreign-owned affiliates here earn on average 30% more than employees of domestic companies. Ask them if they think that’s a bad thing.
• Americans own over $100 trillion worth of assets. Our negative Net International Investment Position (the difference between foreign assets that we own and American assets owned by foreigners) is less than 2 percent of that. 40% of that less-than 2% are equity positions – stocks, real estate, direct investment – that is not a debt burden; it does not need to be ‘paid back’.
• Price discrimination, like charging different prices for tickets to occupy the same movie theatre seats to adults, seniors, children and students, is a perfectly economically rational and legal practice. Yet when a foreign company sells in the US market below average cost, we call it ‘dumping’, call the international police and slap fines on the ‘criminals’. Someone please tell BMW that I would like a 2014 740iL ‘dumped’ in front of my garage with the key in the ignition and a blue bow on top. In return I promise: 1) I’ll send a check for $100 to satisfy the ‘below average cost’ requirement (including shipping, handling and gift-wrapping), and 2) I won’t sue or lobby my congressman for a redress of grievance.
• About 100,000 Americans are employed in the steel industry; about 4 million (that’s 40 times as many more) work in industries that use steel to make products. The steel tariff of 2002 may have helped the few steel workers temporarily, but it screwed everyone else, like the steel-consuming industries and you and me who buy or rent cars, machine tools, industrial equipment and office space. Thankfully the tariff was repealed in 2004 under persuasion from that evil foreign menace to our sovereignty, the World Trade Organization (WTO).
Sunday, June 23, 2013
Inflation and Monetary Crises Part 2: Just What the Heck IS Money, Anyway?
(Read Part 1 HERE.)
In order to understand how to avoid the consequences of large-scale monetary disasters, of which hyperinflation is one and depression is another, we have to understand in the first place exactly what money is, how it came about, what it means, how it gets corrupted, and therefore how to manage it correctly.
In order to understand money, we first need to remove it from the scene; imagine what life was like before and without money. Without money, we have a barter economy. If you want to obtain eggs, cloth, cereal and milk for your family, you have to offer a sheep, a goat and/or several pounds of carrots in exchange.
Let us ignore the obvious disadvantages of such a system for the moment. One thing we can note right away is with no money, there is no possibility of monetary fraud and the concept of counterfeiting is meaningless; assuming that all parties to the transaction are satisfied with the quality and quantity of the goats, eggs, carrots etc. involved in the exchange, there can be no such thing as inflation or monetary crisis.
So that’s it! We go back to a barter economy and live happily ever after! The End!
OK, I’m kidding. We’re just getting started here. There are distinct disadvantages to the barter economy that make an alternative highly desirable (just, without the crises). These disadvantages include:
• Granularity: If all you possess to exchange is one 3000-pound ox, whereas all you need right now is a day’s supply of various foodstuffs and clothing, then even if you could find a trading partner who had just the exact mix of items you needed (unlikely), the quantity mismatch works against the trade taking place.
• Transportability: If you live on a small farm near a bucolic village, then walking your ox to the market, permitting it to graze on grasses and contribute productive fertilizer by the side of the road, may not be too much of a problem. But if you want to exchange for some grain, silk or molasses produced hundreds or even thousands of miles away, or if you live in an apartment in a city, keeping and transporting your ox is a major inconvenience.
• Security: An ox is perishable; it can easily get sick and die. It’s too big and temperamental to keep in a cash drawer.
OK, what’s with the obsession on oxen? Well, first, Adam Smith used an ox in his example illustrating the same point about the difficulty of barter. But also, Carl Menger, the founder of the ‘Austrian’ school of economics, pointed out that cattle in the form of smaller specimens such as goats and sheep were among the earliest forms of money in agrarian and nomadic societies . That is, a man’s wealth was largely measured by how many heads of sheep, goats, cows etc. that he owned, and perhaps more importantly, people would willingly accept such cattle as payment for other goods in the market, even if they had no immediate use for them themselves, because they knew that they could easily exchange them for the other items that they did need. While retaining all of its value in use, cattle took on additional special value as the most marketable commodity in the economy and therefore highly useful in indirect exchange. Money, in the true and original sense of the word, was born.
• Fundamental definition of money (in case you missed the point): Any commodity generally accepted in a particular market in exchange for other goods, which the receiver intends not to use him/herself but to exchange for yet other goods and/or services.
Or, condensed:
• Money is the common commodity used as a medium of indirect exchange in a given market.
Note again that there is no possibility of inflation or purely monetary crisis under a commodity-money economy. It’s very difficult to ‘counterfeit’ a goat, or to ‘print’ too many of them; if you could reproduce a large number of goats, the fact that they are real, useful and valuable goods rather than pieces of paper means that their increase cannot defraud a market, even if the relative scarcity of other goods changes the exchange rate. Any banker-shepherd who issued more than one claim ticket for the same goat would soon be bankrupt and possibly lynched.
Over the generations and across cultures, hundreds of commodities having intrinsic use value have been used as the common medium of exchange in particular markets: furs (in Canada), tobacco (in Maryland and Virginia), cakes of wax (on the upper Amazon), cod (in Iceland), bolts of silk, slaves, salt, seashells, nails, dates, tea-bricks, glass beads, grains --- in short, anything which was in common or abundant supply in a given market, which people knew they could easily trade for something else if they didn’t need the particular thing themselves.
An important aspect of the emergence of money in civilization is that it occurred originally without coercion or government intervention of any kind. It was a spontaneous creation of the individuals acting in their own best interest in voluntary exchanges of the marketplace. No decrees or authorization of ‘legal tender’ was required for the origin of money.
As trading and industry evolved to become more sophisticated, highly developed, and extended over greater distances, there emerged independently in many cultures at different times in history a tendency to prefer above all other money-commodities, the precious metals: copper, tin, nickel, silver, and the king of them all, gold.
Gold is the most advantageous of all the money-commodities in the overwhelming majority of markets. Its beauty gives it aesthetic value. It has real value in use, for ornamentation, fashion accessories, art, statuary, and in an advanced civilization, electronic components. Its physical characteristics, weight and relative scarcity give it a high value relative to its bulk. As metals go, it is soft and malleable, easily minted into coins or sub-divided into small units. It isn’t perishable like livestock or foodstuffs. It is easier to carry, store and guard, especially in a city or on a long journey, as compared to a comparably valuable quantity of cattle or molasses. For these reasons gold has emerged as the closest thing to a universal standard across history and cultures for monetary currency.
So, just what are paper money and electronic bank credits? Do these represent a higher level of monetary evolution?
Paper money originated as claim receipts for a certain quantity of real commodities on deposit with another party, such as a granary or bank. Paper and electronic bank credits are entirely consistent with the principle of sound money as long as they are not counterfeit, that is, they represent real promises to redeem claims for the commodities they represent. A treasury note, such as a dollar, originally acted like a warehouse receipt, giving the owner a claim, if not to a specific identified unit, then at least to a certain specific quantity of gold (1/20 ounce) that the treasury had in it warehouse (bank vault). As long as paper money (and its modern, high-tech counterpart) retained this anchor to real goods, and the issuing agency made good on its promise to redeem the notes on demand for the promised quantity of gold, then there was no fraud and no possibility of a monetary crisis. It was when the banks succumbed to the temptation to issue more notes than it had gold to back them, in effect issuing multiple claims to the same units of real goods in the warehouse, that the trouble started. Jesus Huerta de Soto has documented the phenomenon of fractional reserve banking from the time of the ancient Greeks and Romans, though the middle ages and Renaissance up to the present day. Significantly, the Bank of Amsterdam (Holland) of the 17th and 18th centuries was the longest enduring financial establishment for as long as it maintained a strict policy of 100% gold reserves. This institution endured in spite of wars, pestilence, political upheaval and other crises that make our own modern problems seem trivial.
A private or independent bank could not and cannot long issue more claims than it has gold to back them, because sooner or later, depositors are going to attempt to redeem their claims. It doesn’t take much to trigger a panic run when customers suspect that the bank won’t be able to make good on all its promises. For this reason, the free-market failure feedback mechanism functions perfectly to correct errors and fraud in private banking. Note that by private banking, I mean banking exercised neither with interference nor (extremeley important point) with any privilege from government, such as the right not to fulfill its contracts.
Under central banking however, where the government grants a charter to one institution, giving it the exclusive privilege to originate money and/or set fractional reserve policies, requires all other banks to keep their reserves on deposit with the central bank and doesn’t redeem its notes in real commodities, then at the very least, a bias for inflation is built in to the foundation of the financial system. With virtually complete control of the total money supply of a nation, the government has an unmatched ability to conjure monetary units out of nothing.
This essentially fraudulent act is the origin of the debauchery of paper currency, the root, indeed the very definition of inflation.
• The general rising prices of commodities in the market are the symptom and end result of inflation, not inflation itself.
Inflation comes about for reasons of political corruption. It is easier for governments to inflate on the sly than to openly raise taxes. In desperate times such as wars and revolutions, kings and presidents have financed armies with counterfeit money, with disastrous consequences . Even in less-than desperate times, politician love to print money and spend it on themselves, their friends, and the constituents most likely to vote for them. The perpetual motion machine of politics works for a few cycles, until the crisis erupts.
In order to understand how to avoid the consequences of large-scale monetary disasters, of which hyperinflation is one and depression is another, we have to understand in the first place exactly what money is, how it came about, what it means, how it gets corrupted, and therefore how to manage it correctly.
In order to understand money, we first need to remove it from the scene; imagine what life was like before and without money. Without money, we have a barter economy. If you want to obtain eggs, cloth, cereal and milk for your family, you have to offer a sheep, a goat and/or several pounds of carrots in exchange.
Let us ignore the obvious disadvantages of such a system for the moment. One thing we can note right away is with no money, there is no possibility of monetary fraud and the concept of counterfeiting is meaningless; assuming that all parties to the transaction are satisfied with the quality and quantity of the goats, eggs, carrots etc. involved in the exchange, there can be no such thing as inflation or monetary crisis.
So that’s it! We go back to a barter economy and live happily ever after! The End!
OK, I’m kidding. We’re just getting started here. There are distinct disadvantages to the barter economy that make an alternative highly desirable (just, without the crises). These disadvantages include:
• Granularity: If all you possess to exchange is one 3000-pound ox, whereas all you need right now is a day’s supply of various foodstuffs and clothing, then even if you could find a trading partner who had just the exact mix of items you needed (unlikely), the quantity mismatch works against the trade taking place.
• Transportability: If you live on a small farm near a bucolic village, then walking your ox to the market, permitting it to graze on grasses and contribute productive fertilizer by the side of the road, may not be too much of a problem. But if you want to exchange for some grain, silk or molasses produced hundreds or even thousands of miles away, or if you live in an apartment in a city, keeping and transporting your ox is a major inconvenience.
• Security: An ox is perishable; it can easily get sick and die. It’s too big and temperamental to keep in a cash drawer.
OK, what’s with the obsession on oxen? Well, first, Adam Smith used an ox in his example illustrating the same point about the difficulty of barter. But also, Carl Menger, the founder of the ‘Austrian’ school of economics, pointed out that cattle in the form of smaller specimens such as goats and sheep were among the earliest forms of money in agrarian and nomadic societies . That is, a man’s wealth was largely measured by how many heads of sheep, goats, cows etc. that he owned, and perhaps more importantly, people would willingly accept such cattle as payment for other goods in the market, even if they had no immediate use for them themselves, because they knew that they could easily exchange them for the other items that they did need. While retaining all of its value in use, cattle took on additional special value as the most marketable commodity in the economy and therefore highly useful in indirect exchange. Money, in the true and original sense of the word, was born.
• Fundamental definition of money (in case you missed the point): Any commodity generally accepted in a particular market in exchange for other goods, which the receiver intends not to use him/herself but to exchange for yet other goods and/or services.
Or, condensed:
• Money is the common commodity used as a medium of indirect exchange in a given market.
Note again that there is no possibility of inflation or purely monetary crisis under a commodity-money economy. It’s very difficult to ‘counterfeit’ a goat, or to ‘print’ too many of them; if you could reproduce a large number of goats, the fact that they are real, useful and valuable goods rather than pieces of paper means that their increase cannot defraud a market, even if the relative scarcity of other goods changes the exchange rate. Any banker-shepherd who issued more than one claim ticket for the same goat would soon be bankrupt and possibly lynched.
Over the generations and across cultures, hundreds of commodities having intrinsic use value have been used as the common medium of exchange in particular markets: furs (in Canada), tobacco (in Maryland and Virginia), cakes of wax (on the upper Amazon), cod (in Iceland), bolts of silk, slaves, salt, seashells, nails, dates, tea-bricks, glass beads, grains --- in short, anything which was in common or abundant supply in a given market, which people knew they could easily trade for something else if they didn’t need the particular thing themselves.
An important aspect of the emergence of money in civilization is that it occurred originally without coercion or government intervention of any kind. It was a spontaneous creation of the individuals acting in their own best interest in voluntary exchanges of the marketplace. No decrees or authorization of ‘legal tender’ was required for the origin of money.
As trading and industry evolved to become more sophisticated, highly developed, and extended over greater distances, there emerged independently in many cultures at different times in history a tendency to prefer above all other money-commodities, the precious metals: copper, tin, nickel, silver, and the king of them all, gold.
Gold is the most advantageous of all the money-commodities in the overwhelming majority of markets. Its beauty gives it aesthetic value. It has real value in use, for ornamentation, fashion accessories, art, statuary, and in an advanced civilization, electronic components. Its physical characteristics, weight and relative scarcity give it a high value relative to its bulk. As metals go, it is soft and malleable, easily minted into coins or sub-divided into small units. It isn’t perishable like livestock or foodstuffs. It is easier to carry, store and guard, especially in a city or on a long journey, as compared to a comparably valuable quantity of cattle or molasses. For these reasons gold has emerged as the closest thing to a universal standard across history and cultures for monetary currency.
So, just what are paper money and electronic bank credits? Do these represent a higher level of monetary evolution?
Paper money originated as claim receipts for a certain quantity of real commodities on deposit with another party, such as a granary or bank. Paper and electronic bank credits are entirely consistent with the principle of sound money as long as they are not counterfeit, that is, they represent real promises to redeem claims for the commodities they represent. A treasury note, such as a dollar, originally acted like a warehouse receipt, giving the owner a claim, if not to a specific identified unit, then at least to a certain specific quantity of gold (1/20 ounce) that the treasury had in it warehouse (bank vault). As long as paper money (and its modern, high-tech counterpart) retained this anchor to real goods, and the issuing agency made good on its promise to redeem the notes on demand for the promised quantity of gold, then there was no fraud and no possibility of a monetary crisis. It was when the banks succumbed to the temptation to issue more notes than it had gold to back them, in effect issuing multiple claims to the same units of real goods in the warehouse, that the trouble started. Jesus Huerta de Soto has documented the phenomenon of fractional reserve banking from the time of the ancient Greeks and Romans, though the middle ages and Renaissance up to the present day. Significantly, the Bank of Amsterdam (Holland) of the 17th and 18th centuries was the longest enduring financial establishment for as long as it maintained a strict policy of 100% gold reserves. This institution endured in spite of wars, pestilence, political upheaval and other crises that make our own modern problems seem trivial.
A private or independent bank could not and cannot long issue more claims than it has gold to back them, because sooner or later, depositors are going to attempt to redeem their claims. It doesn’t take much to trigger a panic run when customers suspect that the bank won’t be able to make good on all its promises. For this reason, the free-market failure feedback mechanism functions perfectly to correct errors and fraud in private banking. Note that by private banking, I mean banking exercised neither with interference nor (extremeley important point) with any privilege from government, such as the right not to fulfill its contracts.
Under central banking however, where the government grants a charter to one institution, giving it the exclusive privilege to originate money and/or set fractional reserve policies, requires all other banks to keep their reserves on deposit with the central bank and doesn’t redeem its notes in real commodities, then at the very least, a bias for inflation is built in to the foundation of the financial system. With virtually complete control of the total money supply of a nation, the government has an unmatched ability to conjure monetary units out of nothing.
This essentially fraudulent act is the origin of the debauchery of paper currency, the root, indeed the very definition of inflation.
• The general rising prices of commodities in the market are the symptom and end result of inflation, not inflation itself.
Inflation comes about for reasons of political corruption. It is easier for governments to inflate on the sly than to openly raise taxes. In desperate times such as wars and revolutions, kings and presidents have financed armies with counterfeit money, with disastrous consequences . Even in less-than desperate times, politician love to print money and spend it on themselves, their friends, and the constituents most likely to vote for them. The perpetual motion machine of politics works for a few cycles, until the crisis erupts.
Inflation and Monetary Crises - Part 1: A Crisis of Counterfeiting
In 1924, the German government printed and circulated a 100 trillion-mark note . Billions to tens of billions of marks were required to exchange for one dollar. This was the culmination of a period of catastrophic hyperinflation in which the value of the mark dropped, not by a few percentage points per year or even per month, but on an hourly basis. Prices rose from a few marks for common items first to hundreds, then to thousands, then millions and finally to billions of marks. A single egg was priced at 150 billion marks at one point. Workers demanded to be paid twice a day so that they could get rid of the money and exchange it for something --- anything tangible and physical --- before the money lost more of its value. An anecdote which may or may not be true in fact but which illustrates the nature of the crisis tells of a wheelbarrow full of cash found in the street that was dumped out so that the thief could make off with the wheelbarrow, never mind the cash. Money was so worthless that bills were burned in fireplaces to conserve firewood fuel. Life savings were wiped out. Economic and social chaos ensued. The crisis contributed to the rise of Hitler.
The story of Germany in the 1920’s is only one of the more dramatic historical examples of hyperinflation and its power to destroy civilization. Argentina in the 1980’s is another well-known example, described succinctly by Tom Chao:
“Argentina went through steady inflation from 1979 to 1991. Before 1979, the highest denomination was 10,000 Pesos. By 1981, the highest denomination was 1,000,000 Pesos. In the 1983 currency reform, 1 Peso Argentino was exchanged for 10,000 Pesos. In the 1985 currency reform, 1 Austral was exchanged for 1,000 Pesos Argentino. In the 1992 currency reform, 1 new Peso was exchanged for 10,000 Australes. The overall impact of hyperinflation: 1 new Peso = 100,000,000,000 pre 1983 Pesos.”
The fact is, just about any country in the world has experienced periods of high inflation at some time in its history and to the present day. A representative sampling of 55 national currencies in February 2007 revealed 21 which traded at more than 10 to the U.S. Dollar, of which 5 trade between 100 and 1000 to the Dollar and 7 which trade between 1000 and 25,000 to the Dollar . It is doubtful that any of these currencies were originally established at such valuations; it is also likely that many of the more ‘normal’ currencies are only trading within a reasonable range following one or more orders-of-magnitude re- (or de-) valuations.
It doesn’t take a hyperinflation on the order of tens of percentage points per month in order to destroy wealth and leave a lasting impression. People who have sacrificed, scrimped and set aside pennies, earning a few percent on their savings each year, can have decades’ worth of saving wiped out by ‘mere’ double-digit annual inflation. The decline and fall of the Roman Empire has been blamed by some on erosion of the currency’s value. The 1970s is remembered by the baby-boom generation of America very negatively as the decade of ‘malaise’, never to be repeated, even though inflation was ‘only’ between 10 and 20 percent per year.
Inflation leaves deep mental impressions upon those who live through it.
The currency crisis in France following World War II was mild compared to the one in Germany in the 20’s. Yet 25 years after President de Gaulle created the ‘new Franc’ which was reset at 100 times the old depreciated one in order to normalize its value (to something on the order of an American quarter dollar), I personally met many older-generation people in France on different occasions who would go through a moment of mental hesitation when computing or contemplating complex or large monetary amounts, calculating and re-calculating the value in terms of ‘ancien’ and ‘nouveau’ (‘old’ and ‘new’).
We see that inflation is a significantly evil, destructive force in the economy, to be contained, preferably extinguished completely. But not only do people disagree on the cause (greedy businessmen, greedy unions, greedy consumers, greedy speculators, greedy foreigners or greedy politicians), they frequently can’t agree even on exactly what inflation is. So, permit me to assert the following definition, which the next section will be required to explain in detail:
• Inflation is: Government-initiated counterfeiting on a massive scale.
Inflation is the introduction of an excess of paper money or (electronic) credits into an economy over the real assets of the economy. It is caused essentially by the government creating, out of thin air, what is essentially counterfeit money.
See Part 2 HERE.
The story of Germany in the 1920’s is only one of the more dramatic historical examples of hyperinflation and its power to destroy civilization. Argentina in the 1980’s is another well-known example, described succinctly by Tom Chao:
“Argentina went through steady inflation from 1979 to 1991. Before 1979, the highest denomination was 10,000 Pesos. By 1981, the highest denomination was 1,000,000 Pesos. In the 1983 currency reform, 1 Peso Argentino was exchanged for 10,000 Pesos. In the 1985 currency reform, 1 Austral was exchanged for 1,000 Pesos Argentino. In the 1992 currency reform, 1 new Peso was exchanged for 10,000 Australes. The overall impact of hyperinflation: 1 new Peso = 100,000,000,000 pre 1983 Pesos.”
The fact is, just about any country in the world has experienced periods of high inflation at some time in its history and to the present day. A representative sampling of 55 national currencies in February 2007 revealed 21 which traded at more than 10 to the U.S. Dollar, of which 5 trade between 100 and 1000 to the Dollar and 7 which trade between 1000 and 25,000 to the Dollar . It is doubtful that any of these currencies were originally established at such valuations; it is also likely that many of the more ‘normal’ currencies are only trading within a reasonable range following one or more orders-of-magnitude re- (or de-) valuations.
It doesn’t take a hyperinflation on the order of tens of percentage points per month in order to destroy wealth and leave a lasting impression. People who have sacrificed, scrimped and set aside pennies, earning a few percent on their savings each year, can have decades’ worth of saving wiped out by ‘mere’ double-digit annual inflation. The decline and fall of the Roman Empire has been blamed by some on erosion of the currency’s value. The 1970s is remembered by the baby-boom generation of America very negatively as the decade of ‘malaise’, never to be repeated, even though inflation was ‘only’ between 10 and 20 percent per year.
Inflation leaves deep mental impressions upon those who live through it.
The currency crisis in France following World War II was mild compared to the one in Germany in the 20’s. Yet 25 years after President de Gaulle created the ‘new Franc’ which was reset at 100 times the old depreciated one in order to normalize its value (to something on the order of an American quarter dollar), I personally met many older-generation people in France on different occasions who would go through a moment of mental hesitation when computing or contemplating complex or large monetary amounts, calculating and re-calculating the value in terms of ‘ancien’ and ‘nouveau’ (‘old’ and ‘new’).
We see that inflation is a significantly evil, destructive force in the economy, to be contained, preferably extinguished completely. But not only do people disagree on the cause (greedy businessmen, greedy unions, greedy consumers, greedy speculators, greedy foreigners or greedy politicians), they frequently can’t agree even on exactly what inflation is. So, permit me to assert the following definition, which the next section will be required to explain in detail:
• Inflation is: Government-initiated counterfeiting on a massive scale.
Inflation is the introduction of an excess of paper money or (electronic) credits into an economy over the real assets of the economy. It is caused essentially by the government creating, out of thin air, what is essentially counterfeit money.
See Part 2 HERE.
Saturday, June 22, 2013
Why we don't need a new New NEW Deal - Part 2
(Click here for Part 1.)
Franklin Delano Roosevelt took office in March 1933. He would create hundreds of new interventionist agencies and embark on unprecedented projects, transforming American society on a massive scale. The following is only a representative sample of the alphabet soup of interventions, projects and agencies initiated by the Roosevelt Administration known in the aggregate as the New Deal:
• United States Bank Holiday / Emergency Banking Act: FDR ordered every bank in the country closed on the first week of his term. No one could make deposits or withdrawals, that is, have access to their own property.
• “Relief, Recovery and Reform”: slogan of the early FDR administration
• Tennessee Valley Authority (TVA)
• Works Progress Administration (WPA)
• Wagner Act: Boosted privileges of unions and approved collective bargaining rights.
• Federal Deposit Insurance Corporation (FDIC)
• Federal Housing Administration (FHA)
• Securities and Exchange Commission (SEC)
• Agricultural Adjustment Association (AAA)
• National Recovery Administration (NRA)
• Works Progress Administration (WPA)
• Executive Order 6102, a.k.a. gold confiscation
• Farm Credit Act
• National Industrial Recovery Act / National Recovery Administration
• Public Works Administration
• Civilian Conservation Corps
• Federal Emergency Relief Administration (FERA)
• Reconstruction Finance Corporation
• Civil Works Administration
• Emergency Relief Appropriation Act
• National Labor Relations Act / National Labor Relations Board (the people who tell Boeing they can’t open a new plant in a non-union state.)
• Fair Labor Standards Act
• Fair Employment Practices Commission
• Federal Project Number One (sponsoring artists, artistic works and productions)
• Committee on Economic Security
• Social Security Act
Finally, toward the end of his reign, FDR attempted to implement what he called the
• Second Bill of Rights
Many of these agencies and institutions are with us to this day and are likely to continue for generations. What these acts, agencies and institutions DIDN’T do is end the Depression.
The Depression lasted seven more years beyond Hoover, with a second, ‘double-dip’ recession in 1937-38. It didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. World War II’s destruction and death per se didn’t fix the Depression. It was the return of relatively free-market policies and the END of the most aggressive interventions and the demonization of businessmen which permitted the economy to return to a more rational basis for functioning.
So what would you have done, smarty-pants?
Crises always look a lot simpler from a distance in space and time. But the response of Hoover and Roosevelt to the Crash and Depression were not those of panicked, surprised men with no clue what to do. They were the premeditated strategies of calculating men, carried out in their moment of opportunity. Hoover and FDR were interventionists who didn’t believe in free-market, laissez-faire capitalism and exploited every crisis for the purposes of implementing their own vision of governance, fully formed years earlier.
It’s not that these were bad men; we can assume they sincerely believed, as many of our politicians to this day believe, that it is the appropriate role of the federal government, its hundreds of agencies and tens of thousands of bureaucrats, to micro-manage every aspect of our economic lives ‘for the greater good’. To a degree they can be forgiven for being, as all mortal men are, imperfect and in this case, mistaken.
The same is difficult to say for the politicians who, 80 years later, insist upon leading us down the same path to government expansion, micromanagement and high taxation above and beyond the New Deal (and later, Lyndon Baines Johnson’s Great Society) with the excuse that it’s necessary in order to resolve or prevent the crisis and bring prosperity, security and health care to all. The evidence is overwhelming that regardless of political party, such intervention only amplifies and prolongs the crisis. Politicians and government, even ‘good’ ones, do not create wealth, produce high wages and low prices for workers, high revenue and low costs for businesses, or innovative and environmentally friendly products and services. They can’t guarantee no one will fail and shouldn’t guarantee that anyone succeed at the expense of anyone else. Only the market – entrepreneurs, business people, private firms big and small, investors, speculators, insurers and individual consumers – cooperating voluntarily, acting in their own interest within the rule of law, can accomplish the best production and distribution of wealth possible in an imperfect, physical world (as opposed to celestial paradise).
As a matter of economic principle, it was futile for Hoover or FDR to:
• Attempt to prop up wages. If the total amount of wealth and activity in an economy has diminished for whatever reason (natural disaster, war, contraction of trade due to protectionism – Smoot Hawley – and retaliation by partners, or other destruction of wealth), then someone’s wages will have to fall in real terms. If one politically favored group’s wages are artificially maintained above what they would be under un-coerced voluntary cooperation, then someone else’s wages have to fall proportionately (and unjustly, including to zero – unemployment) to balance the aggregate accounts.
• Attempt to prop up commodity prices for farmers. If corn is too cheap, marginal corn farmers need to grow soybeans or take a higher-paying job in industry. This is how it has always been. When our nation was born, 97% of the population worked the land; now that proportion is reversed, with only 3% in agriculture feeding the entire US and much of the rest of the world. Low prices benefit the consumer and as such are not inherently bad.
The futility of the intervention was brought to light when the Federal Farm Board’s policy of price supports encouraged overproduction of wheat, cotton, wool and other products, resulting in even worse collapsing market prices and devastating losses. At that point Hoover intervened in another direction, to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Attempt to prop up prices for the benefit of big industrial producers. If oil or lumber is too cheap, marginal oil/lumber companies have to get into a different business where they have a relative advantage and/or where the consumers are clamoring for the product. No subsidy or privilege is required, let alone justified, to bring the economy back into balance.
• Attempt to ‘protect’ domestic industries from foreign competition via protective tariffs such as the Smoot-Hawley bill. Such actions always hurt domestic consumers and invite retaliation from foreign governments and their favored industries. The Smoot-Hawley bill was arguably the single most important trigger of the October 1929 crash, as investors and economists correctly re-estimated the value of their investments under a reduced-trade market.
• Herd workers into unions that they would not join under conditions of voluntary cooperation. Favoring unions at the expense of free labor is a violation of liberty; it raises wages for some at the expense of others who receive less (or nothing) and undermines the ability of workers to develop as independent entrepreneurs. Independent-minded Americans have always resisted unionization compared to other western nations, for good reason.
• Manipulate money and credit prices / interest rates. Monetary manipulation by private individuals is prosecutable as counterfeiting and/or fraud, and is no less evil or destructive when practiced by government. Forcing interest rates too high chokes economic activity; forcing them too low makes longer production cycles – and with them higher investment returns – appear like mirages in the desert, deceiving investors to make bets that are destined to fail.
• Embark on public works projects for the purpose of ‘putting America back to work’. If a road or bridge needs to be built, let the agency most impacted by it (municipal, country or state government, or private firms) build it. If an electric company sees a business opportunity in building a dam, let them buy the property, indemnify 3rd parties and other stakeholders, carry plenty of insurance, clean up their messes, reimburse anyone they harm, and finance the project with their own investor’s resources (and reap whatever profits the market may bear without having it taxed away). But spending capital for the sake of busy activity does not increase wealth; it sucks wealth away from where it is more desperately needed. The 1930’s Autobahn in Germany was a glamorous showcase, but an economic and social disaster.
• Weaken protection for creditors in bankruptcy proceedings. This is a classic case of attempting to make a balloon smaller by squeezing it at one end; it always bulges out at the other. What person with money to lend wants to risk their capital in an environment in which the government has signaled its willingness to arbitrarily change the terms of any loan contract? Such uncertainty leads to a contraction of credit. How does that help future borrowers/debtors?
• Threaten and demonize innocent people. In different times and places, this has meant Christians, blacks, Jews, merchants, bankers, gypsies, homosexuals, whites, Hutus, the mentally deficient, the culturally undesirable, browns, union workers, strike breakers (‘scabs’), foreigners, rich people, poor people, good people, bad people and ugly people. Corrupt and despotic politicians have employed this base technique for millennia, but it is unworthy of an enlightened leader of a free people today to do so. The only justification for any accusation is specific allegations of criminal wrongdoing targeted at the specific individuals (not groups) who committed them. Investing and/or speculating against the market outcomes desired by a political party or government program does not qualify as justification for group persecution.
• Increase government spending in time of diminished tax revenue.
• Micromanage business.
As a solution to the economic crisis, Roosevelt’s interventions and the alphabet soup of angencies created to implement them were equally or more futile than those of Hoover. The Social Security Act and system will require its own in-depth discussion. But make no mistake, Bernie Madoff could not have done worse in the long term.
Conclusions
• The Great Depression was a crisis of government intervention, not one of free-market capitalism. Government intervention is the problem; free-market capitalism under the rule of law is the solution.
• The Hoover-Roosevelt administrations constituted a continuum, not a fundamental change of policy direction. Herbert Hoover was not a free-market, laissez-faire capitalist, limited-government president.
• As long as the interventionist philosophy prevails in our nation’s capital and in state capitals, we can expect more economic crises, as bad or worse. It doesn’t matter that the interventions are ‘for the greater good’ or that the people leading the intervention are good, well-intentioned, virtuous, upstanding citizens. An impossible task is still impossible when undertaken by a mortal saint.
It is remarkable that the myth of the ‘success’ of the New Deal lives on to this day. The Depression lasted seven more years beyond Hoover, with a second, deep recession in 1937-38. The depression didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. In other words, a calamitous event in which tens of millions of people worldwide were killed and hundreds of cities, with all of their wealth and assets, were completely destroyed, was by one measure less damaging to the economy – perhaps even beneficial – than the policies of Hoover, FDR and the New Deal.
It is dangerous to hold the thought that war is an antidote to economic depression, just as is it is to consider war and conquest a solution to economic challenges such as securing reliable supplies of materials that your country lacks (from Caesar’s conquests to Hitler’s ‘lebensraum’).
World War II’s destruction and death didn’t fix the Depression. What happened was that many government interventions of the New Deal, including the demonization of businessmen, were abandoned and not reinstated after the war was over. The end of the Hoover-FDR New Deal ended the Depression. It would have ended 10 years sooner if this tragic blunder had never been attempted. Moreover, some of the worst tragedies of the War might have been avoided if not for the worldwide ripple effects of the economic malaise. May we never again be tempted to repeat such a disaster.
That depends on YOU, citizen economist.
Franklin Delano Roosevelt took office in March 1933. He would create hundreds of new interventionist agencies and embark on unprecedented projects, transforming American society on a massive scale. The following is only a representative sample of the alphabet soup of interventions, projects and agencies initiated by the Roosevelt Administration known in the aggregate as the New Deal:
• United States Bank Holiday / Emergency Banking Act: FDR ordered every bank in the country closed on the first week of his term. No one could make deposits or withdrawals, that is, have access to their own property.
• “Relief, Recovery and Reform”: slogan of the early FDR administration
• Tennessee Valley Authority (TVA)
• Works Progress Administration (WPA)
• Wagner Act: Boosted privileges of unions and approved collective bargaining rights.
• Federal Deposit Insurance Corporation (FDIC)
• Federal Housing Administration (FHA)
• Securities and Exchange Commission (SEC)
• Agricultural Adjustment Association (AAA)
• National Recovery Administration (NRA)
• Works Progress Administration (WPA)
• Executive Order 6102, a.k.a. gold confiscation
• Farm Credit Act
• National Industrial Recovery Act / National Recovery Administration
• Public Works Administration
• Civilian Conservation Corps
• Federal Emergency Relief Administration (FERA)
• Reconstruction Finance Corporation
• Civil Works Administration
• Emergency Relief Appropriation Act
• National Labor Relations Act / National Labor Relations Board (the people who tell Boeing they can’t open a new plant in a non-union state.)
• Fair Labor Standards Act
• Fair Employment Practices Commission
• Federal Project Number One (sponsoring artists, artistic works and productions)
• Committee on Economic Security
• Social Security Act
Finally, toward the end of his reign, FDR attempted to implement what he called the
• Second Bill of Rights
Many of these agencies and institutions are with us to this day and are likely to continue for generations. What these acts, agencies and institutions DIDN’T do is end the Depression.
The Depression lasted seven more years beyond Hoover, with a second, ‘double-dip’ recession in 1937-38. It didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. World War II’s destruction and death per se didn’t fix the Depression. It was the return of relatively free-market policies and the END of the most aggressive interventions and the demonization of businessmen which permitted the economy to return to a more rational basis for functioning.
So what would you have done, smarty-pants?
Crises always look a lot simpler from a distance in space and time. But the response of Hoover and Roosevelt to the Crash and Depression were not those of panicked, surprised men with no clue what to do. They were the premeditated strategies of calculating men, carried out in their moment of opportunity. Hoover and FDR were interventionists who didn’t believe in free-market, laissez-faire capitalism and exploited every crisis for the purposes of implementing their own vision of governance, fully formed years earlier.
It’s not that these were bad men; we can assume they sincerely believed, as many of our politicians to this day believe, that it is the appropriate role of the federal government, its hundreds of agencies and tens of thousands of bureaucrats, to micro-manage every aspect of our economic lives ‘for the greater good’. To a degree they can be forgiven for being, as all mortal men are, imperfect and in this case, mistaken.
The same is difficult to say for the politicians who, 80 years later, insist upon leading us down the same path to government expansion, micromanagement and high taxation above and beyond the New Deal (and later, Lyndon Baines Johnson’s Great Society) with the excuse that it’s necessary in order to resolve or prevent the crisis and bring prosperity, security and health care to all. The evidence is overwhelming that regardless of political party, such intervention only amplifies and prolongs the crisis. Politicians and government, even ‘good’ ones, do not create wealth, produce high wages and low prices for workers, high revenue and low costs for businesses, or innovative and environmentally friendly products and services. They can’t guarantee no one will fail and shouldn’t guarantee that anyone succeed at the expense of anyone else. Only the market – entrepreneurs, business people, private firms big and small, investors, speculators, insurers and individual consumers – cooperating voluntarily, acting in their own interest within the rule of law, can accomplish the best production and distribution of wealth possible in an imperfect, physical world (as opposed to celestial paradise).
As a matter of economic principle, it was futile for Hoover or FDR to:
• Attempt to prop up wages. If the total amount of wealth and activity in an economy has diminished for whatever reason (natural disaster, war, contraction of trade due to protectionism – Smoot Hawley – and retaliation by partners, or other destruction of wealth), then someone’s wages will have to fall in real terms. If one politically favored group’s wages are artificially maintained above what they would be under un-coerced voluntary cooperation, then someone else’s wages have to fall proportionately (and unjustly, including to zero – unemployment) to balance the aggregate accounts.
• Attempt to prop up commodity prices for farmers. If corn is too cheap, marginal corn farmers need to grow soybeans or take a higher-paying job in industry. This is how it has always been. When our nation was born, 97% of the population worked the land; now that proportion is reversed, with only 3% in agriculture feeding the entire US and much of the rest of the world. Low prices benefit the consumer and as such are not inherently bad.
The futility of the intervention was brought to light when the Federal Farm Board’s policy of price supports encouraged overproduction of wheat, cotton, wool and other products, resulting in even worse collapsing market prices and devastating losses. At that point Hoover intervened in another direction, to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Attempt to prop up prices for the benefit of big industrial producers. If oil or lumber is too cheap, marginal oil/lumber companies have to get into a different business where they have a relative advantage and/or where the consumers are clamoring for the product. No subsidy or privilege is required, let alone justified, to bring the economy back into balance.
• Attempt to ‘protect’ domestic industries from foreign competition via protective tariffs such as the Smoot-Hawley bill. Such actions always hurt domestic consumers and invite retaliation from foreign governments and their favored industries. The Smoot-Hawley bill was arguably the single most important trigger of the October 1929 crash, as investors and economists correctly re-estimated the value of their investments under a reduced-trade market.
• Herd workers into unions that they would not join under conditions of voluntary cooperation. Favoring unions at the expense of free labor is a violation of liberty; it raises wages for some at the expense of others who receive less (or nothing) and undermines the ability of workers to develop as independent entrepreneurs. Independent-minded Americans have always resisted unionization compared to other western nations, for good reason.
• Manipulate money and credit prices / interest rates. Monetary manipulation by private individuals is prosecutable as counterfeiting and/or fraud, and is no less evil or destructive when practiced by government. Forcing interest rates too high chokes economic activity; forcing them too low makes longer production cycles – and with them higher investment returns – appear like mirages in the desert, deceiving investors to make bets that are destined to fail.
• Embark on public works projects for the purpose of ‘putting America back to work’. If a road or bridge needs to be built, let the agency most impacted by it (municipal, country or state government, or private firms) build it. If an electric company sees a business opportunity in building a dam, let them buy the property, indemnify 3rd parties and other stakeholders, carry plenty of insurance, clean up their messes, reimburse anyone they harm, and finance the project with their own investor’s resources (and reap whatever profits the market may bear without having it taxed away). But spending capital for the sake of busy activity does not increase wealth; it sucks wealth away from where it is more desperately needed. The 1930’s Autobahn in Germany was a glamorous showcase, but an economic and social disaster.
• Weaken protection for creditors in bankruptcy proceedings. This is a classic case of attempting to make a balloon smaller by squeezing it at one end; it always bulges out at the other. What person with money to lend wants to risk their capital in an environment in which the government has signaled its willingness to arbitrarily change the terms of any loan contract? Such uncertainty leads to a contraction of credit. How does that help future borrowers/debtors?
• Threaten and demonize innocent people. In different times and places, this has meant Christians, blacks, Jews, merchants, bankers, gypsies, homosexuals, whites, Hutus, the mentally deficient, the culturally undesirable, browns, union workers, strike breakers (‘scabs’), foreigners, rich people, poor people, good people, bad people and ugly people. Corrupt and despotic politicians have employed this base technique for millennia, but it is unworthy of an enlightened leader of a free people today to do so. The only justification for any accusation is specific allegations of criminal wrongdoing targeted at the specific individuals (not groups) who committed them. Investing and/or speculating against the market outcomes desired by a political party or government program does not qualify as justification for group persecution.
• Increase government spending in time of diminished tax revenue.
• Micromanage business.
As a solution to the economic crisis, Roosevelt’s interventions and the alphabet soup of angencies created to implement them were equally or more futile than those of Hoover. The Social Security Act and system will require its own in-depth discussion. But make no mistake, Bernie Madoff could not have done worse in the long term.
Conclusions
• The Great Depression was a crisis of government intervention, not one of free-market capitalism. Government intervention is the problem; free-market capitalism under the rule of law is the solution.
• The Hoover-Roosevelt administrations constituted a continuum, not a fundamental change of policy direction. Herbert Hoover was not a free-market, laissez-faire capitalist, limited-government president.
• As long as the interventionist philosophy prevails in our nation’s capital and in state capitals, we can expect more economic crises, as bad or worse. It doesn’t matter that the interventions are ‘for the greater good’ or that the people leading the intervention are good, well-intentioned, virtuous, upstanding citizens. An impossible task is still impossible when undertaken by a mortal saint.
It is remarkable that the myth of the ‘success’ of the New Deal lives on to this day. The Depression lasted seven more years beyond Hoover, with a second, deep recession in 1937-38. The depression didn’t end definitively, with the return of full employment, until World War II production and mobilizations were well under way. In other words, a calamitous event in which tens of millions of people worldwide were killed and hundreds of cities, with all of their wealth and assets, were completely destroyed, was by one measure less damaging to the economy – perhaps even beneficial – than the policies of Hoover, FDR and the New Deal.
It is dangerous to hold the thought that war is an antidote to economic depression, just as is it is to consider war and conquest a solution to economic challenges such as securing reliable supplies of materials that your country lacks (from Caesar’s conquests to Hitler’s ‘lebensraum’).
World War II’s destruction and death didn’t fix the Depression. What happened was that many government interventions of the New Deal, including the demonization of businessmen, were abandoned and not reinstated after the war was over. The end of the Hoover-FDR New Deal ended the Depression. It would have ended 10 years sooner if this tragic blunder had never been attempted. Moreover, some of the worst tragedies of the War might have been avoided if not for the worldwide ripple effects of the economic malaise. May we never again be tempted to repeat such a disaster.
That depends on YOU, citizen economist.
Why we don't need a new New NEW Deal - Part 1
The last time the American economy was in such dire straits was over 30 years ago; perhaps 70. Do the lessons of the Great Depression perhaps hold any explanations, let alone solutions? Let’s recall a bit what happened all those years ago (it might even feel familiar):
• From September 1929 to July 1932, the Dow Jones Industrial Average (DJIA) fell from a high of 381 to 43, an 88% decline. In our time, that would be like the Dow falling from 15,000 to 1,800.
• Some of the most dramatic moments occurred in late October 1929, on the 24th (‘Black Thursday’: almost 13 million shares, or approximately 3 times the daily average, traded for a 6-point drop in the DJIA) and the 29th (‘Black Tuesday’: 16+ million shares traded for a 30-point drop).
• The market didn’t recover its pre-crash level for 25 years.
• Chronic unemployment soared from a historical average of 5% to over 15% for almost a decade, peaking at 25% in 1933.
• Industrial production was cut in half.
• Business construction dropped 84%.
• Bank failures spiked from a historic average of 700 per year to 1,350 in 1930, 2,293 in 1931, 1,453 in 1932; 4000 commercial banks failed in 1933.
• The crisis rippled worldwide and contributed to the rise of Hitler and Mussolini in Europe.
• Four years into the Roosevelt presidency, in 1937-38, the economy sank into recession for a second dip.
• Only World War II in the 1940’s resulted in increased production and put an end to high unemployment, at a terrible price; millions of lives lost in the war, all production being channeled into armaments with little left over for consumer goods or comforts. True prosperity would not return until the late 1940’s or later.
The lessons to be learned from this calamity are indeed applicable to our present-day crisis. But the conventional wisdom about the Great Depression – that it was caused by the excesses of free markets that must necessarily lead to crisis by virtue of capitalism’s inherent contradictions, abetted by the laissez-faire policies of a Republican president Herbert Hoover, and that the government-expanding New Deal policies of Democratic president Franklin Delano Roosevelt were the necessary and proper remedy which saved us from a worse fate – is entirely wrong.
The stock market crash of October 1929 was the direct result, not of free-market capitalism, but precisely of government interference in the market, transmitted via the political signal that the Smoot-Hawley Tariff bill, a protectionist monstrosity, would be made law. The market correctly estimated that this bill would substantially constrain international commerce, reducing the current market value of financial and other assets. The search for the right revaluation was a panicked activity; but that panic was rationally justified.
The subsequent government responses to the initial crisis dug the country increasingly deeper into the hole.
A Crisis of Intervention
Remember the Great Depression of the 1920s? Of course you don’t, because it didn’t happen. It might be because President Warren Harding ignored his Secretary of Commerce Hebert Hoover’s advice to intervene in the recession of 1921, and that recession quickly recovered and was forgotten.
Herbert Hoover was no laissez-faire leader. In the early ‘20s, before either was president, Hoover collaborated with Franklin Delano Roosevelt in the American Construction Council, an attempt to turn the construction industry of the entire nation into one giant cartel. He participated in the drafting of the Railway Labor Act of 1926, a major step to collectivizing labor relations. He believed that high wages in an economy cause general prosperity, rather than – the other way around – that prosperity produces higher wages. From this premise much of Hoover’s efforts as president would be targeted at maintaining pre-crash wage rates for those workers who still had jobs. Economic theory states that artificially attractive prices cause shortages. In this case, it lead to a shortage of jobs: unemployment.
After the crash, President Hoover (1929-33) intervened aggressively in the economy. Hoover:
• Summoned the leaders of the largest corporations and business associations to a series of conferences for, in his own words, “the coordination of business and governmental agencies in concerted action.” They acted in large part to maintain existing wage rates and continue expansion. Real wages for employed workers increased for most of Hoover’s term, peaking at 11% above 1929 levels in 1931 and still a ‘healthy’ 8% in 1933 while unemployment simultaneously soared to 25% (in other words, nice work if you can get it; God help you if you can’t).
• Urged public works programs in response to the crisis. The Division of Public Construction of the Department of Commerce was created in December 1929. Hoover urged state governors to follow suit at their level.
• Intervened in different directions at different times in commodity markets. When the Federal Farm Board’s policy of price supports resulted in overproduction of wheat, cotton, wool and other products, thereby collapsing prices and bringing devastating losses, Hoover changed course to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Authorized construction of Hoover Dam on the Colorado River, at a cost of $915 million (equivalent of roughly $45 billion of today’s dollars).
• Signed the Smoot-Hawley Tariff into law in 1930.
• Weakened bankruptcy laws in favor of debtors and eroding the property rights of creditors.
• Imposed an immigration ban which effectively reduced legal immigration from Europe by 90% overnight. He deported as many as 20,000 ‘undesirable’ aliens per year.
• Publicly assailed speculators and coerced the New York Stock Exchange to curtail short selling; campaigned against ‘unpatriotic’, ‘traitorous’ hoarders (or put another way, demonized frugal, risk-averse citizens who claimed the right to their property and thereby exposed unsound credit policies and institutions).
• In February 1931, signed the Employment Stabilization Act, creating the Employment Stabilization Board. Unemployment soared to 25% in 1933 and didn’t fall to pre-depression levels until 1940.
• Massively increased government expenditures at a time when revenue to the treasury was falling, resulting in the largest peacetime deficits to date in American history. Federal expenditures rose 30% in 1930 alone, from $4.2 billion to $5.5 billion.
• In 1931, created the President’s Organization on Unemployment Relief, effectively inserting the federal government for the first time into a sphere that had previously been considered the responsibility of private charities and religious organizations.
• In 1931-32, created the Reconstruction Finance Corporation, intended to centrally and comprehensively direct and manage the banking, lending, insurance and finance industries.
• Reduced the hours worked by government employees without reducing their salaries.
• Cancelled oil-drilling permits on publicly-owned land, in an effort to restrict supply and maintain a ‘minimum fair price’ for the petroleum industry.
• In May 1931, closed Federally-owned forest land to new logging, in order to defend timber prices.
• Urged the Federal Reserve to relax its lending and discount standards (in other words, engaged in artificial credit expansion). See: Glass-Steagall Act of 1932.
• Signed the Federal Home Loan Bank Act, creating the Federal Home Loan Bank Board, since 1989 the Office of Thrift Supervision, intended to promote home ownership.
One of the few of Hoover’s acts which could be qualified as pro-limited government and individual property rights was his income tax rate cut of 1930, from the stratospheric height of 5% to 4% (a cut of 20%) for individuals, and 12% to 11% for corporations. Prior to the 1930’s, the income tax had not taken anything like its modern bite in the daily lives and livelihoods of citizens.
However, in 1932 he reversed course and raised income taxes as well as prior wartime excise taxes and sales taxes on hundreds of consumer goods. The surtax on the highest incomes went from 25% to 63%. When businessmen suggested to Hoover that the tax regimen was detrimental to the general economic health and that the government would do better to cut expenditures by $2 billion, Hoover brushed them aside.
Read Part 2 of Why we don't need a new New NEW Deal HERE.
• From September 1929 to July 1932, the Dow Jones Industrial Average (DJIA) fell from a high of 381 to 43, an 88% decline. In our time, that would be like the Dow falling from 15,000 to 1,800.
• Some of the most dramatic moments occurred in late October 1929, on the 24th (‘Black Thursday’: almost 13 million shares, or approximately 3 times the daily average, traded for a 6-point drop in the DJIA) and the 29th (‘Black Tuesday’: 16+ million shares traded for a 30-point drop).
• The market didn’t recover its pre-crash level for 25 years.
• Chronic unemployment soared from a historical average of 5% to over 15% for almost a decade, peaking at 25% in 1933.
• Industrial production was cut in half.
• Business construction dropped 84%.
• Bank failures spiked from a historic average of 700 per year to 1,350 in 1930, 2,293 in 1931, 1,453 in 1932; 4000 commercial banks failed in 1933.
• The crisis rippled worldwide and contributed to the rise of Hitler and Mussolini in Europe.
• Four years into the Roosevelt presidency, in 1937-38, the economy sank into recession for a second dip.
• Only World War II in the 1940’s resulted in increased production and put an end to high unemployment, at a terrible price; millions of lives lost in the war, all production being channeled into armaments with little left over for consumer goods or comforts. True prosperity would not return until the late 1940’s or later.
The lessons to be learned from this calamity are indeed applicable to our present-day crisis. But the conventional wisdom about the Great Depression – that it was caused by the excesses of free markets that must necessarily lead to crisis by virtue of capitalism’s inherent contradictions, abetted by the laissez-faire policies of a Republican president Herbert Hoover, and that the government-expanding New Deal policies of Democratic president Franklin Delano Roosevelt were the necessary and proper remedy which saved us from a worse fate – is entirely wrong.
The stock market crash of October 1929 was the direct result, not of free-market capitalism, but precisely of government interference in the market, transmitted via the political signal that the Smoot-Hawley Tariff bill, a protectionist monstrosity, would be made law. The market correctly estimated that this bill would substantially constrain international commerce, reducing the current market value of financial and other assets. The search for the right revaluation was a panicked activity; but that panic was rationally justified.
The subsequent government responses to the initial crisis dug the country increasingly deeper into the hole.
A Crisis of Intervention
Remember the Great Depression of the 1920s? Of course you don’t, because it didn’t happen. It might be because President Warren Harding ignored his Secretary of Commerce Hebert Hoover’s advice to intervene in the recession of 1921, and that recession quickly recovered and was forgotten.
Herbert Hoover was no laissez-faire leader. In the early ‘20s, before either was president, Hoover collaborated with Franklin Delano Roosevelt in the American Construction Council, an attempt to turn the construction industry of the entire nation into one giant cartel. He participated in the drafting of the Railway Labor Act of 1926, a major step to collectivizing labor relations. He believed that high wages in an economy cause general prosperity, rather than – the other way around – that prosperity produces higher wages. From this premise much of Hoover’s efforts as president would be targeted at maintaining pre-crash wage rates for those workers who still had jobs. Economic theory states that artificially attractive prices cause shortages. In this case, it lead to a shortage of jobs: unemployment.
After the crash, President Hoover (1929-33) intervened aggressively in the economy. Hoover:
• Summoned the leaders of the largest corporations and business associations to a series of conferences for, in his own words, “the coordination of business and governmental agencies in concerted action.” They acted in large part to maintain existing wage rates and continue expansion. Real wages for employed workers increased for most of Hoover’s term, peaking at 11% above 1929 levels in 1931 and still a ‘healthy’ 8% in 1933 while unemployment simultaneously soared to 25% (in other words, nice work if you can get it; God help you if you can’t).
• Urged public works programs in response to the crisis. The Division of Public Construction of the Department of Commerce was created in December 1929. Hoover urged state governors to follow suit at their level.
• Intervened in different directions at different times in commodity markets. When the Federal Farm Board’s policy of price supports resulted in overproduction of wheat, cotton, wool and other products, thereby collapsing prices and bringing devastating losses, Hoover changed course to order acreage to be plowed under, taken out of production, and to destroy ‘excessive’ livestock.
• Authorized construction of Hoover Dam on the Colorado River, at a cost of $915 million (equivalent of roughly $45 billion of today’s dollars).
• Signed the Smoot-Hawley Tariff into law in 1930.
• Weakened bankruptcy laws in favor of debtors and eroding the property rights of creditors.
• Imposed an immigration ban which effectively reduced legal immigration from Europe by 90% overnight. He deported as many as 20,000 ‘undesirable’ aliens per year.
• Publicly assailed speculators and coerced the New York Stock Exchange to curtail short selling; campaigned against ‘unpatriotic’, ‘traitorous’ hoarders (or put another way, demonized frugal, risk-averse citizens who claimed the right to their property and thereby exposed unsound credit policies and institutions).
• In February 1931, signed the Employment Stabilization Act, creating the Employment Stabilization Board. Unemployment soared to 25% in 1933 and didn’t fall to pre-depression levels until 1940.
• Massively increased government expenditures at a time when revenue to the treasury was falling, resulting in the largest peacetime deficits to date in American history. Federal expenditures rose 30% in 1930 alone, from $4.2 billion to $5.5 billion.
• In 1931, created the President’s Organization on Unemployment Relief, effectively inserting the federal government for the first time into a sphere that had previously been considered the responsibility of private charities and religious organizations.
• In 1931-32, created the Reconstruction Finance Corporation, intended to centrally and comprehensively direct and manage the banking, lending, insurance and finance industries.
• Reduced the hours worked by government employees without reducing their salaries.
• Cancelled oil-drilling permits on publicly-owned land, in an effort to restrict supply and maintain a ‘minimum fair price’ for the petroleum industry.
• In May 1931, closed Federally-owned forest land to new logging, in order to defend timber prices.
• Urged the Federal Reserve to relax its lending and discount standards (in other words, engaged in artificial credit expansion). See: Glass-Steagall Act of 1932.
• Signed the Federal Home Loan Bank Act, creating the Federal Home Loan Bank Board, since 1989 the Office of Thrift Supervision, intended to promote home ownership.
One of the few of Hoover’s acts which could be qualified as pro-limited government and individual property rights was his income tax rate cut of 1930, from the stratospheric height of 5% to 4% (a cut of 20%) for individuals, and 12% to 11% for corporations. Prior to the 1930’s, the income tax had not taken anything like its modern bite in the daily lives and livelihoods of citizens.
However, in 1932 he reversed course and raised income taxes as well as prior wartime excise taxes and sales taxes on hundreds of consumer goods. The surtax on the highest incomes went from 25% to 63%. When businessmen suggested to Hoover that the tax regimen was detrimental to the general economic health and that the government would do better to cut expenditures by $2 billion, Hoover brushed them aside.
Read Part 2 of Why we don't need a new New NEW Deal HERE.
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