“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” –Milton Friedman
It seems like those on the network news are always baffled as to why the U.S economy is struggling to rebound from the credit and mortgage bubble that popped a few years ago. They are going on the premise that government intervention in an economy has better results than leaving it alone. As long as the government keeps trying to “fix” everything in the economy there will be uncertainty and unpredictability. No one will make long term investment plans when they don’t know who will be favored or penalized based on what the political climate is at any given time in the future. If they would look at some examples in history perhaps they would realize their whole premise, that government intervention in an economy can result in a net improvement, is a fallacy.
Probably the most recent and equivalent example of a market crash with no quick rebound is what happened in Japan. What happened in Japan you ask? In the 1980’s the Bank of Japan kept interest rates artificially low in order to give everyone access to easy credit, you know, to “help the little guy”. They also went full throttle on a program intended to help people afford home mortgages and credit. They increased regulation on lenders to increase risky loans to those with poor credit. The government would then buy the loans from the lender in order to offset the risk. With the burden of risk going to taxpayers instead of banks, the banks could lend to anyone no matter how broke they were. This of course artificially increased demand for mortgages which led to artificially high prices, and the “snowball” effect took it from there until the bubble had to pop. Sounds a bit familiar eh? After the Japanese economy crashed in 1989 the government came to the rescue with bank and business bailouts, economic stimulus programs, currency dilution, quantitative easing (buying treasury bonds by printing money), jobs programs, public works projects, artificially low interest rates, and borrowing money from China too offset the outrageous spending. Still sounds familiar eh? Even though Japan was a player in the tech era of the 1990’s It was called “the lost decade” to them. They never fully recovered from the crash. I should actually say they never fully recovered from the government intervention in the economy. Their economy was slowly gaining some traction just before the earthquake and tsunami hit last year. Now they’re really screwed. How much longer can we go before we get completely screwed?
The U.S. could have learned from Japan. I suppose Japan and the U.S. could have also learned from the depression era after the 1929 stock market crash. Federal government regulation helped cause the 1929 crash. The Federal Reserve was keeping interest rates artificially low in the name of helping the little guy. When there wasn’t enough interest collected to offset the predictable credit defaults, banks failed. There was also massive bank failure because of a regulation meant to keep banks from becoming too big and powerful (again “helping” the little guy). Banks could only have limited amounts of branches and had to stay “local”. This of course destroyed the safety network for bank failure that would have normally been there in a free market.
The 1929 crash wasn’t the cause of the great depression, Keynesian style Government intervention and regulation was the cause. If the government would have stayed out of our business like they did after the 1919 stock market crash 10 years earlier there would have been no “great depression”. By 1930 (before the government had time to intervene too much) the market had recovered to its pre-crash level. Then the Federal Reserve contracted the money supply, the Smoot-Hawley act increased tariffs. So other nations naturally stopped doing business with us. Then the top tax rate was raised to over 60% this of course made the bigger producers stop doing business. By 1933 unemployment went past 25% (it was around 8% in ’30). Then FDR’s new deal brought on massive regulation that constrained the productive free will of the people until wartime came, and all the sudden the government wanted all the tariffed nations and big dogs and regulated businesses to start producing again to supply military goods. That’s when the government was forced to lower taxes, tariffs and regulation in order to get things produced.
There was no “great depression” after the market crashed in 1919. The crash in 1919 was just as significant as in 1929. Here’s what caused that crash. After the 16th amendment was ratified under Woodrow Wilson in 1913 this allowed congress to levy an income tax. So the U.S. government dramatically raised taxes to fund WWI. This was Woodrow Wilsons “war to end all wars”. The progressives of the early 1900’s were very pro-war, after the disaster of WWI they became so extremely anti-war that they were passive no matter what the cost, even if it meant allowing Germany to defeat Poland and the passive progressive countries of France and Britain. The taxpayers went from paying 0% Federal income tax before 1913, up to the highest bracket being 77% tax by 1919. When productive people have 77% of the fruits of their labor taken from them(not to mention other state taxes), most will stop being productive and then as the market drops there is less tax revenue for the government to take, unemployment goes up and everyone loses. This unsustainable tax burden along with other progressive programs the country had never had before (and never should have) caused the market to crash in 1919 it lasted 2 years and ended in 1921 when Warren G. Harding became president. In 1921 Warren G. Harding and the legislative branch dramatically reduced the tax burden, eliminated as much regulation and wasteful programs they could, and let the free market be. When the productive people had the freedom to be productive, this resulted in a robust recovery. It lasted through the “roaring twenties” until the progressive policies of Herbert Hoover and FDR came to bring the great depression.
When the world’s stock markets crashed in 1987, the U.S. economy was the first to rebound before the foreign markets. Was it because the Fed came to the rescue with stimulus programs and currency manipulation? Was Alan Greenspan in some sort of economic control room, turning dials and adjusting frequencies on different sectors of the market? No. There was no major intervention. The economy bounced back so easily that we don’t think of that crash as having the same magnitude as ones followed by prolonged depressions, even though it did.
When the market crashed in ’08 and Bush was saying nonsense like troubled asset relief, bank bailout, and “too big to fail”; I remember talking to my mom on the phone telling her “how dare he even say these things and claim to believe in the free market”. I knew that if the Fed would just leave it alone, the responsible lenders with capital would emerge to supply the market to meet the increasing demand for lending. There were plenty of stable lenders that didn’t participate in reckless lending. As the demand for loans (even at a higher interest rate) increases, the potential for profit outweighs the risk involved for lenders. If there were still no lenders after that, then the demand for loans keeps increasing until it becomes beneficial for someone with capital to start a lending business. This form of “efficient market hypothesis” only works as long as the government leaves it alone so that it will be predictable. This works much better than penalizing the productive ones by taking the wealth they earned out of their pocket and using it to artificially prop up sectors of the market that are in the best interest of the government, or by diluting and devaluing currency. Your money not only gets taxed when you earn, spend, or invest it, it also gets taxed after the Federal Reserve prints (or digitizes) it when it is distributed into the marketplace. They just call it an “interest rate” instead of a “tax”. So when they print money they get paid and your dollars are worth less.
Now the politicians are pumping out “jobs bills” with the intent of creating jobs. Taking wealth and resources out of some sectors of the market and artificially propping up other sectors by redistribution doesn’t result in a net benefit to the economy. “Creating” jobs in some areas at the expense of sacrificing jobs in other areas is still a zero sum result. The politicians must not understand the difference between causation and correlation either. They are operating on the premise that jobs cause productivity and prosperity, thus making an economy better. It’s actually the other way around. Productivity and prosperity are the cause of jobs. Jobs are just a by-product, or an effect of productivity. Letting individuals be free to buy and sell goods and services upon their own volition causes productivity, thus causing prosperity and creating jobs. Getting the government out of our economic business is the best way to have a net benefit on an economy with a low unemployment rate.
Most market crashes are caused from the government artificially propping up the market in the name of “helping” a category of people or from subsidies or regulation intended to increase “fairness”. This results in a “bubble” that must pop. It is the market readjusting itself back to its natural level. This doesn’t mean that it’s the only cause of markets crashing. There were market crashes in the 1800’s before there was a progressive culture of government playing the role of economic provider and regulator. These natural fluctuations never resulted in any great depressions because there was no Federal Reserve or centralized economic manipulation to bring on that result.
We of course don’t have anything that resembles the almost free market we had 150 years ago. Today we have an elite ruling class controlling the rest of the population. So now no matter how much the Fed stays out of the economy, they still have all the leverage and control over the population. It’s not just the Federal Government that is corrupt. Wall Street, big banks and large corporations are corrupt and fraudulent too, and that is also the problem. Before the progressive era in the early 1900’s, when we had enforced Constitutional limitations on the government, there was no way for large corporations or banks or Wall Street to get enough leverage to fraudulently manipulate the economy to their favor no matter how much of a market share they had.
But 100 years ago around 1912, 1913, when we allowed the government to expand and take control, that’s when they started the Federal Reserve, and ratified the 16th and 17th Amendments. That’s the very moment when Wall Street, Big Banks (JP Morgan, Goldman Sachs, and others), and big corporations (Rockefeller, Carnegie, and others) were able to attach to the government for the common interest in which the small amount of elite control freaks could rule over the majority of the population. Some elites have different reasons for ruling the population, whether it’s for financial leverage, power and prestige, eugenics, social engineering, occultism, or one world government, they all have the incentive for a mutual collaboration to rule and control the population.
Ever since then the elite ruling class has used the tactics of Demosthenes (an ancient Greek statesman who was getting paid to write speeches for both sides of opposing parties) to place blame on each other while diverting the population from realizing that Democrats, Republicans, Wall Street, big banks and corporations are all on the same team to control your life in their own anointed social vision. Not all banks and corporations are guilty of this, only the ones with favorable ties to the government. Do I need to remind you that two presidential candidates of different parties who ran against each other, Bush and Kerry happened to both be from the same fraternity that only allows 15 new members per year? What are the odds? Is it a coincidence that they study Demosthenes and Hegelian dialectic thinking in that fraternity too? One component of the Hegelian Dialectic is the art of control by first creating a problem (sometimes artificial), causing a reaction that takes away ones sense of self-reliance, and then having a solution (usually artificial) to the problem you created. The solution is not always intended to solve the problem; it’s intended to acquire leverage to control others, and make others dependent upon you so they become more manageable, like an obedient sheep. An example of this would be Al Gore making a documentary about anthropogenic global warming, therefore instilling a sense of fear and urgency based on a fallacy, and then presenting a government provided solution. Another example would be George Bush magnifying the threat of terrorism (problem), causing fear so the population is willing to sacrifice freedom and autonomy for a sense of safety and security (reaction), then implementing the Patriot Act which takes away your rights and liberties and gives them more leverage and control against everyone good or evil (solution).
“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. … We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of.” –Edward Bernays
An economy with no government intervention still needs enforcement of laws to secure contract agreements and to minimize fraud. I am not that naive to think that the natural forces of the market will always eliminate fraud and corruption, or that fraud and corruption won’t affect the market as a whole. A market does need rules and contract regulation to be enforced with equal treatment. The problem today is the entities that could normally be kept under control in a more free market with regulation, are now in the same club as the regulators. The core of Wall Street is corrupt far beyond what we even realize, and criminal organizations pretending to be a hedge fund pretending to be a bank pretending not to have a direct artery to the government or Federal Reserve called Goldman Sachs, JP Morgan, and others are more corrupt and powerful than we could imagine. Have you noticed how many SEC regulators that turn a blind eye to fraud end up as high rollers on Wall Street after a few years? Or, have you noticed how many fat cats from Goldman Sachs and other big banks now have high positions in the Federal Reserve and the Executive branch of government and vice-versa? Is more regulation the answer? No. Getting the Federal Government to regulate Wall Street and big corporations is like asking the mafia to regulate their own casino. The necessary rules and regulations have been there before the corruption got out of control and it used to be enforced when we had constitutionally limited government. The more government has expanded, the more corruption has been able to grow. The primary causation for corruption and fraud in any sector of the market always leads back to the expansion of government. We seem so eager to give up our autonomy and self-governance so that we can be embraced in the soft cozy blanket of Fabian style tyranny weaved with false security that will smother us into slavery and we won’t even realize it.
There are endless examples from many countries throughout our history that show that economies can’t be made better from central planning. For some reason we assume Kings, Aristocracies’, and centrally planned economies know more than the sum total of each individual making the best economic choice for his/her own life. When we have the freedom to make our own situation the best it can be, then the sum value of all our lives will increase, thus making a stronger economy as a whole. The more we can increase the value of our own life, the more we will be equipped to help those that are truly helpless to rise up on their own.
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