Sunday, October 26, 2008

Anatomy of a Crisis

In the wake of the great depression in the 1930's the Franklin D. Roosevelt delivered one of the most remembered lines in American history. "We have nothing to fear but fear itself''. This line is still revered in our current age and the line was delivered by a man who has come to symbolize the coming welfare state that dominated much of the last century. FDR was the man who was credited with bringing us out of the great depression and setting us on the path to renewed prosperity.

What was lost in the 1930's was confidence in the economic philosophy that had dominated America for the first two centuries. Our financial struggles and shortcomings were blamed on capitalism, and the failure of the free market was indicted for bringing on economic collapse. The popular cry was that the free market left unchecked spirals out of control and the market collapse was a symptom of the disease of free market capitalism. The public opinion had swayed toward government control and the welfare state. These have been our inheritance from a generation misinformed.

The biggest misconception of that time was that the great depression was a product of the free market. Milton Friedman, a nobel prize winning economist and the chief economic advisers to Ronald Reagan argued extensively that the depression was caused primarily by the failure of the federal reserve to control the money supply during the economic slow down. He won a nobel prize for his monetary theory and has argued his point to the satisfaction of most economists today. Ben Bernanke, current head of the Federal Reserve, provided the ultimate incrimination on government's role in the great depression when he addressed the subject at a dinner honoring Friedman's 90th birthday:

'Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.' (read the complete speech here)

The Austrian school of economics holds a very convincing argument that boom and bust cycles are generated by the credit expansion from the central bank. When the federal reserve has a loose monetary policy it results in credit expansion and mal-investment. Resources and capital are over-invested during the boom period and the bust period or depression are the necessary period of readjustment of the marked where bad investments can be liquidated.

Studies among economists as earlier posts have alluded to have also shown that the policies of FDR in price controls, wage controls, rent controls, and instituting the welfare state were actually instrumental in prolonging the great depression by 7 to 15 years. This is not a fringe idea. It is a generally held position among economists today. (For a better understanding of this read this pdf.)

Perception is everything in politics. The public culture of opinion was convinced that capitalism was the culprit, and government the answer in the 1930's and this gave us 70 years of big government and the welfare state. The big government instituted by FDR and the new deal is still growing today. The culture of opinion is vitally important in our current financial crisis also. Government's role in the current meltdown needs to be understood. More to come...

Wednesday, October 22, 2008

Liberatarian views on defense of marriage?

This blog is not focused on social issues but my beliefs to tend to leak out. Since defence of marriage act is a controversial topic in the news I will throw out my opinion. My initial reaction is government has no role in defining our social morals, but there is an argument to the defining of some moral issues in society. I agree with this article for the most part.

Tuesday, October 21, 2008

Personal Statement

Having a newly formed zeal for blogging I feel that I must establish my personal statement at the outset.

First of all I believe in freedom and in the free market capitalism, which I believe is the main reason for America's current standing and our one hope for future prosperity and opportunity. What other system has raised the standard of living for even the most common lower class citizen to the high levels that we almost universally enjoy today?

The course of history has shown us that despotism, totalitarianism and forms of socialism have been the rule in the world not the exception. For the most part, ruling class bureaucrats and aristocrats have lived lives of excess while the common person has battled grinding poverty as a coarse of life. When you travel and observe the majestic cathedrals, edifices, pyramids, and works of art consider that these were built almost on the whole by a centralized powerful authority who subjected the common citizens to poverty stricken and inconsequential lives.

America has established itself as different, a 'great experiment'. Our founders fought for freedom from usurpation and unjust taxation. Thomas Jefferson, one of our most influential thinkers, rejected concentrated power. In his words: "I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them." He penned the declaration of our independence and our American philosophy when he wrote that we are all endowed by our creator with inalienable rights, including life, liberty and the pursuit of happiness and that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed, and that whenever any form of government becomes destructive of these ends, it is the right of the people to alter or abolish it."

The purpose of government is to secure our inalienable rights. Not to feed us, clothe us, medicate us, control us, lead us in worship, look after our mental health or - perish the thought! - to nibble away at our rights and freedoms and expand its own power. The sole legitimate function of government is to secure our rights. When it fails to do so it ceases to be legitimate and the people have the right to take matters (back) into their own hands.

The Wealth of Nations by Adam Smith was written in the same year as the Declaration of Independence in 1776, and has influenced our economic philosophy just as much as Jefferson has influenced our political philosophy. We have, for the most part, let every man seek his own self interest whatever that may be. As Adam Smith explains, when two parties each seeking their own personal self interest undergo a transaction, the invisible hand goes to work making the entire community beneficial.

It is not from government planning that we enjoy our prosperity, wealth, technology, and knowledge that we have acquired over the ages. It is the ambition and self interest of the individual seeking to make his life better, and to benefit from his hard work and sacrifice. It is not because of government and bureaucrats that we succeed but despite them; and the challenges we face today will be overcome by private enterprising individuals working and sacrificing for themselves and their families despite the obstacles of overgrown bureaucracy created by otherwise capable bureaucrats, who have chosen the public life rather than use their talents toward the private economy.

Now, why blog? It is to do my part to help alter the culture of opinion in this country. I would consider myself a conservative, however, I do not wish to 'conserve' the current culture of government largesse. Therefore, as it is our duty to vote and alter public policy to the benefit of our country, I feel the best way to accomplish this is to change the current culture of opinion. In the early history of our country, politicians appealed to the public's distaste for centralized government and love of freedom. Now in our current culture we ask 'what will government do to fix it?'. I only ask that every politician take the oath that I took upon graduating medical school -- that you 'first do no harm'.

Monday, October 20, 2008

Is Obama the next FDR?

Barack Obama is potentially being elected just in time to turn this economic crisis around right?

Could Barack Obama do what FDR did in the 1930's and 40's in 'bringing our country out of the great depression'.

I hope not. A new study from UCLA found that FDR's policies prolonged the great depression for 7 to 15 years.

There is a great book that details this very subject. It is next on my list.

Friday, October 17, 2008