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Former Reagan speechwriter, Anthony Dolan, in WSJ, described the genesis of Reagan’s famous Berlin speech. Dolan ends by articulating Reagan’s thoughts on appeasement, and how to effectively deal with communist and other oppressive governments.
…Reagan had the carefully arrived at view that criminal regimes were different, that their whole way of looking at the world was inverted, that they saw acts of conciliation as weakness, and that rather than making nice in return they felt an inner compulsion to exploit this perceived weakness by engaging in more acts of aggression. All this confirmed the criminal mind’s abiding conviction in its own omniscience and sovereignty, and its right to rule and victimize others.
Accordingly, Reagan spoke formally and repeatedly of deploying against criminal regimes the one weapon they fear more than military or economic sanction: the publicly-spoken truth about their moral absurdity, their ontological weakness. This was the sort of moral confrontation, as countless dissidents and resisters have noted, that makes these regimes conciliatory, precisely because it heartens those whom they fear most—their own oppressed people. Reagan’s understanding that rhetorical confrontation causes geopolitical conciliation led in no small part to the wall’s collapse 20 years ago today.
The current administration, most recently with overtures to Iran’s rulers and the Burmese generals, has consistently demonstrated that all its impulses are the opposite of Reagan’s. Critics who are worried about the costs of economic policies adopted in the last 10 months might consider as well the impact of the administration’s systematic accommodation of criminal regimes and the failure to understand what “good vs. evil” rhetoric can do.
Also in WSJ, Mark Spitznagel has an excellent article on how government, through the Federal Reserve, causes market distortions that threaten the economy.
Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s. We ignore the great Austrian at our peril today.
… Mises explained how the banking system was endowed with the singular ability to expand credit and with it the money supply, and how this was magnified by government intervention. Left alone, interest rates would adjust such that only the amount of credit would be used as is voluntarily supplied and demanded. But when credit is force-fed beyond that (call it a credit gavage), grotesque things start to happen.
Government-imposed expansion of bank credit distorts our “time preferences,” or our desire for saving versus consumption. Government-imposed interest rates artificially below rates demanded by savers leads to increased borrowing and capital investment beyond what savers will provide. This causes temporarily higher employment, wages and consumption.
Ordinarily, any random spikes in credit would be quickly absorbed by the system—the pricing errors corrected, the half-baked investments liquidated, like a supple tree yielding to the wind and then returning. But when the government holds rates artificially low in order to feed ever higher capital investment in otherwise unsound, unsustainable businesses, it creates the conditions for a crash. Everyone looks smart for a while, but eventually the whole monstrosity collapses under its own weight through a credit contraction or, worse, a banking collapse. …
…With interest rates at zero, monetary engines humming as never before, and a self-proclaimed Keynesian government, we are back again embracing the brave new era of government-sponsored prosperity and debt. And, more than ever, the system is piling uncertainties on top of uncertainties, turning an otherwise resilient economy into a brittle one.
How curious it is that the guy who wrote the script depicting our never ending story of government-induced credit expansion, inflation and collapse has remained so persistently forgotten. Must we sit through yet another performance of this tragic tale?
Peter Schiff, writing in Euro Pacific Capital, looks deeper into the pseudo recovery and gives a prescription for true market corrections and growth.
…To generate legitimate economic growth and meaningful jobs, we must reverse the trends that brought us down. Consumers may have led us into this recession, but they can’t lead us out. The road to recovery is a one-way street, and it’s paved with savings, capital investment, and production. It’s not an easy road, but we must follow it to ensure our future prosperity.
As a first step, our politicians must stop pushing us backward. Rather than imposing more market-distorting regulations, we should repeal those most responsible for inefficient resource allocation. Rather than creating new moral hazards, we should withdraw guarantees for large financial institutions and irresponsible consumers. Rather than continuing the Greenspan policy of keeping interest rates too low, we should let them rise. Rather than trying to prop up asset prices, we should let them fall to market levels. Rather than increasing the burden of bureaucracy on the economy, we should look for ways to lighten the load. Rather than encouraging people to borrow and spend, we should reward those who save and produce.
Until we acknowledge these fundamental errors, more of our citizens will lose their jobs. As those that stay employed are funneled into unproductive industries like the federal bureaucracy, the country will sink further into stagnation. Worse still, everyone taking jobs in these sectors will be laid off in the next phase of the crisis – and will have lost this opportunity to build practical skills for the new economy.
Reviewing the Obamacare passage, Jennifer Rubin posts on the congressmen that crossed party lines, and looks at what’s to come in the Senate.
The New York Times has a handy chart and concise description of which lawmakers voted against PelosiCare:
Only one Republican voted for the bill, and 39 Democrats opposed it, including 24 members of the fiscally conservative Blue Dog Coalition. An overwhelming majority of the Democratic lawmakers who opposed the bill — 31 of the 39 — represent districts that were won by Senator John McCain, Republican of Arizona, in the 2008 presidential election, and a third of them were freshmen. Nearly all of the fourteen freshmen Democrats who voted “no” represent districts that were previously Republican and are considered vulnerable in 2010. Geographically, 22 lawmakers from southern states formed the largest opposition bloc.
The bill now moves to the Senate, where it is doubtful that it, or any variation with the public option, can pass. Lindsay Graham on Face the Nation declared that it was “dead on arrival to the Senate.” As he noted, Pelosi’s bill is ”written for liberals, by liberals.” It is not only Graham, all his Republican colleagues and Joe Lieberman who stand in the way. What about the Senate counterparts to those 39 House “no” voters — Blanche Lincoln of Arkansas, Michael Bennett of Colorado, Evan Bayh of Indiana, and Byron Dorgan of North Dakota, for example. All are in unsafe seats with considerable numbers of independent and Republican voters who are not likely to look kindly on the massive tax and regulatory measure or on the new mandates and fines requiring them to purchase insurance. …
In the Corner, Jeffrey Anderson also comments on the Obamacare drama.
It was always clear that the real health-care battle would be in the Senate. But what would have been shocking eight months ago is to hear that it would take until November for the Democrats to pass a bill even in the House. It would have been even more shocking to have heard that, even after a full-court-press by the White House, the bill would pass by only five votes — meaning that if just three of the 435 members had changed their minds, it would have changed the bill’s fate. And it would have been shocking to have heard that 39 Democrats would jump ship.
The House bill has passed — barely and belatedly — and it is now dead. Nothing like it will ever pass the Senate. The question now is whether anything will, now that the voters have spoken in New Jersey and Virginia — and now that the exceedingly narrow margin in the House will likely invite even greater scrutiny of that which is being proposed. …
Thomas Sowell continues to use economic theory and logic to dispel the illusions and false promises made in Washington.
…If we cannot afford to pay for doctors, hospitals and pharmaceutical drugs now, how can we afford to pay for doctors, hospitals and pharmaceutical drugs, in addition to a new federal bureaucracy to administer a government-run medical system?
…Price controls create lower prices for open and legal transactions — but also black markets where the prices are higher than they were before, because the risks of punishment for illegal activity has to be compensated. Price controls also lead to shortages and quality deterioration.
But politicians who take credit for lower prices blame all these bad consequences on others. Diocletian did this in the days of the Roman Empire, leaders of the French Revolution did this when their price controls on food led to hungry and angry people, and American politicians denounced the oil companies when price controls on gasoline led to long lines at filling stations in the 1970s. It is the same story, whatever the country, the times or the product or service. …
…Waiting in long gasoline lines at filling stations was exasperating back in the 1970s, but waiting weeks to get an MRI to find out why you are sick, and then waiting months for an operation, as happens in countries with government-run medical systems, can be not only painful but dangerous.
You can be dead by the time they find out what is wrong with you and do something about it. But that will “bring down the cost of medical care” because you won’t be around to require any.
David Harsanyi discusses a study about stress, and points out the silver lining.
…For me, the most stressful element of life has been the mysterious emergence of children. Kids, bless them, are a pain. They’re expensive. Though rarely coherent, they never shut up. They are as insubordinate as they are willfully unhygienic. Yet, you love them so much that your existence is now one of everlasting anxiety.
How many parents would trade children for serenity? In many other ways, stress signifies positive life experiences. Stressing about a mortgage and work can mean you own a home worth caring about and a job worth keeping.
…The underlying concern, says the APA, is how long-term stress contributes to chronic health disorders. (Talk to a psychologist for more information!) No doubt. But according to a recent NBC report, some researchers believe temporary increases in stress can strengthen the immune system, help fight Alzheimer’s and keep your brain cells busy. Another study suggested that stress can help prevent breast cancer. …
Shorts from National Review.
When democratic protests broke out in Iran last summer, the Obama administration gave the impression of considering such protests a nuisance — a hindrance to the real work of dealing with the regime in place. The administration has now cut off funding to several groups working to help the Iranian democrats. One of them is the Connecticut-based Iran Human Rights Documentation Center, which does much to let the world know what is going on inside that dark country. The center will have to shut down unless private funds come in. The administration is right to deal with the world as it is. But the Iranian democracy movement, and the weakness of the regime of the mullahs, are realities too.
Back to the Economics Nobels, Richard Epstein, in Forbes, comments on the impact of microeconomics.
This year, the Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in economics to two Americans, Elinor Ostrom and Oliver Williamson. The description that the Academy gave for its award will sound as dry as dust to people who are not familiar with the nature of economic inquiry.
Ostrom received her prize for showing the various mechanisms that parties can use to control the operations of various forms of common pool resources, e.g., fisheries, in order to prevent their overconsumption and premature exhaustion. Williamson has written extensively on the various devices that are used to control the internal operations of the firm, including internal hierarchies, i.e., permanent relations among individuals in a firm that can be used to eliminate conflicts of interests, and opportunistic behavior in various exchange transactions that might otherwise be conducted on a case-by-case basis.
Issuing the award to these two economists is a welcome trend because it once again leads us to focus on the microeconomic issues that have, when aggregated, macroeconomic consequences. In times of great economic stress, the tendency of many people is to think that the cure for all our social ailments lies in macroeconomics. …
A short column of this sort cannot begin to describe the complex institutional trade-offs that must be mastered to secure the efficient deployment of these resources. But it is important for these purposes to note that these so-called microeconomic issues quickly multiply. There are thousands of firms and thousands of commons. Generating improvements to all these multiple challenges goes straight to the bottom line. Better management of firm and common resources can increase the level of social production and human satisfaction. In their own way, each of these small adjustments may seem to be of no consequence relative to the big macroeconomic changes. But the small changes are additive in a way the large ones are not. Understanding the processes to which Ostrom and Williamson have devoted their professional lives shows us how quiet ventures, properly executed, can generate immense improvements in individual and social welfare. We all owe them a debt of gratitude.