At least for now, the bailout has been put down.
And on Mises’ birthday.
At least for now, the bailout has been put down.
And on Mises’ birthday.
Ron Paul on Cavuto:
Over at StogieGuys.com we note that an extreme expansion of Michigan’s smoking ban has been defeated… at least for now. For more on tobacco prohibition in Michigan read this Detroit Free Press op-ed by Jacob Grier. Also see the nasty hate mail the smoking nannies sent Jacob in response to his defense of personal liberty.
Lots more Stogie Guys coverage of smoking bans here.
T. Boone Pickens has a great name, but he also has a lousy plan that he’s trying to push on the American public. In the past few days a “Pickens Ambassador” has left two three (see below) identical comments on this site pimping the “Pickens Plan.” And I don’t doubt that the same comments have been left hundred of times on other sites.
Given their astroturf campaign, I thought a little rebuttal was in order.
According to the schizophrenic comment the government bailout of Wall Street is an “U.S. government.. orchestrated… campaign to Co-opt Pickens Plan SEO.” In other words the horrible bailout is an effort to undo the efforts of Pickens Plan supporters to push their plan to the top of search engine results for those who google “700 Billion.”
Yeah Right. No wonder he’s a supporter of the Pickens Plan if that is what he believes. Critics on the right and left have come out against the Pickens Plan. Despite Pickens’ supposed free-market proclivities, the plan is heavy on government intervention in the form of mandates.
Jerry Taylor of Cato has this to say about the plan:
Virtually every claim made by T. Boone Pickens to justify the lavish subsidies he is seeking for his wind energy investments is flat wrong.
First, oil imports are not the cause of high gasoline prices. On the contrary, oil imports serve to keep gasoline prices down. After all, we import oil for a reason; it’s cheaper than the domestic alternative. If we were to restrict our energy diet to energy produced in the United States, it would make domestic energy producers (like Mr. Pickens) far richer and energy consumers (the rest of us) far poorer, and GDP would be reduced as well. While one can understand why Mr. Pickens is attracted to the idea of “energy independence,” for the rest of us, keeping the country open to imported goods is pro-consumer whether we’re talking about oil, steel, textiles, or athletic shoes.
Second, we are no more forced to rely on the “good will” of foreign oil producers when we shop for petroleum than we are forced to rely on the “good will” of supermarkets when we shop for eggs and milk. Oil producers export crude oil because it’s a great way to make money—and for many, the only way to make money. And once that oil is in the global marketplace, market actors, not oil producers, dictate where it goes. Hence, we are betting on producer greed … which is a pretty safe bet.
Third, if wind energy were a sensible economic investment, it would not need the lavish federal and state subsidies already in place or the additional largesse sought after by Mr. Pickens. Likewise, if compressed natural gas (CNG) vehicles are an economically sensible alternative to conventional gasoline powered vehicles, then no government “master plan” is necessary to deliver them to market. Price signals will induce investors to invest and consumers to buy without government having to lift a finger. The same goes for all the other energy-related R&D Mr. Pickens would like the taxpayer to dole out. If that R&D is promising, it will be pursued whether government subsidizes it or not.
Fourth, if reducing our carbon footprint is the goal, then the most direct and efficient means of reducing that footprint is to impose a tax on carbon emissions and then leave it to the market to sort out how to most efficiently order affairs under those new prices. Maybe it will mean windmills and CNG, but maybe not. Perhaps it will mean more nuclear power, new hydrogen-powered fuel cells, “clean” coal, the emergence of cellulosic ethanol, battery-powered cars or hybrids—or a continuation of the existing energy base but less consumption as a consequence.
Of course, if the market were to go into any of those directions, Mr. Pickens would be out a lot of money, which is probably why Mr. Pickens wants to hard-wire the market to consume the things he’s investing in and have the government lavish him with subsidies in the course of doing so. I wish Mr. Pickens well in the course of his wind energy business, but I see no reason why taxpayers, ratepayers, or consumers ought to be forced to sacrifice in order to fatten his already ample bank account.
Kevin Drum (no advocate of the free market) further examines the plan and the potential windfall for Pickens contained therein. You should read the full article, but here’s the money quote:
I don’t have any problem with people making money from clean energy. That’s how we’re going to get more of it, after all. But between his water-fueled eminent domain land grab in Texas and his support for a $5 billion bond measure in California, Pickens sure is using a lot of government dough to benefit himself. Something tells me there must be a better way to promote wind power than this.
Ultimately it seems Pickens is no different then all the other rent-seekers with their hands out. The only difference is Pickens is spending millions promoting his plan directly to the public. And apparently he has a few “Pickens Ambassadors” leaving uninformed comments on around the internet.
UPDATE: Ha! In the time it took me to write this another identical comment was posted.
Don’t say nobody could predict this. Here’s a floor speech from Ron Paul in 2002:
Congressman Ron Paul
U.S. House of Representatives
July 16, 2002
Mr. Speaker, I rise to introduce the Free Housing Market Enhancement Act. This legislation restores a free market in housing by repealing special privileges for housing-related government sponsored enterprises (GSEs). These entities are the Federal National Mortgage Association (Fannie), the Federal Home Loan Mortgage Corporation (Freddie), and the National Home Loan Bank Board (HLBB). According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone.
One of the major government privileges granted these GSEs is a line of credit to the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out these GSEs in times of economic difficulty helps them attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a massive unconstitutional and immoral income transfer from working Americans to holders of GSE debt.
The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase the debt of housing-related GSEs. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.
Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
However, despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policies of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.
No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to the GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.
Mr. Speaker, it is time for Congress to act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors misled by foolish government interference in the market. I therefore hope my colleagues will stand up for American taxpayers and investors by cosponsoring the Free Housing Market Enhancement Act.
The financial meltdown the economists of the Austrian School predicted has arrived.
We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market’s attempt to re-establish rational pricing of houses and other assets.
Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I’d only be repeating what I’ve been saying over and over - not just for the past several days, but for years and even decades.
Still, at least a few observations are necessary.
The president assures us that his administration “is working with Congress to address the root cause behind much of the instability in our markets.” Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?
We are told that “low interest rates” led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.
Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or “wildcat capitalism” (as if we actually have a pure free market!).
Speaking about Fannie Mae and Freddie Mac, the president said: “Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.”
Doesn’t that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn’t that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn’t the federal government shown that the “many” who “believed they were guaranteed by the federal government” were in fact correct?
Then come the scare tactics. If we don’t give dictatorial powers to the Treasury Secretary “the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet.” Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.
It’s the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.
The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.
F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:
Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.
To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end… It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.
The only thing we learn from history, I am afraid, is that we do not learn from history.
The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?
Oh, and did you notice that the bailout is now being called a “rescue plan”? I guess “bailout” wasn’t sitting too well with the American people.
The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you’re supposed to have a voice in all this actually seems to annoy them.
I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.
H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.
Never mind that we don’t need the bailout, where exactly did the $700 billion number come from? Why not $500 billion, $650 billion or $800 billion?
Did they just pull the 700 billion out of thin air?
Yes, it turns out they did:
In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.
“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”
Here’s a question you’re not supposed to ask:
Wall Street Strip
Is Paulson’s bailout bill unconstitutional?
Posted Wednesday, Sept. 24, 2008, at 1:43 PM ET Does the Constitution have any role in the intense debate and blowback surrounding Secretary Henry Paulson’s $700 billion bailout proposal? There is nothing in our founding document that prohibits taxing Peter (us) to pay Paul (Wall Street). There are constitutional principles, however, that speak to values such as oversight and transparency. Our system of checks and balances abhors a blank check.
And yet Secretary Paulson’s proposal contains a sweeping provision that utterly strips the courts of any power to review his decisions. Section 8 of the Paulson proposal reads: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”
read the whole thing here.
I do have a quibble with this statement: “There is nothing in our founding document that prohibits taxing Peter (us) to pay Paul (Wall Street).”
I think a fair reading of the “General Welfare Clause” based on the intent of the Founders would prohibit taxing Peter to pay Paul. But I’ll conceded that unfortunately our Courts and politicians no longer hold the General Welfare Clause to be a limitation on government, but rather see it as the justification for unconstrained powers.