The Old-School Liberal

“Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom” — Friedrich Hayek

Posts Tagged ‘Politics’

On the Wall Street Bailout

Posted by dagnygalt on October 3, 2008

The recent legislation passed in efforts to ease the tight credit markets may in fact create legislation which makes it more difficult for the economy to revive and sustain growth. Analysts and voters should consider the role of the Federal Reserve in keeping interests rates artificially lower than the naturally market set rate in encouraging mal-investment and ultimately significantly contributing to the unwise investments made by banks and lenders. In addition, government policies benevolently aimed to increase home-ownership among low and moderate income groups likely provided extra incentives for banks and lenders to invest in areas they normally would not have considered.

Over the past year we’ve seen our financial markets uncomfortable sway until in recent months we’ve seen the stock market plunge downward. Mistakes have been made and most people in the United States, and likely even the world, will experience the consequences of these mistakes. When discussing possible causes of the financial crisis, National Public Radio, CNN, MSNBC, and many more have repeatedly discussed the role of deregulation and greed as a cause of the crisis. I pose a question to them: “Do you really think that there was a sudden increase in the amount of pervasive greed in Wall Street in the past decade?” It is extremely unlikely that human nature among a specific group of people could have systematically changed without cause. Deregulation could certainly be a cause; however, one convinced of this cause should take an objective step back and examine the evidence.

Research has shown that low interest rates stimulate investment. (1) This is likely the reason the Fed kept the rate low for so long. However, much research has shown that interest rates artificially kept low also tend to encourage mal-investment. Harvard’s Joint Center for Housing Studies also explained in The State of the Nation’s Housing 2008 (2)  report how the Fed’s low interest rates encouraged the housing market bubble, an expansion of risky loans in subprime mortgage market, and ultimately lead to a derivation of complicated and very risky mortgages repackaged and purchased by large banks. In addition, an prevalent ideology existed (and still exists) among policy makers and legislatures that homeownership creates wealth. Thus, they create policies which incentivized banks to lend to people who the bank might not normally lend to because of risk. For example, the Community Reinvestment Act of 1978 mandated that banks lend to families that in many cases couldn’t afford the loan payments. Thus, the combination of government policy making and encouragement of home ownership among those who could not afford homes and artificially low interest rates ultimately lead to the bad investments (3) which are highly contributing to the economic problem our country currently faces.

The bailout plan was indeed deliberated over, which is good. However, given the urgency and the emotional pressure put on government “to act” may indeed have prevented policy-makers from analyzing the true causes of the crisis. In addition, regulation enacted through the bailout passed this morning may in not at all decrease the likelihood of mal-investment and instead create new unforeseen problems that will prevent the economy from competing globally.

In conclusion, I hope voters will recognize that the economic problems we face today may in fact be a result of poor government policies. In addition, we should be not allow our fear and emotion detract from our ability to see evidence clearly. In efforts to “do something” we may in fact not be doing what is in our best interest in the long run.

BLUE: Real Yr/Yr GDP Growth
RED: Real Effective Fed Funds Rate

Source: Compiled by Robert P. Murphy,

1 The New York Federal Reserve
2 Harvard’s  Joint Center for Housing Studies,  The State of the Nation’s Housing 2008, at
3 Sechrest, LJ. 2006. “Explaining Malinvestment and Overinvestment,” Quarterly Journal of Austrian Economics 6, 4:27-38.


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The Federal Government Hurts the Environment and the Economy

Posted by Poorsummary on March 9, 2008

broke-sam.gif Surprising to hear a voice in Boston about how government meddling makes our lives worse, but props to Jeff Jacoby for this scathing article on how Big Brother screws things up. (Read Jacoby’s full article here.) First, consider ethanol subsidization:

The problem, laid out in two new studies in the journal Science, is that it takes a lot of land to grow biofuel feedstocks such as corn, and as forests or grasslands are cleared for crops, large amounts of CO2 are released. Diverting land in this fashion also eliminates “carbon sinks,” which absorb atmospheric CO2. Bottom line: The government’s ethanol mandate will generate a “carbon debt” that will take decades, maybe centuries, to pay off…

Now, consider the government’s role in bringing about the financial crisis of the era: the Subprime Mortgage problem:

The crisis has its roots in the Community Reinvestment Act of 1977, a Carter-era law that purported to prevent “redlining” – denying mortgages to black borrowers – by pressuring banks to make home loans in “low- and moderate-income neighborhoods.”…But to earn high ratings, banks were forced to make increasingly risky loans to borrowers who wouldn’t qualify for a mortgage under normal standards of creditworthiness…The financial fallout has hurt investors around the world. And all of it thanks to the government, which was sure it understood the credit industry better than the free market did, and confidently created the conditions that made disaster unavoidable.

And now Clinton wants to get the government involved in improving baseball. Yet another one of Hillary’s pipe dreams the country can certainly do without.

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Would a Ron Paul Presidency Hurt Israel?

Posted by Poorsummary on January 16, 2008

Israel FlagSome have claimed that a Ron Paul presidency would be bad for Israel. Shimshon Weisman, an orthodox jew who lives in Israel, begs to differ (thanks to Lew Rockwell for the post):

There are a number of issues here. First, aid to Israel. It has been obvious for a long time that Israel does not need this aid. Israel’s GDP per capita is at European levels and rising. The aid itself is a form of corporate welfare in that it must be spent in America. It comes with many strings attached.“It allows the government to avoid sorely needed economic reforms.

“Along with the aid Israel receives, potential or actual enemies receive several times more. That aid doesn’t just allow the recipient nations to avoid reforms, it actually props them up and allows them to continue to maintain a bellicose stance against Israel (this certainly includes Egypt, with whom Israel has a peace treaty in place).

“When the entire world condemned Israel, including President Reagan on down in America, Dr. Paul supported Israel’s right to act in its own self-interest (and preemptively, I might add) in its bombing of the Osirak reactor in Iraq. He had absolutely nothing to gain by taking this position, and nothing to lose by following the herd in its condemnation of Israel.

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Does the Constitution Also Scare Elizabeth Edwards?

Posted by Poorsummary on December 24, 2007

Gun ControlThe Economist quotes Elizabeth Edwards expressing her fear of Mike Huckabee and Republicans in general:

“[Mike Huckabee] doesn’t believe in evolution and has some nutty views about what it is we should do about ending violence in our inner city—we should make sure all of our young people are armed. Republicans scare me.”

While there are legitimate reasons to fear, or at least disagree with, Mike Huckabee (e.g. his tax reform legislation that doesn’t actually eliminate any existing taxes) and Republicans (e.g. their determination to make criminals of people who use or prescribe medical marijuana in accordance with state laws), the right to bear arms is not one of them. Reading Edwards’ quote above does make gun ownership seem like a silly answer to ending violence, but if one looks at the empirical evidence, there is little reason to believe that making it a crime to own a gun does anything but ensure that the only people who own guns are criminals. Consider the following examples of gun ownership deterring crime:

  1. In 1966 the police in Orlando, Florida, responded to a rape epidemic by embarking on a highly publicized program to train 2,500 women in firearm use. The next year rape fell by 88 percent in Orlando (the only major city to experience a decrease that year); burglary fell by 25 percent. Not one of the 2,500 women actually ended up firing her weapon; the deterrent effect of the publicity sufficed. Five years later Orlando’s rape rate was still 13 percent below the pre-program level, whereas the surrounding standard metropolitan area had suffered a 308 percent increase.
  2. During a 1974 police strike in Albuquerque armed citizens patrolled their neighborhoods and shop owners publicly armed themselves; felonies dropped significantly.
  3. In March 1982 Kennesaw, Georgia, enacted a law requiring householders to keep a gun at home; house burglaries fell from 65 per year to 26, and to 11 the following year.
  4. Similar publicized training programs for gun-toting merchants sharply reduced robberies in stores in Highland Park, Michigan, and in New Orleans; a grocers organization’s gun clinics produced the same result in Detroit.

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Of Vouchers and Liberty

Posted by Devin J. Ekins on October 25, 2007

The School voucher issue raging in the reddest of states, Utah, has polarized many organizations and individuals into two camps, Pro-Voucher and Anti-Voucher, both giving praise and promising help to the Public Education System. Whether vouchers will actually aid the Public Education System is a function of both dollars allotted and freedoms allowed.

The voucher proposal is one where every student currently enrolled in the government schools has the opportunity to accept a partial refund for their involuntary purchase in the government schools if they enroll in a private school. This refund is dependent on your financial situation and ranges between $500 and $3,000. Note that the average cost for a student in the government schools is $7,000.

Voucher opponents claim this move would take money away from the government system that desperately needs it. Would it? That depends. The average cost is $7,000. Up to $3,000 is taken away from the schools along with one student that costs, on average, $7,000. In a basic scenario, the public school stands to gain between $4,000 and $6,500 per student that accepts the offer. This leaves smaller class sizes and more money for the school per student.

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John Mayer endorses Ron Paul?

Posted by Poorsummary on October 17, 2007

Ok…so “endorses” is a bit of a stretch, but he does say he’s talking about Ron Paul and advocates reading the constitution. After all, “there’s a lot of healing in there.”

But seriously, it’s high time some high-profile celebrities start thinking about endorsing Ron Paul. Name recognition is still one of his biggest obstacles, despite his recent fund raising success both nationally and in New Hampshire. Sure, Barry Manilow has thrown a couple thousand dollars Paul’s way, but a few public statements in support of Paul could be worth millions. Given musicians’ public opposition to the war (remember Dave Matthews’s “Vote for Change” tour?), and Hillary’s confession of a long-term US presence in Iraq, one would think the Ron Paul campaign could get at least a benefit concert or two. As far as I know, even libertarian Drew Carey has yet to get behind the biggest libertarian movement of the decade.

Well guys…if you were waiting for an invitation, this is it. As a DMB and occasional “Who’s Line” fan, I’m ready to see you guys “Vote for Change” by supporting a presidential candidate that stands out from the usual pack of fear mongering, flip-flopping, nanny-state loving, focus-group driven, well oiled political robots. And don’t wait for TMZ to catch you ranting about it drunk outside of a bar with your entourage– although, that could arguably be more interesting than watching another piece on traffic jams.

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