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Saturday, December 5, 2009

Et tu, NASA?

The Washington Times reports:
Chris Horner, a senior fellow at the Competitive Enterprise Institute, said NASA has refused for two years to provide information under the Freedom of Information Act that would show how the agency has shaped its climate data and would explain why the agency has repeatedly had to correct its data going as far back as the 1930s.

"I assume that what is there is highly damaging," Mr. Horner said. "These guys are quite clearly bound and determined not to reveal their internal discussions about this."
Incidentally, this article reports on the recent grilling of Obama administation officials over Climategate. Jane Lubchenco, a marine biologist and climate researcher who heads the National Oceanic and Atmospheric Administration, dismissed the controversy. But how could she dismiss the scandal given that Climategate has shown IPCC's integrity to be hopelessly compromised? Upon what does she base her claims?
The e-mails don't negate or even deal with data from both NOAA and NASA, which keep independent climate records and show dramatic warming, Lubchenco told members of the House global warming committee.

Friday, December 4, 2009

Peter Schiff Debates Fed Officials

Here is a link to videos of Peter Schiff debating Fed officials and an interview after the panel. Unfortunately, the debate was not allowed to go on very long, but the interview is excellent.

(HT: Not PC)

Thursday, December 3, 2009

Obama Open To Any Ideas to Create Jobs, Except Ideas that Will Create Jobs

Faced with rising unemployment and a stagnating economy, how would you expect Obama to proceed? Would you expect him to discover what is causing unemployment and economic decline? Would you expect him study the laws of economics or political economy and integrate that knowledge with history and the facts underlying the present crisis? Would you expect him to study the nature of the boom-bust cycle and learn how it is caused by government inflation of the money supply and exacerbated by the moral hazard created by government financial guarantees? Would you expect him to understand the relationship of saving to capital investment and how that relates to productivity, real wages, and an improving standard of living?

More fundamentally, might you expect him to have some grasp of the necessary relationship between morality, individual rights, economic freedom, and prosperity? Upon such a basis, might you expect him to grasp that economic freedom is moral and practical and that any particular economic crisis is not unique but merely a concrete instance explainable by these more fundamental principles?

Might such an understanding point not only to the cause but also to the solution?

To predict how Obama might actually behave, consider my June 2008 post in which I stated:

Obama's philosophy is textbook pragmatism. He literally calls for "facts" not "ideology". An ideology is a set of interrelated principles and principles are essential to rational thought. Without principles (abstract concepts), our minds would be reduced to the level of an animal consciousness reacting on the range of the moment to every sensation. Note that Obama does not reject a particular ideology - he rejects the concept of ideology as such. He does not want to hear about individual rights or the law of supply and demand. When the time comes, he will assess the "facts" or "want to see what is going on at the moment" and take a poll of experts or "ask a wide range of viewpoints from business leaders." Is the forced expropriation of one's earnings for the unearned benefit of others right, i.e., are taxes immoral? Is the confiscation of a producer's wealth and capital "practical"? He doesn't know.

Well, "the time has come" and, predictably, Obama can be counted on to myopically focus on the problem as an isolated fact without any context or relationship to the more general problem. With such an approach, he can not solve any problem. Instead, he must rely on the opinions of others guided only by a vague criteria euphemistically masking his default moral-political ideology by cultural osmosis: sacrifice, egalitarianism, and collectivism.

Accordingly, Obama has convened a "Jobs Summit" to do what else - seek expert advice and consensus from people who share his stunted grasp of economics and Marxist political vision.

President Barack Obama promised at a White House jobs forum on Thursday to take "every responsible step to accelerate job creation," including some ideas he said could be put into action quickly.

Note that any idea must be "responsible", i.e., not responsible. So, immediately we meet the euphemism for altruism and collectivism. Second, the idea must be put into action quickly, because, after all, as a pragmatist, he must not delay by engaging in "ideological" discussions of economic cause and effect, morality, or the proper function of government, i.e., principles that could lead to a long term solution. He must act now!

So what exactly is Barry's grand vision to restore economic growth?

The president said there were some ideas that could be put to work almost immediately and other ideas that will become part of legislation... He listed "moving forward on an aggressive agenda for energy efficiency and weatherization" as a prime candidate for quick action.

Evidently, "weatherization" represents a focus on the "big picture" because Comrade Pelosi is focusing on more narrow topics:

As Obama and participants focused on the big picture, House Speaker Nancy Pelosi, D-Calif., was more narrowly focused, telling reporters that Congress will tap unused funds from last year's $700 billion Wall Street bailout to pay for new spending on roads and bridges and save the jobs of firefighters, teachers and other public employees.

Apparently, their idea is to take money from some people and give it to others, which somehow is going to "save jobs" (see my series of posts debunking stimulus spending). What about the people that have to pay the bill? Won't the money that the firefighters and teachers receive represent a corresponding loss to the people that pay for it? If Pelosi can actually save jobs by stealing money from some and giving it to others, why not steal all the money of every American and give it to, uh, every other American...With those bizarre and contradictory marching orders in hand:

the guests broke into different working groups to brainstorm with administration officials

But just in case anyone had an actual idea, Obama reiterated the actual message:

Dropping in on a session on "Green Jobs of the Future," Obama said, "Not to tip our hand too much, but one of the things I would be surprised if we don't end up moving forward on is an aggressive agenda for energy efficiency and weatherization. Because that is an area where we can get it up and running relatively quickly. You don't need new technologies."

Obama told the group that clean energy was the nation's best candidate "if we are to shift from the bubble and bust model that we have. ... We want to make a push in this area."

Exactly how will diverting capital from productive uses to make-work boondoggles like "green jobs" (see my post debunking "green jobs") "shift [us] from the bubble and bust model"? He doesn't say (although he does say we can do it "relatively quickly" which is paramount). In fact, stimulus spending, which increases budget deficits and crowds out productive investment, leads to inflation as the Federal Reserve purchases government debt with fake money to keep interest rates artificially low. This is the primary cause of the "bubble and bust model". Therefore...wait for it...Obama wants more stimulus spending!

He cited the success of the administration's Cash for Clunkers program, noting that car companies carried much of the marketing responsibilities that helped make the effort so popular. Home improvement companies like Home Depot would be key as partners in any future jobs program focusing on energy efficiencies, Obama told company chairman Frank Blake.

Translation: he is going to propose some sort of taxpayer funded subsidy for people to "weatherize" by purchasing stuff from Home Depot. (see my series of posts debunking "cash for clunkers")

Unfortunately, the administration is determined to do something that "works":

The forum was kicked off by Labor Secretary Hilda Solis, who called the present unemployment rate "a stark reminder of how much we have to do." She said the administration "will not rest" until it had been successful at job creation.

Actually, that is precisely what the administration must do - REST! Stop taking our money. Stop regulating business. Stop doing anything except protecting property and person. Get out of the way.

Acccording to the article, somewhere else in town, Republicans held their own "competing round-table discussion":

At that session, [Douglas] Holtz-Eakin suggested the single best thing Obama could do to create jobs was "to reverse course on a dangerous agenda of debt-financed spending, crippling regulation, expensive mandates and intrusive government expansion."

And, most of all, doing nothing could be accomplished very quickly! Obama should love that.

Wednesday, December 2, 2009

Over 50,000 Served!

At the beginning of 2009, my goal was to reach 20,000 page hits by the end of the year. I'm proud to report that today, the hit counter went over 50,000.

Thanks to everybody for visiting, commenting, and linking my site. I want to especially thank all those who regularly comment. It really adds to the blog and helps clarify my own thinking. Additionally, the feedback helps me focus on topics and issues that interest people. So please comment as much as you can or email me if you have something particular.

I have met a lot of great people and am continually amazed at the quality and quantity of writing and the number of people engaged in intellectual activism. I look forward to adding to the effort in 2010.

(Incidentally, I am starting a sister blog called "The Rational Artist" to discuss, uh, art and culture. Stay tuned!)

Happy Holidays and thanks again!

The Tragedy of Pragmatism

For anyone who thinks that philosophy is not important, consider Obama's speech last night at West Point in which he announced his decision to commit more troops in Afghanistan - and then withdraw them. The assembled cadets and the entire nation was exposed to a full frontal of his warped epistemology as he haplessly stumped through this morass of contradiction. Writing for Spiegel, Gabor Steingart describes the speech:

Extremists kill in the name of Islam, he said, before adding that it is one of the "world's great religions." He promised that responsibility for the country's security would soon be transferred to the government of President Hamid Karzai -- a government which he said was "corrupt." The Taliban is dangerous and growing stronger. But "America will have to show our strength in the way that we end wars," he added.

It was a dizzying combination of surge and withdrawal, of marching to and fro. The fast pace was reminiscent of plays about the French revolution: Troops enter from the right to loud cannon fire and then they exit to the left. And at the end, the dead are left on stage.

Amidst his tangled web of non sequiturs and vacuous platitudes, one might be tempted to ask: just what is the goal of America's foreign policy? Who is the enemy and why? How do we measure success? What are the rules of engagement? What lessons can be learned from history?

Obama's pathological pragmatism does not allow him to even ask such questions. To the pragmatist, there are no absolutes. There is no right and wrong. To the post modern intellectual, history can only be viewed through the lens of gender, race, and ethnicity. What was true fifty, a hundred or even a thousand years ago can not possibly be relevant today. Obama was serious when he told us that he rejects ideology in favor of action. Now, the nation and the world will pay the price for heeding the lessons of America's philosophy professors.

Unfortunately, America's dead soldiers, the ultimate tribute to modern philosophy, will not be actors left on a stage.

Tuesday, December 1, 2009

Be Careful What You Think

I highly recommend Ari Armstrong's excellent post related to the FTC's new rules that go into effect today, which threaten fines and imprisonment for non-compliant bloggers. He states:

The new rules pose a variety of problems. The FTC has no legitimate authority to issue such rules, which defy the First Amendment and constitute censorship and the chilling of free speech. The rules are extremely broad, ranging from free review copies of books to Twitter posts. The rules are arbitrary and ambiguous, such that their precise requirements and penalties cannot be determined in advance. The rules thus open the door to political abuses. The rules are discriminatory in that they subject bloggers to different standards than print journalists.

The FTC is acting in blatant defiance of the First Amendment to the United States Constitution, and therefore the FTC should be abolished and its rules rescinded.

He also provides links to other commentary.

Some may see this as a narrow rule pertaining to only a subset of bloggers and hence, not appreciate the wider implications. As Armstrong aptly demonstrates, the implications of such rules are ominous.

In previous
posts, I have discussed the various trial balloons being floated by opponents of free speech, noting that these particular regulations bare all the hallmarks of "choice architect", Cass Sunstein, in his drive to "nudge" the masses towards realizing his version of the ideal "citizen." Make no mistake, freedom of speech, the last pillar of civilization, is under attack.

Monday, November 30, 2009

Climategate Roundup #1

Here are some more links to go along with my first post on the topic, Climategate: A Battle Won, Not the War. I have to admit that the details emerging from this scandal appear even worse than I first thought (which is saying something).

Beth at
Wealth Is Not The Problem provides a good roundup of various links and videos here.

Even AGW proponent George Monbiot admits that the "emails are very damaging" although he still holds that the "climate change denial industry" has been far worse - an interesting argument considering the IPCC scientists conspired to hide the data and then THREW IT AWAY!. The Times Online UK reports:

SCIENTISTS at the University of East Anglia (UEA) have admitted throwing away much of the raw temperature data on which their predictions of global warming are based.

It means that other academics are not able to check basic calculations said to show a long-term rise in temperature over the past 150 years.

Christopher Booker of the Telegraph details some of the major players and issues in the scandal arguing that this represents the "worst scientific scandal of our generation."

The BBC reports that a university inquiry is pressing forward and "details will be made public next week."

While the British investigate, the MSM in the United States has largely been silent. Except, of course, Paul Krugman, who sees not a single smoking gun...and, naturally, our very own White House, which TheHill.com reports, is not worried:

Despite the incident, which rocked international headlines last week, climate science is sound, Press Secretary Robert Gibbs stressed this afternoon, and the White House nonetheless believes "climate change is happening."

The Dougout has 10 reasons why gorbal worming is a fraud.

Meanwhile, our brave educators continue to brainwash our children, urging them to parrot the lyrics to everyone's favority little diddy:

" . . . You can hear the warning -- GLOBAL WARMING . . ."

Friday, November 27, 2009

October Budget Deficit

ABC Reports:

The U.S. budget deficit for October surged to $176 billion, a record for the month, the Treasury Department announced today.

The October numbers mark the first month for the new fiscal year after the U.S. wrapped up the 2009 fiscal year that ended on September 30 with a record-high $1.4 trillion budget deficit due to increased government spending to stop the recession and the financial crisis. The final deficit for the 2009 fiscal year was equal to 10 percent of the nation's GDP, the highest shortfall relative to GDP since 1945, the final year of World War II. (emphasis mine)

Quick note: does anyone ever attribute the recession and financial crisis to governement spending? Statements like the one italicized above treat recession as if it is a mystical force with no cause or explanation and serve to rationalize the horrific and dangerous increase in federal spending.

It's as if recession were an approaching army and the government fires at it with deficit spending. The only problem is that they are looking in a mirror.

Thursday, November 26, 2009

Happy Thanksgiving and Roundup

Enjoy a Happy Thanksgiving with a roundup of great posts brought to you by Rational Jenn!

Have a great day everybody and enjoy the abundance created by your own productive effort and the effort of so many others!

Tuesday, November 24, 2009

Climategate: A Battle Won, Not the War

I cannot resist commenting on "Climategate", the scandal involving revelations of fraud based on the hacked emails of a group of prominent global warming scientists. James Delingpole wrote a good article and quotes a blogger saying the emails reveal:
Conspiracy, collusion in exaggerating warming data, possibly illegal destruction of embarrassing information, organised resistance to disclosure, manipulation of data, private admissions of flaws in their public claims and much more.
These revelations comes as no surprise to those of us who have claimed for years that AGW is a junk science smokescreen serving to conceal a political agenda. Since the scandal is becoming major news, including calls for a Congressional investigation, I will try and add something that is not likely to be said. Delingpole is right when he states:
There are too many vested interests in AGW, with far too much to lose either in terms of reputation or money, for this to end without a bitter fight.
And he is narrowly right to say:
this shabby story represents a blow to the AGW lobby’s credibility from which it is never likely to recover.
However, I would caution those who think that this scandal is "the final nail in the coffin" to consider that the death and suffering of tens of millions of people have not stopped socialism's defenders nor has hundreds of years of scientific discovery tempered the passions of the religious. Similarly, since environmentalism is not about science, it is unlikely that this scandal will soften the resolve of its supporters. Environmentalism is essentially a socialist political movement resting on a religious belief in the intrinsic value of nature and the morality of altruism. As I said in a previous post, The Change to Climate Change:
Environmentalists are not concerned with saving the earth for man but saving the earth from man. In other words, because man, by his nature, must use the earth, the environmentalist who values nature "intrinsically" must, on principle, consider man to be only an enemy of the earth (which carries the status of a god to be worshipped for its own sake.) Therefore, the scientific issue of "warming" is nothing but a smokescreen - a convenient claim carrying a pseudo-scientific veneer that can more easily confuse the ignorant public as to the movement's true aims. If "warming" were wholly disproved it would not temper the environmentalist cause for a second. They would move on to something else as they are already doing with "climate change" or to a yet to be determined apocryphal fantasy aimed at scaring the public into accepting sacrifice and global government decrees thwarting production and economic progress.
Importantly, it should be noted that the truth of falsity of AGW has nothing to do with the question of what socio-economic system is moral and practical. It seems to be a foregone conclusion that if AGW were true, this fact alone would somehow imply the necessity of global government and the throttling of industrial civilization. Of course, nothing could be further from the truth. In fact, as I argued in a previous post, more freedom (not less) is the solution to potential disasters. I quoted George Reisman:
The answer to the question of how best to cope with intolerable global warming caused by Nature is obviously the maintenance of the free market, not its replacement by Socialist central planning. Indeed, the answer is to make the free market freer than it now is—as much freer as is humanly possible. This is because while the primary reason for advocating a free market is the greater prosperity and enjoyment it brings to everyone in the course of his normal, everyday life, a major, secondary reason is to have the greatest possible industrial base available for coping with catastrophic events, whether those events be war, plague, meteors from outer space, intolerable global warming, or a new ice age.
If we unequivocally demonstrate that AGW is a fraud, it will not stop environmentalists from plugging in some new man-made apocalypse to justify calls for global government and the destruction of modern civilization. Man is their enemy, and until he perishes from the earth, this war will continue.

When Liberals Think You Are Overspending, You are in Trouble

Liberals are like teenagers - grumpy and nihilistic, impetuous and overwrought, pathologically social yet narcissistic. So, when even the teenagers become concerned that dad has triple mortgaged the house, maxed out his credit cards, and a guy named Vinny is in the driveway with a billy club and a tow truck - you have to think ol' dad must be in a spot of trouble.

This all flashed through my mind as I fell off my chair watching SNL's hilarious spoof of Obama and his administration's profligacy. At one point, the Chinese president says through his interpreter: "you are not allowed to pay us back in clunkers." High comedy.

I remember in 1988 when SNL sent up then presidential candidate Michael Dukakis in a skit where he wanted to turn an aircraft carrier into a floating homeless shelter. I knew he was done.

Thursday, November 19, 2009

Anti-Rand Backlash: Methinks Thou Doth Protest Too Much

With the publication of two new biographies and amid unprecedented world wide interest in Ayn Rand, a predictable backlash has begun emanating from both the left and the right.

Blundering out of the ad hominem gate with title: "...Rand was a Nut", The National Review comes perilously close to offering a logical argument when it claims that "her philosophy is deeply problematic and morally indefensible." However, the author proceeds to resurrect the notoriously dishonest 1950's Whittaker Chambers hit piece then quotes William F. Buckley who wrote about her

desiccated philosophy’s conclusive incompatibility with the conservative’s emphasis on transcendence, intellectual and moral; but also there is the incongruity of tone, that hard, schematic, implacable, unyielding dogmatism that is in itself intrinsically objectionable.
Is it me or is it ironic, perhaps "intrinsically objectionable", that a hardened devotee of faith, particularly Catholicism, accuses an epic defender of reason of "unyielding dogmatism"? If reason and logic are "dogma", then what exactly is dogma?

It is not an aside that Mr. Buckley professed to idealize the concept of "transcendence". It was in his (or the Pope's) role as a Platonic-Christian Philosopher King that he channel God's revelations to the filthy masses. By rejecting Rand's secular approach , Buckley and his conservative followers tethered the religious right to capitalism by firmly entrenching the implication that no scientific, logical argument can be made in favor of rights and capitalism - a position that has all but destroyed freedom in America. Perhaps the only truth in his statement is that conservatism is indeed incompatible with Rand's philosophy - as it is incompatible with reality and freedom.

Meanwhile, the left, as represented by this article and this one, reminds us why, well, they are the left. As usual, we are inundated by vicious ad hominem and snarky ad populum feverishly penned by those who can not be bothered to study her work. As always, we are treated to the anti-Randian uber strawman who evidently yearns to step on the "lice" infested "parasites" who "barely deserve to live." Like a non-fiction Rorschach test, these anti-Rand diatribes reveal more about the writer than the writee. After all, what are we to make of intellectuals who refuse to actually study their subject's work and formulate logical arguments?

And this is really the point. Her detractors rarely take on her ideas. At different times and for different reasons, without offering an actual argument, they variously object to her method (reason), her ethics (egoism), her politics (capitalism), or to her (she was a human being). The "arguments" often take the following concrete forms:

"Wait, you mean she thinks she's objectively right?" She's nuts - not serious - real life is grey.

"Wait, you mean she upholds selfishness?" She thinks the strong should wantonly crush the weak.

"Wait, she upholds capitalism?" She is a fascist shill for corporate cronyism

"Wait, she is an atheist?" To hell with this cold, implacable devil.

"Wait, she made mistakes in her life?" Her projection of a moral ideal is invalid and/or she is not worthy of my cultish devotion like Jesus, David Koresh, or Obama.

All of these fill different philosophic and psychological buckets that I have blogged about extensively. The most obvious and most fundamental is the epistemological false alternative between the subjectivist left and the dogmatist right which holds out for man the wonderful choice of becoming an acid-tripping hippie or a bible thumping zombie. The post modern rejection of absolutes leads these critics to dismiss any principled stand as dogmatic posturing while the conservatives charge Rand with "unyielding dogmatism" because as an advocate of reason and reality she will not yield to their brand of dogmatism, namely, religious mysticism.

Running a close second is the utter misapprehension of her view of selfishness which equates her conception of rational self-interest to the free wheeling hedonist whimsically asserting his Nietzschean ubermensch within.

And, of course, for the politically minded, there is always the false equation of America's mixed economy with her vision of laissez-faire capitalism such that she can be castigated as an apologist for any bizarre, market distorting catastrophe hatched by Washington's finest in collusion with Orren Boyle businessmen.

But, I have to say, the most grating to me is the hysterical emphasis on her personal life. After all, if Newton cheated on his girlfriend would it change the truth of his theory of gravity? If Aristotle shoplifted a toga, would it change the truth of the laws of logic? Certainly, the biographies of great people should and do hold interest for valid reasons, but obsessing over the details of another's life and disregarding the essential import of their ideas is the foundation of the cult mentality, is it not? (Ironically, "cult worship" and "fetishism" is the charge leveled by these people at her admirers!)

The deeper reason underlying the focus on Rand's personal life is epistemological. As I argued earlier, the left does not even entertain the possibility of objective truth and therefore regards any principled argument as equivalent to a form of religious dogma while casting principled adherents as naive bumpkins. I believe this philosophical skepticism has several primary consequences.

First, it leads them to dismiss Rand's popularity as a fad on par with a pop cult like Scientology and to smear her work as unserious within academia. Second, in their mind, debunking this "religion" consists not in objectively refuting its claims (the truly educated know truth is impossible), but rather involves outing the Revealer of the purported dogma as flawed or hypocritical. Consider the more recent academic obsession with airing the dirty laundry of revered figures such as Jefferson and the Founding Fathers. Emphasizing the Revealer's fallibility serves to reinforce their own their own flawed view of rationality and morality, i.e., it appears to further the notion that man's fallibility and lack of omniscience renders rationality and objective morality to be unattainable. In this view, man is destined to hopelessly stumble through the grey fog of life's eternal caprice.

Of course, such a view itself represents a flawed view of rationality. In a
previous post, I quoted Professor Eric Daniels:
But rationality does not mean infallibility; it means that one is capable of choosing to observe the available facts and go by logic and that one does so. Nor does it preclude the possibility of mistakes; rather, it is the means of detecting and correcting mistakes.
To all of the critics, I ask only this - just make an argument. Show me. I am reasonable.

Reisman Quote on Keynes

I have been attempting to study the Austrian explanation for the Japanese economy as compared to the conventional Keynesian explanation which also bears relation to America's current economic problems. One of the basic features of Keynesianism is the so-called IS-LM analysis which, among other things, involves Keynes' convoluted and fallacious view of the relationship of investment to savings. I came across this great Reisman quote which serves to emphasize the very real devastation wrought by Keynes and his modern followers:
The Keynesians' preoccupation with the utterly fictitious problem of saving as a cause of poverty bears major responsibility for the very real problem of growing poverty as the result of a lack of saving. Based on their hostile economic analysis of saving, the Keynesians have brought about the enactment of correspondingly hostile government economic policies towards saving. The result has been economic stagnation and decline, whose nature and significance are captured in the words: the rust belt. Over a span of approximately two generations, the intellectual rot of Keynesianism has helped to bring about the physical rot of the industrial heartland of the United States.

Prof. George Reisman
Capitalism: A Treatise On Economics, p. 885

Tuesday, November 17, 2009

Why the Pelosi Plan Will Kill People... for Dummies

I did a "physician slavery" bill roundup last week, but so many good articles have appeared, I figured I had to do another along with offering my simple synopsis of the economic issue underlying the Pelosi Bill.

This post at Voice of Reason caught my attention as it shows how the current bill will impose a massive new tax on medical device makers thus strangling productivity and innovation in this crucial, life saving industry.

Beth Haynes has been blogging tirelessly on the slavery bill. She offers four more excellent posts including a lecture by Dr. Jane Orient on how to reduce costs through freedom in the marketplace, the political push towards single payer, the bill's draconian penalties including fines and imprisonment, and the expansion of immoral medicine.

Many have pointed out that when health care costs are socialized, each person's health becomes everyone else's business. This provides justification for the nanny state to begin regulating people's personal activities and health habits. (Recall the mandatory daily exercise required in Orwell's 1984.) This is not just a theory in the U.K.. The Times reports:

Health and safety inspectors are to be given unprecedented access to family homes to ensure that parents are protecting their children from household accidents.

The synopsis below follows Dr. Paul Hsieh's excellent op-ed recently published in the Washington Examiner in which he likens the Pelosi plan (which is a national version of the Massachusetts's system of mandatory insurance) to a Mafia shake down. (Also, see his excellent website at FIRM.)

Socialized Medicine for Dummies:

1. Special interests line up to include their "pet benefits" on the "government menu" of required coverages.

2. Rather than economizing, by say, buying a low cost catastrophic plan (in the same way one buys auto insurance), everyone must buy the government plan that covers everything and everyone.

3. This insurance is expensive so the state must increase taxes to pay for subsidies to low income individuals, and begins cutting payments to doctors and hospitals.

4. Doctors and hospitals lose money on every patient so they begin cutting back on taking new patients

5. Less supply and more demand creates a cost death spiral as services are cut, prices continually rise, and waiting times increase.

6. Everyone is "covered" but no one gets actual care in the same way that everyone in a communist society is technically "employed" by the state but there is nothing to buy.

7. Repeat ad infinitum

The above steps are essentially what is happening under the present system as the tax code provides incentives for employers to provide health benefits and each state mandates certain coverages leading to the cascading effects described above. Rather than reforming this flawed approach by removing market distorting incentives and mandates, the new plan will exacerbate the existing problem on a massive scale by mandating even more coverages, capping prices, forcing participation under penalty of imprisonment, etc. etc.

We still have time to stop it.

Oy...Again with the Desert Island

Imagine you were on a desert island with 100 other people.

In scenario 1, every person works extremely hard. Some people cut wood for fire and to make shelter. Others hunt and fish. Some build tools with which to cut wood, make clothes, wagons, weapons, etc.. Work that provides subsistence allows some of the brightest people to focus on more advanced projects like building a battery powered radio or a boat. The group gets together and authorizes several individuals to act as police, judges, all under the executive power of an island leader which is elected by the others. Property rights are recognized and a simple barter system emerges where each person's production serves as demand for products or services offered by others. There is no shortage of desire as each person wishes to make their life as fulfilling as possible. Each does as much as he can given his ability and the few that struggle through no fault of their own are eagerly helped by everyone else voluntarily. On the rare occasion when someone steals or commits a crime, he is quickly ostracized and/or punished. Since everyone is so productive, the least able person is still able to afford shelter, clothing, plentiful food, and some minor conveniences. As each person becomes more productive, it affords each person more time to devote to other more advanced projects or hobbies. The wealth and quality of life on the island grows exponentially as does the population.

In scenario 2, no one really does much of anything. Everyone sits around and complains about hunger and chastises their neighbors for not giving them some of their stuff. Some walk around with IOU's written on parchment that promise others payment in the future if they give up their valuables now. Very few value the paper IOU's. Frustrated with the lack of product, eventually, a few of the biggest and meanest form a gang and shakedown anyone who gets up enough energy to produce anything. Pretty soon, even the relatively productive give up on producing anything since they know it will soon be expropriated from them. They are able merely to subsist while the weakest die of starvation. The gang is able to enslave some of the people for a while and threaten them with beatings or death if they don't work for them. The "richest" person is the leader of the gang. He enjoys complete and unquestioned dominion over those still alive. He beats an occasional fish dinner out of them which he is able to cook with fire if his servants were motivated enough by his whip that day. He has the biggest hut of anyone. A few of his trusted associates in the gang eat with him and enjoy their relative bounty while the slaves beg for rations. Most, including the gang leaders, live a short, brutish existence. The island is mired in a primitive state for as long as the population survives their miserable subsistence.

The lesson of scenario 1 and 2, among others, is that life requires production. Production is demand. When people produce goods they create wealth. The more goods they produce the more wealth they create. Reality allows no shortcut to this process. Economists call this principle Say's Law. Furthermore, individuals can and will only create wealth if their rights are respected and if they regard their own lives as a value.

Keep this parable in mind while you read articles by economists such as Roubini and Krugman that continually call for more government stimulus, i.e., more smoke and mirrors to obfuscate reality and delude people into believing that there exists some central planning alchemy that can turn wishes into wealth.

Monday, November 16, 2009

The New Deal 2.0: An Old Contradiction

Wow! Someone sent this article to me, and as I read it, I thought it was a joke article from The Onion. Unfortunately, it is not a joke.

The web site, called The New Deal 2.0, appears to put out policy papers that harken back to the halcyon days of the disastrous FDR administration, i.e., they call for government intervention based on flawed and easily debunked economic logic that, if implemented, would exacerbate the very problems they seek to cure.

In this particular paper, Dean Baker argues for a New Deal-like program to reduce unemployment. What is this self-described "Braintruster's" solution?

Simple - pay people to work less hours.

And why, pray tell, would you pay people to work less hours?

According to Mr. Baker, the plan, dubbed "work-share", involves paying people the same amount of money while working less hours. Then, and here is the magic, since people are staying home one day a week (or whatever amount of time the Brain Trust decrees), businesses will have to hire more people to get the same amount of work done! Voila! Bravo!

Uh, wait. Dumb question: if employers have to pay more to get the same amount of work done, won't that just increase their costs, reduce their profit, and destroy the business? Don't worry, The Brain Trust thought of that. Quoting Mr. Baker:

The government can give them [the business] a tax credit of up to $3,000 to shorten their workers’ hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.

In fact, he regards this plan as "cheap":

If take-home pay is left unchanged as a result of the credit, then demand should be left unchanged. If workers are putting in fewer hours and demand is unchanged, then employers will need to hire more workers.

This logic is as simple as it gets. The process is also quick and cheap. In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job - far less than the cost per job saved through the stimulus package.

So, in principle, if he is right, why not just pay everyone to stay home virtually all the time - maybe each person works 10 minutes per week. That would create massive employment, right?

There is only one problem. Mr. Baker seems to forget that the government robs money from individuals to pay for such programs! In fact, this proposal is the poster child for The Broken Window Fallacy which we have debunked so many times [1, 2] it practically hurts me to type the words.

In other words, the government takes money from A (taxpayer) and gives it to B (business). B now has the money, but A does not. B can spend it, but A can not. Ergo, in aggregate, nothing has happened except a redistribution of wealth - a redistribution that is at best a zero-sum game and, in fact, profoundly destructive as it distorts the flow of capital from more productive uses.

In fact, such a program is simply a form of welfare. It would enable people to receive money they have not earned and grant to some the pseudo-title of "employed". It would be simpler for the government to just send these people cash than engage in this absurd ruse.

If this self-described Brain Trust truly wants to reduce unemployment, they should stop searching for free lunches and instead, read the works of Ludwig Von Mises and Ayn Rand and advocate for individual rights and laissez-faire capitalism.

Wednesday, November 11, 2009

Cuffy Meigs, Meet Bernie Madoff

One of the biggest myth's perpetuated by populist politicians and their mouthpieces in the media, is that Wall Street, or the financial profession, is not regulated. It is in this wild jungle, we are told, that vampire financiers hatch their Machiavellian schemes to suck the blood of the common man.

What they forget is that the financial profession is among the most heavily regulated industries in the economy. The banking system has been essentially nationalized since the inception of the Federal Reserve and money itself, which used to be a commodity freely chosen by market participants, is literally created by the government. Besides the Federal Reserve, federal and state government agencies employ legions of regulators to oversee mountains of byzantine regulations and conduct field investigations.

In reality, it is this cozy relationship between major financial institutions and the Federal Reserve, born from the legal and regulatory framework enacted by the government, that has led to the notoriously politicized bail outs of recent history. On a free market, any business would stand or fall by virtue of its ability to earn profits or not. In the current system, a system that has been unjustly and absurdly characterized as a system of "laissez-faire", it is pull peddling and backdoor corporate "cronyism" that determines who gets bailed out and who does not. It is the Federal Reserve board, itself subject to political pressure, that determines the level of credit expansion through its manipulation of the currency and thus the relative intensity of the boom-bust cycle.

One small and tragically comical example is the recent Madoff case in which it was revealed that Bernie Madoff had run a multi-billion dollar Ponzi scheme for decades.

A recent investigation conducted by the SEC Inspector General, H. David Kotz, shows that the government watchdog, the SEC, had been warned for years about Madoff and had botched the investigation every time.
The New York Times reports:
The new exhibits consist of 6,157 pages of interviews, letters, e-mail messages, telephone records and other background material gathered during Mr. Kotz's 10-month investigation of how the commission handled, and mishandled, numerous tips and warnings it received about Mr. Madoff over the years. His full report,released last month, found the agency had received six substantive complaints since 1992 -- and botched the investigation of every one of them. He found no evidence of any bribery, collusion or deliberate sabotage of those investigations.
The SEC had investigated Madoff so much, he was sure he was going to be caught.
In the interview, Mr. Madoff said that the young investigators who pestered him over incidentals like e-mail messages should have just checked basics like his account with Wall Street's central clearinghouse and his dealings with the firms that were supposedly handling his trades.

''If you're looking at a Ponzi scheme, it's the first thing you do,'' he said.
The most comical instance of the SEC's bungling was revealed by the Wall Street Journal when a belligerent Cuffy Meigs like character, William Ostrow, showed up:
One of those failures occurred during a 2006 examination when senior compliance examiner William Ostrow and another examiner visited the Madoff office over a period of two months...

"Madoff indicated that Ostrow was an 'obnoxious guy' and noted that Mr. Ostrow wore an SEC jacket with the word 'enforcement' emblazoned across the back," the account of the interview says. "Madoff … stated that this jacket 'caused an uproar' " in the office.
Madoff was able to use his reputation in the business as politically connected to intimidate the SEC inspectors, especially with claims that he was "dear friends" or had "recently lunched" with agency heads like Arthur Levitt and Mary Schapiro.
The paperwork gathered from the agency's files also tell a tale of unseasoned, poorly managed people who were uncertain about what to do and unwilling to ask for help. In numerous instances, employees would share their doubts about Mr. Madoff in notes or e-mail messages, but then never take steps to press for more information.
Sadly, such regulatory agencies usurp the function of proper due diligence or of industry self-regulatory agencies as investors rely on the tacit imprimatur given by this vast regulatory apparatus. In other words, a rational investor could reasonably say: "if Madoff has been in business for 30 years under the supervision of the SEC et al., how could he possibly be a fraud?". Now we know the answer.

Ask yourself: does the Madoff fiasco represents an instance of a lack of regulation?

Gold: The Avenger

Justice does exist in the world, whether people choose to practice it or not. The men of ability are being avenged. The avenger is reality. Its weapon is slow, silent, invisible, and men perceive it only by its consequences—by the gutted ruins and the moans of agony it leaves in its wake. The name of the weapon is: inflation.

Ayn Rand, Egalitarianism and Inflation
Bloomberg reports:

Gold surged to a record $1,119.10 an ounce in New York on speculation a decline in the dollar will spark demand for the precious metal as an alternative asset.

The metal climbed for the eighth straight session, the longest rally since January 2006. Before rebounding today, the dollar extended a slump to a 15-month low against a basket of currencies. India’s central bank bought gold last month to diversify reserves.

“The interest that central banks have shown for gold has really lit a fire under the market,” said Matt Zeman, a metals trader at LaSalle Futures Group Inc. in Chicago. “People are questioning the value of not only the U.S. currency, but all paper currencies. Investors are more comfortable holding gold.”
You know, sometimes I just love reality.

Tuesday, November 10, 2009

A Democrat Goes Free Market...kind of

The Atlantic published a very interesting article written by an honest democrat, David Goldhill, who began a thorough examination of the health care system after his father's tragic death in an American hospital. The article summary reads:
After the needless death of his father, the author, a business executive, began a personal exploration of a health-care industry that for years has delivered poor service and irregular quality at astonishingly high cost. It is a system, he argues, that is not worth preserving in anything like its current form. And the health-care reform now being contemplated will not fix it. Here’s a radical solution to an agonizing problem.
In the essay, Goldhill provides this excellent survey of the problem:
Indeed, I suspect that our collective search for villains—for someone to blame—has distracted us and our political leaders from addressing the fundamental causes of our nation’s health-care crisis. All of the actors in health care—from doctors to insurers to pharmaceutical companies—work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity, and discourage transparent competition based on price or quality. That result in a generational pyramid scheme rather than sustainable financing. And that—most important—remove consumers from our irreplaceable role as the ultimate ensurer of value.
Near the end, Goldhill concludes:
Would our health-care system be so outrageously expensive if each American family directly spent even half of that $1.77 million that it will contribute to health insurance and Medicare over a lifetime, instead of entrusting care to massive government and private intermediaries? Like its predecessors, the Obama administration treats additional government funding as a solution to unaffordable health care, rather than its cause. The current reform will likely expand our government’s already massive role in health-care decision-making—all just to continue the illusion that someone else is paying for our care.
Although long, this is a very comprehensive and detailed exposition of the problems and causes underlying the health care crisis. Since I advocate a fully free, unregulated market, I do not entirely agree with some of his recommendations which still involve government subsidies, but his approach is sensible and at least would move us in the right direction towards what he calls a "consumer-driven" model (which appears to be a liberal euphemism for free-market).

Interestingly, this article was sent to me by a liberal friend. Apparently, liberals only consider free market solutions if offered by another liberal in a liberal magazine. Nonetheless, it demonstrated that this article might have broad appeal.

Monday, November 9, 2009

Physician Slavery Bill Roundup from the "Teabag People"

Here are a few links related to the 2,000 page Health Care bill nightmare that has been rammed down our throats.

Beth Haynes asks:

To those who think such laws are not only legitimate, but good, I ask, on what grounds do you justify this blatant intrusion into my peaceful and private life? On what basis can you deprive me of the property I have peacefully and honestly obtained? What crime have I committed to be stopped from directing my own life and the use of my own resources in a manner furthers my life, and the lives of those I value, and perpetrates no harm to others?
In The Negation of Freedom, C. August quotes Judge Andrew Napolitano on America's one party system -The Big Government Party.

Gus Van Horn discusses the "reptillian Pelosi's" hatred of America in Pelosi's Betrayal.

Betsy McCaughey of The Wall Street Journal reports on the frightening details buried in this legislation in What The Pelosi Health-Care Bill Really Says. (HT: Jason Crawford, OActivists)

Cancer survivor and OActivist member Hannah Krening had this excellent op-ed published in The Denver Post. She writes:

Ask yourself: who do you think should be in charge of these kinds of decisions and work? Our smooth-talking president and his minions? Or medical personnel thinking and working for the benefit of their paying patients? Is it really in your best interest as a patient to have your doctor's mind forced by government?
Illustrating how government controls beget more government controls, Dick Morris analyzes the bribes/threats made to the AARP and AMA to get them on board. (HT: John Lewis, OActivists).

The New Clarion is Watching the Water Circle.

The NYT reports on Obama's last minute pitch to Democrats which included discussion of the "teabag, anti-government people."

Let's Worry About the Lash More Than The Backlash

In the wake of an unspeakable murder spree on a U.S. military base, new evidence has emerged that the killer had contact with Al Qaeda, a fact known to the CIA. Also, "investigators want to know if Hasan maintained contact with a radical mosque leader from Virginia, Anwar al Awlaki, who now lives in Yemen and runs a web site that promotes jihad around the world against the U.S.."

What is our government's response?

Our Homeland Security secretary is "working to prevent a possible wave of anti-Muslim sentiment..." and "the Army has also partnered with the National Institute for Health on a $50 million study of suicide, and has a $125 million program aimed at giving soldiers and their family members the 'resilient skills they need to make it through these tough times'." Meanwhile, the President's own adviser on "Muslim Affairs", Dalia Mogahed, recently went on British television and advocated the imposition of Sharia law in Muslim majority communities.

I am sure the families of those murdered would agree that we should be worried about lash, not backlash. More generally, the behavior of the Obama regime demonstrates how much the left is disconnected from reality. The self-induced fog of ethical relativism renders them intellectually incapable of connecting actions and ideas. The inability to define and name our enemy ideologically is what is causing the failure of our military effort in the Middle East and now, the inability to protect our soldiers even on domestic military bases.

While radical Islamists overtly call for our annihilation, the relativist says, in effect, we can not pass judgement. They lecture we naive simpletons that no ideology is better than any other, except, of course, any ideology that favors freedom and capitalism, which is surely evil. As our enemies build nuclear bombs, send arms to destroy our allies, and call for jihad, our leftist government admonishes us to tolerate anything while encouraging psychological counseling on how to be "resilient" and "make it through these tough times."

Rather than spending $125 million on "resilient skills" and submitting to the "tough times" caused by the enemies of reason and individual rights, I suggest we spend that money on courses in logic, history, and Objectivism with some extra thrown in for some bullets and bombs.

Sunday, November 8, 2009

It's Alive! But not really...

Here's the reality. Despite the fact that the House passed perhaps the most insane bill in its sordid history, the Senate still must approve it. Currently, the probability of it passing before the end of this year, as measured by the trading price on intrade, is only 8%. The battle in the House is lost, but the war is not over. Keep the pressure on your Senators and make sure your congressman, if applicable, suffers the consequences of his betrayal of individual rights in the 2010 elections.

Friday, November 6, 2009

General Pulaski Gets His Due

I grew up next to a town named Pulaski, but I never bothered to research the name. I'm sad to report that as someone who takes pride in knowing a lot about the American Revolution, it took two enemies of the American Revolution, Obama and Dennis Kucinich, to teach me something new. The AP reports that "Obama signed a joint resolution of the Senate and the House that made [Gen. Casimir] Pulaski an honorary citizen...230 years after the Polish nobleman died fighting for the as yet-unborn United States."
Pulaski's contribution to the American colonies' effort to leave the British Empire began with a flourish. He wrote a letter to Gen. George Washington, the Revolution's leader, with the declaration: "I came here, where freedom is being defended, to serve it, and to live or die for it."
Like Lafayette and others, Pulaski was a European nobleman that came to the United States and risked his life to fight for liberty. In fact, he did pay the ultimate price. According to the article:
In October 1779, he led a cavalry assault to save the important Southern port of Savannah, Ga., was wounded and taken aboard the American ship USS Wasp. He died at sea two days later.
If anyone wishes to understand what it is going to take to return this country to its founding principles, they should start by understanding what would motivate someone like this to give his life fighting for freedom. Only the passion emanating from a profound moral commitment to the ideal of liberty could explain it. Ironically, it is this same passion, embodied by the Tea Party movement, that Obama and his ilk have dismissed as nothing more than the animal spirits of an uninformed mob. I am sure that General Pulaski would have appreciated the irony.

All we can do is thank him and battle on.

Wednesday, November 4, 2009

The Thyratron

First, if you thought this post was about a new Transformers character, you are going to be disappointed...

I recently had a chance to visit the physics department of my Alma mater where I obtained an undergraduate degree in physics. Although my conscious reverence for the physical sciences has continued, because I did not continue in the field, I never developed the intimate connection that follows from day to day immersion and a career's worth of scar tissue. Sadly, what I realized from my visit was that I have too long been distanced from the wonderfully profound emotional reactions that follow from exposure to technology and to scientific genius.

While browsing some of the displays in the halls of the department, I came across this interesting looking device pictured above, a.k.a., the hydrogen thyratron (I apologize for the crappy picture). Here is the description in the case:

This large electronic tube was originally used in WWII (note JAN, Joint Army-Navy on the base) to activate radar transmitters. The transmitters generated short pulses of electromagnetic waves that when reflected determined the location of enemy airplanes.

No semi-conductor device today has the performance capability of the hydrogen thyratron. This particular tube was replaced by tube type CX1140L and is used in electron linear accelerators, a major tool in the treatment of cancer.
Seriously, look at this thing. Would you ever think you could use it to detect enemy airplanes much less to treat cancer? Such a device contains the fruits of thousands of years of human effort not only to comprehend and harness nature but also to literally battle the forces of philosophical and political ignorance.

All around us today, in the midst of the latest economic crisis, we are offered the smoke and mirrors of government created fiat money - the tortured machinations of the political alchemists who seek to turn lead into gold or equivalently, consumption into production. Lost in this noise is the near truism that to progress, we must think and produce actual things which make are lives longer and better. There is no shortcut.

It reminds me of a
quote (unattributed) that I recently heard: "People will do anything to save the world ... except take a course in science."

Friday, October 30, 2009

Update: "Stimulus" Can Not Work and Reality is Still What It Is

In previous posts [1, 2], I explained why it is logically impossible for government "stimulus" programs to generate real economic growth. In short, a dollar spent by the government is a dollar that will not be spent by someone else. The government is not a productive enterprise. It obtains funds through taxation, borrowing, or indirectly through the inflation of the money supply and simply redistributes these funds to others. "Stimulus" spending is at best a zero sum game and, in fact, profoundly destructive as it distorts capital markets and replaces productive spending, such as saving and investment, with consumption.

To help illustrate this point, here is an interesting chart from Clusterstock that shows the effect of the federal government's "cash for clunkers" program. The chart shows that a significant portion of the currently reported GDP is a result of this program:
according to the BEA the spike you see [in the chart] added 1.66% to the U.S. GDP growth figure reported. Thus without it, GDP growth would have been only 1.89% (3.5% - 1.66%) in Q3.
However, they correctly point out that all the program did was rob from future demand. In other words, individuals that would have purchased cars next quarter, purchased them now. Therefore, although current GDP is up, future GDP will be correspondingly down.

Next quarter, we won't just be returning to business as usual for auto output. Don't forget that Cash for Clunkers pulled future auto demand, ie. some of Q4 demand, into Q3. Thus Q4 is likely to be very weak since many people who planned to buy a car in Q4 probably took advantage of Clunkers and bought in Q3.

Next quarter, not only are we unlikely to get Q3's boost, but motor vehicle output data could subtract from GDP as well.

Another interesting CNN article reports that auto sales analysts at Edmunds.com performed a study which shows that the government actually spent $24,000 per car - not the $4,500 per car that was the headline per car subsidy. Why? Because many of these people would have bought new cars anyway at some point in 2009. They calculate that only 125,000 of the cars sold under the program were cars that would not have ultimately been purchased with the subsidy. Therefore, the government's expenditure of $3.0 Billion divided by 125,000 cars works out to $24,000 per car.

Thanks government. Good work!

Thursday, October 29, 2009

Update on Deflation Confusion

John Browne makes the same point I made in my last post but in more detail. Here is a quote:
In the popular mentality, however, inflation is simply defined as prices rising. After decades of steadily rising prices, people seem to have forgotten that prices sometimes fall. In light of the bursting of a number of record-breaking, government-fueled asset bubbles, prices should be declining across the board (as they did in the Great Depression). The fact that prices are stable, or have even rallied in some sectors, indicates that inflation is already spreading across the economy.

Wednesday, October 28, 2009

The Fed's Wish Part III: Exit Strategy and Deflation Confusion

In two previous posts, The Fed's Wish, and The Fed's Wish Part II: Coup D'Etat?, I explained the recent activity of the Federal Reserve including the explosion of its balance sheet and its unprecedented creation of excess reserves. I also noted that In the process of this expansion, it has taken on unprecedented power and is "now threatening even greater usurpations of our liberty in the name of promoting financial 'stability'".

What has happened since?

In essence, the Fed has continued to purchase government securities and mortgage backed securities in the open market using money it creates out of thin air. As of October 21, 2009, the Fed's balance sheet reveals that reserve balances total $1.056 Trillion. Since "currency in circulation" has not changed as dramatically this year, these reserve balances represent the money created by the Fed in the past year. Analysts expect this number to go to $1.4 Trillion if the Fed stays committed to its treasury and agency purchase programs which are supposed to end in March 2010.

Typically, these excess reserves would be used by financial institutions to make loans to the public. Due to fractional reserve banking, this trillion dollars could be multiplied to perhaps as much as 10 trillion dollars by the banking system. Such an increase in the quantity of money would lead to hyperinflation and perhaps the total collapse of the monetary system. However, the Fed has induced these banks to leave these excess reserves at the Fed by paying them interest for the first time in history.

The problem now concerns what the Fed will do with these excess reserves? They could remove reserves by selling securities from their portfolio. However, this would put upward pressure on interest rates. They could raise the rate they pay banks to hold the excess reserves but this would only delay the inevitable and would require ever more credit expansion. They could allow the money into the banking system and cause a hyperinflation.

In addition to my first two posts, I recommend two more articles that nicely detail this problem. The Fed's Dilemma by Professor Philipp Bagus discusses the origin of the problem and possible solutions. Does the Fed Need an Exit Strategy by Robert P. Murphy provides good overview and, in particular, rebuts Paul McCulley's recent argument that the Fed can simply increase the rate they are paying banks to hold reserves.

Ultimately, there is no way to cheat reality. No matter how many PhD.'s and Nobel prize winning economists try, reality will win.

There is another interesting aspect to this problem which is rarely discussed. The bust portion of the boom-bust cycle caused by the government's credit expansion must result in a natural deleveraging process. In other words, recession or depression is the recovery process. As malinvestments (investments thought to have been sound on the basis of an expectation of continual credit expansion now revealed to be unsound) are liquidated and as firms and individuals rebuild their cash holdings, businesses go bankrupt, unemployment rises, and consumer prices tend to fall. This is the unfortunate price that must be paid to restore economic prosperity on a sound foundation.

Many economic pundits falsely characterize the path before us as one of either inflation or deflation. In other words, they mistakenly define these concepts as "increasing prices" or "decreasing prices", respectively. Consequently, they mistake the symptoms of economic fundamentals with the cause. Since they mistakenly believe that deflation is "falling prices", this natural deleveraging process described above is characterized as an evil to be avoided at any cost. Rather than understanding that falling prices are the "antidote to deflation" as Dr. Reisman explained, they advocate that the government print money on a massive scale in order to halt the so-called "deflation."

Inflation, properly defined, is an increase in the quantity of money above the increase in precious metals. If the government prints a massive amount of money as they are doing now, even though prices are not rising presently, inflation still has the same deleterious effects. Prices do not have to go up under inflation. They simply have to go down less than otherwise. In other words, in the absence of inflation, prices would naturally tend to go down due to increasing productivity. In the present circumstance, prices should drop precipitously. Due to the Fed's creation of money, prices are not falling as fast as they would otherwise. The Fed is propping up zombie banks that should go bankrupt or restructure. If interest rates were not being held artificially low, house prices would likely drop even further and even faster ultimately restoring growth to the housing market. In effect, the Fed's inflation is causing malinvestment and inducing less savings than would otherwise be the case in the absence of this money creation.

(Note, for example, that many economists currently regard increasing prices in the housing market as signs of recovery. Don't we like it when computer prices go down or when car dealers have sales? Why would rising prices ever be "good" for the economy?)

Furthermore, the Fed's purchase of government securities is enabling the federal goverment to temporarily spend with impunity. Such government spending encourages wasteful consumer spending and crowds out productive private capital investment. Currently, banks are borrowing money at 0 percent and lending to the government at 3 percent. Is this "good" for the economy?

The entire experience of Japan over the last 20 years is analogous. Rather than allowing the system to heal itself by facing reality, the Japanese government has propped up insolvent banks, rewarded politically powerful special interests, and therefore, never restored economic growth. Japan has been mired in stagnation for over twenty years.

The best thing the government could do is to recognize that it caused the problem, stop interfering, let the market heal itself naturally, and commit to a program of sound money, private property, and limited government. Yeah, right.