(only for those *) *without a life

Hello again.

Because of previous attention paid to my posts on the politico-economic situation (both in support and in contempt), I have decided to share my thoughts and the economic philosphy of the Austrian School. I expect at least increased interest in my blog here (though, like anything new, it will undoubtedly fall off exponentially) and perhaps even a greater appreciation of my own views. (I am not wishing praise. No. Appreciation, as in, awareness, not admiration.) I have even drawn fire from certain persons, on my naivete and my apparent lack of understanding. And while I am in no position to declare myself "educated" or "expert" (seeing as I have only begun to educate myself in economic thought), I am in a fitting position to defend my position and redefine it for clarity and logical following.

It is here, then, where I begin.


Perhaps I was too simple in my post entitled about "the bailout business." Actually, I am quite sure that I did not put forward my best foot. Pulling back my left, then, and extending my right in a montrous stride, I will try to lay out a reasonable (and logically argued) defense of my previous (and current) position.

Why is it still important? Because it is still happening.
Because the intellectual status quo still believes in it.
Because such economic arguments are almost always horrendously illogical and false.
Because our future relies on it.
Because I believe it is.

I think that the best way to approach any problem, a problem of action, as it is, is to analyze it. No brainer. But what many 'economists' fail to do is respect history, both of the current problem and of the kind you find in real history books (not the crap they shovel into schools). History, then.

As I understand it, our current problem is a massive downturn of the classic, recurring business cycle. In such a cycle, the economy, spurred by one thing or another (apparently), grows tremendously in GDP and size; our stocks go up, home values soar, and the public (but especially bankers) are happy. Unfortunately (or fortunately?) the economy always crashes. Why does this happen? For decades after these cycles began in the late 1800s (for before crashes could always be easily attributed to war, drought, etc.), economists were at a general loss. Many blamed the free market. Some looked elsewhere. However, one who did not was John Maynard Keynes. Pressured by the blossoming statism of his time, or perhaps blinded by arrogance, Keynes concluded that the business cycle of boom and bust must be a natural characteristic of the free market. He then proceeded to back up this theory with his economics. I will not spend too much time in a Keynes-tirate, but I will at least explain all the false assumptions he made and present the clear solution to this original problem of the business cycle.

First of all, Keynes made the assumption that any problem in the economy must originate in the market. While many do, it is pure silliness to dismiss the role of government. Especially at his time, when he was at the lead of government expansion, in both the U.K. and the U.S. It is quite easily seen that, in a free market, fluctuating with supply, demand, and changing interets, that certain sectors or industries could fail, even suddenly. The problem was that ALL the sectors were falling during a recession, or at least a great many of them. There is simply no way that investors and businesses in so many sectors could all make the same mistakes at the same time. It is, after all, the job of a business economist to predict! Anyway, back to the business cycle. A very clear explanation can be had when one studies money, capital, banking, and government's role in economic policy.

A "boom," as we call the artificial growth of a manipulated economy, begins always with the government. The production of money is under the control of an omnipotent organization which is largely responsible for the economic ruin of the twentieth century: the Federal Reserve. The Fed essentially gives the banks free reign to produce money ad lib, without regard to deposits, through the money multiplier effect of fractional reserve banking. Needless to say, this grossly inflates the money supply. Now, in a boom period, this new money is taken by the banks for investment. Most of this investment is overinvestment, and most of it is malinvestment. This is because all traditional economic predictors have been distorted by the creation of new money. Businesses see demand where there is none and invest under false confidence. This can go on for years.

Eventually, the boom stops; the money supply stops expanding and the market begins to realize what has happened. Naturally, the market will adjust back to an equilibrium state, where the consumer investment finds peace with capital investment. At this point, there is far to much production capacity, especially in the malinvested sectors, and resources must be reallocated. Left alone, it would happen quickly and dramatically. The false economy will adjust back down to the actual levels of market demand and the economy could continue on in peace. Unfortunately, because those of the Keynesian type see the business cycle as a market characteristic, they see the need to "fix" the recession. Apparently, they do not see the recession, depression, whatever as THE fix.

And so we get to our current crisis. Bailouts. For the homeowner who must go into foreclosure, it is unfortunate. But unfortunate events do not dictate economic reality. Contract law requires you to default the property to the lender; your loan was simply a misallocation, a malinvestment, perhaps. If it was not, then blame the bank we must for their incredibly stupid actions. But I do not see how it is the bank's fault that you cannot pay, so give it up. For the banks, seriously, grow up and get real economists in your ranks. Economics is far more than jus applied mathematics (second rate anyway if we look at the results). For the companies so desparately begging the American public, who have been systematically robbed for almost a century, for money, go to hell. There should be not a penny of public money going to the failed business policies of a decade. For the laborers who will inevitably be laid off in this ensuing mess, you will find new jobs. It may be completely different from what you currently do, but it is only the economy adjusting to where it wants to be. You, too,have been a misallocatied resource these past years. Obviously, no one required your services, or the company you worked for would not have tanked.

To appease the loquatic among us, I can address a more "pragmatic" side to this issue. I have been accused of being too idealogic or naive in my analysis of this crisis. Rest assured, I realize the implications of taking this position. The economy will ineveitably tank. But our general wealth will not decrease. Wealth is capital and production, not money or stock numbers. Those are inflated by the boom and killed by the bust; real production and investment in capital cannot be so easily reversed. Too, there is the typical "Krugman attack," as I have termed it, in which the consumer-producer model is brought in for discussion. "If people stop spending (as they will definitely readjust their spending), then more jobs are going to be lost and the economy will fall into an endless cycle of doom!" Paul Krugman, himself a Nobel Laureate (apparently undeserving), has levied this very claim. It is, however, a collossul misunderstanding of the time aspect of economics. The economy is not static, it always must be considered with the perspective of time, the future. If people hold back on spending now, that is a choice to spend in the FUTURE, not a choice to not spend. This is an economic prediction on the part of the consumer, who apparently feels the need for saving for future purchases or investments. If people are layed off in a certain industry, the market should compensate by predicting the future demand of the consumer. Thus, human resources will be redirected to the new sector. It is very simple.

On purely emotional grounds, yes, this theory is harsh, maybe even cruel, but economics should not allow for distributive justice. Laborers should have a right to work, but they do not have a right to work in the job in which they are currently. When enterprises fail, they must fail. Society calls for such justice of responsibiltity. Furthermore, it is of no use to waste capital, human or otherwise, on failing, unwanted businesses. Better prop up the services and industries that the market desires. And any government aid is special interest, and therefore immoral. Why not aid to the farmers? Why not aid to so-and-so? It is nothing but theft. Even if it is created money.

Which brings me back to the Fed. Just kill it already. That organization, and its cohort of criminals, from Greenspan to Bernanke, should be locked in prison, and the key thrown away. They have caused untold numbers of recessions in the U.S. and around the world, catered to the special interests of government and corporations for decades, and stolen laughing the money and wealth of Americans everywhere. That the Fed still operates is a testament to the embarassing state the USA is in today. We are truly a nation of sheep.

Certainly this post has bored most anyone to death by now. And with my explanation powers, you were probably better off just picking up a book, anyway. But I felt the need to reassert my position, and define it more clearly. If I have not yet satisfied you, please, do ask questions and beat my illogic to a bloody demise if noted. If I have satisfied something within you, I hope it was the appetite of your love of liberty, because only if you stand up against the daily atrocities in our nation can anything ever be solved.

Again, I really would like all the hate mail that you can tolerate wasting your time on.



Sincerely,

Brandon