Archive for May, 2010

FREE & COMPULSORY SCHOOLS

May 31, 2010

FREE & COMPULSORY SCHOOLS

I have always been dissatisfied with the idea of public schools because of the fact that they are paid for by our taxes. This totally separates parents from one of the responsibilities of parenthood: preparing their children to be self-supporting adults. Education expense has become a communal obligation.

Recently I read a book by Murray N Rothbard titled “Education, Free & Compulsory”. It’s available from the Mises Bookstore. The book emphasized the other aspect of public schools; they are compulsory. Rightly so, for public schools were created long ago for a more sinister purpose: to indoctrinate us.

The first public schools were founded by two 16th century founders of Protestantism: Martin Luther and John Calvin. They each attempted to make their doctrines the official state religion, and to use the power of the state to force their beliefs on all citizens. Each one advocated total obedience to government as the instrument of the “true religion”. School attendance was compulsory, so the upcoming generations became religious zealots and patriotic nationalists.

European governments really liked the idea of absolute obedience. Even when governments abandoned the idea of an exclusive state religion, they clung to the system of compulsory attendance at state schools, This was to provide willing taxpayers and enthusiastic cannon fodder.

Free and compulsory public schools were introduced in the American colonies by the Calvinist Puritans. Slowly the system spread to the other colonies. After the revolution, the constitution, and the founding of the Federal Government, the public schools spread across the territories and the new states. Public schools have been an institution now for so long that we take them for granted and can’t imagine any other system.

In the run-up to World War 2 in the 1930s we started the daily ritual of the Pledge of Allegiance in our schools. We learned patriotic songs. The history taught made all of our wars and conquests sound innocent and virtuous. Patriotism formed a substantial part of our education.

As long as we have tax supported public schools we shall have unquestioning patriotic citizens fighting foreign wars to extend our empire and influence abroad. Any move away from this school system is a good move.

Home schooling and private schools free from government control may in time provide us with enough thoughtful, educated citizens to recapture our freedom and roll back our Federal Government to the limits imposed by the Constitution.

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WHY GROWTH?

May 29, 2010

WHY GROWTH?
It seems the whole world is obsessed with growth. Certainly, among the truly poor, living from hand to mouth or actually starving, there is a desperate need to make life at least less perilous and miserable. But the “poor” people in the USA live well above that level.

For most Americans, I see a real need to pause and evaluate our quality of life. For all our relative wealth, why aren’t we happy? How many people are enjoying their lives? Not just a few moments here and there, but all day, working, traveling, eating, tending to house and home, doing the big and little chores of daily living?

Not many, from what I can see. All around me, I see stress, insecurity, lack of sleep, and people always hurrying, behind schedule. We set impossible goals and then fret that we can’t achieve them.

At some point, you might think that people would say, “Enough”, retire, and enjoy the rest of their lives. However, when asked how much people want, no matter how much they have, the answer seems to be, “more”.

Technology marches on. New gadgets, comforts, and conveniences roll off the production lines. Methods improve and more work is automated. Less labor is needed to produce more goods more cheaply. Will our hunger for “more” ever reach a limit? How long can we sustain full employment? Will robots replace us and leave us all unemployed? Will growth finally stop in this future nirvana?

In one Science fiction story I read long ago, the main character was an all-purpose humanoid robot. The Robot was the sole support of his owner, who lived a life of ease. Does this suggest where we are headed? After a fashion, I think it does. But not in this century

Somewhere in the distant future, we may achieve a balance where we live off the proceeds of our investments, and work as much or as little as we like at whatever we care to do, with or without pay.

That’s what I do, now that I’ve retired. My “investments” are in a Social Security pension, a company pension, and my home. All of my work is unpaid. I’m happy and very busy. A life of ease doesn’t suit me.

But the security of being a capitalist certainly does reduce the stress.

FOR FURTHER READING

May 28, 2010

FOR FURTHER READING
I have tried to write about Austrian economics in simple English, free of Jargon. Most of what is available on this is subject is very scholarly. I’ve listed here some internet sources and books which can help you to expand your knowledge on this subject. The books are good basic reading which bridge the gap to provide a more thorough understanding but still in plain language. I hate specialist jargon which serves only to exclude the non-specialist.
Austrian Economics: Mises Institute
Mises Website: http://mises.org/
Mises Bookstore: http://mises.org/store/
To subscribe to Mises Institute Emails:
http://mises.org/content/elist.asp
Political action for Freedom:
Ron Paul: http://www.ronpaul.org/
http://www.campaignforliberty.com/index.php
===============================
Books I recommend: All available from the Mises Bookstore
Economics made Easy:
Economics in one Lesson by Henry Hazlitt $12
Economics for real people by Gene Callahan $14
Real American History:
How Capitalism Saved America by Thomas J DiLorenzo $14
The Politically incorrect guide to American History
By Thomas E Woods $19
Understanding Money:
The Case for Gold By Ron Paul $14
What Has Government Done to Our Money?
By Murray Rothbard $17
Anarchy
Chaos Theory by Robert P Murphy $8

EXTRATERRESTRIALS

May 27, 2010

EXTRATERRESTRIALS
Sometimes science fiction becomes fact. We have sent men to the moon and brought them back, placed many man-made satellites into orbit, and even sent a probe past Pluto and on beyond the furthest reaches of the solar system
Scientists, and especially astronomers, have always dreamed of other planets like ours, with intelligent life. They are actively searching for possible communication from such extraterrestrial life.
Knowing that in a few billion years, our planet will be destroyed, and possibly much sooner by various possible catastrophes, people have even dreamed of sending pioneers to colonize a suitable planet somewhere, orbiting around some faraway star.
I think I can lay these dreams to rest. Perhaps in millions or billions of years we might develop technologies undreamed of as yet. I will limit my speculation to something we are very certain of: Nothing travels faster than the speed of light, an impressive 186,000 miles per second.
When we apply this to the known astronomical distances to other stars, we’ll see that it would take ridiculously long to communicate with a likely planet, and much longer to get there. My numbers are very approximate, but adequate, I think, to make my point. Conveniently, astronomers measure distances in light years. A light year is about 6 trillion (6,000,000,000,000) miles
The moon, our closest neighbor is about 260,000 miles away. In terms of the speed of light, that’s about 1.4 light-seconds. The sun, is 93 million miles away, That’s 8.3 light-minutes away. Pluto has been demoted from the rank of our outermost planet in recent years (too small). It is, I believe several light-days away. It took years to send a probe there to send back pictures of Pluto
Our nearest star, Alpha Centauri is 4.3 light years away. We could send a signal there and get a reply back in 8.6 years. That is, if there were someone there with sufficient technology to detect our signal and reply. At that distance, it would probably take all the electrical power on this planet, and more, to send a brief message which would be detectable at that distance.
Now we move into the realm of probabilities. Just what is the probability that our neighbor Alpha Centauri has an earth-like planet, with intelligent life, with advanced technology? It turns out that most stars are unsuitable (Size & Temperature), and of the suitable stars the chances are slim that they would have a planet at a suitable distance, of a suitable size and chemical composition to support life of any conceivable kind. My guess is that the chance is something between one in a million and one in a billion.
For many years astronomers have studied all of the 8 planets in the solar system. Plainly none of them could support life with the just possible exception of Mars, our nearest planet. After years of surveillance by probes orbiting Mars, and Robot rovers sampling and examining the surface, it is pretty certain that there has never been any life on Mars.
Examining the solar planets shows that Earth is indeed unique.
In recent years astronomers have developed ways of detecting planets orbiting stars. The easiest planets to detect are the biggest ones, like Jupiter. Our methods of detecting smaller planets limit the chance of finding a suitable one; we can only detect smaller planets if their orbit happens to come in direct line between their parent star and earth. So there may be many possible life supporting planets that we could never detect. We have recently detected a few of a more earthlike size but none at a likely distance from the star, such as Alpha Centauri.
Probably our best chance of finding a planet with advanced technology would be by detecting signals like our radio, television, and microwave signals, which we have been radiating now for a century. We have been listening now for such signals for years without result. Of course, such a signal, even from Alpha Centauri, would probably be too weak to detect by our best present technology.
Supposing, against all odds, that we somehow detect an advanced civilization 50 light years away. Suppose too that we both have the necessary technology to communicate over such a distance. It might take a few hundred years just to get their attention and get their first reply.
Bouncing messages back and forth, with 100 year gaps, we would manage to bridge the language gap and start exchanging useful information. It would be fascinating, but the people who sent a message off would be dead by the time an answer arrived. However, we might advance both civilizations by the centennial exchanges of technology. Fascinating! But I’m indulging in science fiction.
Now let’s speculate about a trip to this, our nearest intelligent neighbor. With fantastic amounts of power, we might make the trip at an average speed of 5% of the speed of light (The first half accelerating, the second half decelerating). The trip would take 2,000 years- that’s 60 to 100 generations- to get there. Even a jaunt to our neighbor Alpha Centauri would take 80 years.
On our spaceship, we would have to produce food without sunlight, and totally recycle everything from air to sewage. Lots of technology we don’t yet have, and no rescues if anything fails. Science fiction has solved all of these problems, of course. Science fact, though, brings in the little question of economics. That has to do with achieving our goals within our limited means. It also raises the question of who’s to pay the bill.
If we carry on scanning the skies for signals from extraterrestrials, the cost is maybe a few million dollars a year. Taken out of the government bucket of taxes, it’s hardly missed. However, I doubt that, if such a project were financed out of donations, it would manage to scrape up enough to continue.
I wouldn’t contribute. Would you?
As for interstellar travel, that would take a hundred years at least to solve the technical problems (Fusion Power, for instance) and cost gazillions of dollars. Would you care to contribute a few hundred thousand?
I think I’ll pass on that one, too.

INFLATION: THE RACE TO THE BOTTOM

May 26, 2010

INFLATION: THE RACE TO THE BOTTOM
How do you measure the value of a dollar? I’ve already written about the cost of living index. That’s mostly a work of creative bookkeeping, a work of fiction to convince us that we only have a little bit of inflation. Could we measure the dollar in terms of British Pounds or Euros or Japanese yen? That wouldn’t tell us whether the dollar was inflating or deflating, or whether these currencies are inflating or inflating. The truth is that all of these currencies are being inflated, but at different rates.
What’s going on here? Why are all currencies being debased in value? The answer lies in Keynesian economics. This is bad economics, riddled with fallacies, but the economics of John Maynard Keynes is the answer to a politician’s prayer.
Keynes was an elitist who felt that the common man existed to support the elite. His economics was fundamentally immoral, for it was designed to deceive the ordinary working class, so they would willingly support the elites (of which he was, of course, the most elite). And, of course, the common people were too stupid to make wise choices; they needed wise men like himself to guide them and their governments.
Keynes explained his economic theory to President Franklin Roosevelt, who was struggling to get us out of the great depression. Workers would accept reduced real wages as long as they were getting increased dollar wages. Inflation, the stealth tax, would support government and provide money to subsidize industry and make-work projects to get the economy back on track. Roosevelt became a convert.
In time, Keynesian economics became the religion of all governments. Their wants had outgrown what their people would willingly pay in taxes. They had to get a bigger share of the wealth by stealth.
Actually, the economics of Keynes was a throwback to mercantilism, an often refuted economic philosophy that keeps coming back. It comes from the false notion that money is wealth, and goods are simply a means to obtain wealth. The idea is to make your country rich by exporting more goods than you import, and piling up the excess money in the government’s vaults.
So if you inflate the currency, you reduce the labor cost of production. You can then sell more goods abroad. Having reduced the value of your money, imports become more expensive so you import less. You pile up reserves of foreign currencies. So? What’s the use of foreign reserves. We have enriched other countries with cheap goods. We have impoverished our newly cheap labor to do it. The money we collect isn’t wealth. It’s useless unless we spend it.
The problem is that each government is playing the same inflation game in a race to inflate your own currency faster than other countries inflate theirs. We are in a race to the bottom, where money has no value at all.
Actually, all governments are in a race with technology. Advancing technology, at an ever increasing rate, creates and produces newer, better, products at decreasing cost. This masks the effect of inflation, so that in the long run, our standard of living improves despite the ever increasing slice that government takes from the annual pie. Although our lives are improving in material wealth, however, growing government means ever growing depletion of our freedom.

MALTHUS REVISITED

May 25, 2010

MALTHUS REVISITED
Malthus, an 18th Century economist, predicted that, with increasing prosperity, population would always increase to the point where some were starving. Ever since then, economists have kept saying, “See, Malthus was wrong!” Still, I think he had a point. There have always been people starving at one place in the world or another.
Population has kept growing. At 7 billion, the choicest places to live are very crowded. To feed all these people, we have farming on marginal land where crops are uncertain. In such places people do starve in the bad years. Water supplies are now marginal or insufficient in many lands. Technology may provide us enough water to produce enough food to feed 7 billion people. Certainly at some population level we would come to the limit of the resources of our planet. Will it be 10 billion or 15 billion or 20 billion? We are already struggling for sufficient water as it is.
Population growth is slowing now, and there are estimates that world population may level off in this century at something like 10 billion. If so, further technology might enable all of us to survive.
However, it is the poor who provide the population growth. Only if they can somehow rise out of poverty will our population stabilize. Unfortunately, the worst poverty is in lands ruled by bandits. Regime change and nation building is not an option. We have shown the futility of that in Viet Nam, Afghanistan and Iraq. At best, it will take many years before the rule of law prevails around the world. That is a minimum requirement for the elimination of poverty.
The Welfare State is no solution. Welfare encourages larger families. Perhaps if we abandon the welfare state in favor of the free market, we can once again prove that Malthus was wrong, not because we can feed an unlimited population, but because we will limit population to suit the capacity of our shared planet.
The USA has 5% of the world’s population and consumes over 20% of what the world produces. Many people dream of the whole world becoming as wealthy as the USA. To achieve that, the world would have to produce 4 times as much wealth as it now does. The problem is that this would proportionately increase demand for raw materials and energy.
Supplies of raw materials would become depleted and more difficult to extract. The increasing cost of extracting raw materials would place a limit on growth. At some point recycling will become competitive with extraction but would add to the cost of producing everything. That means that we, all of us, would sensibly settle for something less than the present American Standard of living.
Eventually we will have less extreme poverty but there will always be inequality, because we are born with unequal endowments into unequal circumstances. Equal opportunity does not produce equal results.
Eventually, that is, assuming that someday people everywhere can free themselves from despotic, repressive, parasitic governments, which exclude the possibility of real economic progress..

THE COMMONS

May 24, 2010

THE COMMONS
WATER
We cannot avoid communal sharing of certain things. I can claim a little patch of ground as my own. If it includes the banks of a river, I may draw water from it and dump trash, garbage, or sewage into it. I may make the water unfit for any use downstream, or somebody upstream may make it unusable for me. We have to work out ways to share that water. That is a work in progress.
AIR
Even more so, we share the air we breathe with the whole world. The smoke from my heating and cooking pollutes the air for others. Even breathing the air adds to its burden of carbon dioxide, contributing to global warming.
This was not a problem when there were less than a million people, hunters and gatherers, in the world; their effects on the earth were just a trivial disturbance of nature. However, the effect of 7 billion people, with high technology, is altogether another matter. We are obviously doing serious damage to Planet Earth, making it an unhealthy environment for all living things. The expression, “The tragedy of the commons” expresses all too well the importance of solving this problem. I don’t have an answer, and I don’t think an answer will be found until the problem becomes really bad, affecting nearly everyone adversely.
THE EARTH
The earth is getting crowded, especially in places with the best conditions for living: access to water for drinking and agriculture, access to rivers, lakes, and seacoasts for easy transport. We can each live on our own piece of land, but some area must be available as a commons to enable us to travel and trade. Streets, roads, and highways, rivers, lakes, and oceans are necessarily commons so that every parcel of privately owned land has access to every other parcel of land.
OPTIONAL COMMONS
In many cases we have the option to treat something either as common property or as personal property. Where we truly have this option, private property is always preferable, from the standpoint of freedom, and also in terms of the incentive to make the most productive use of the property and preserve and increase its value.
I have mentioned how the first English colonies in America failed because of the communal sharing of everything, but succeeded when the common property was parceled into privately owned plots.
In a commons shared by many, there is little incentive to contribute to the common welfare, and every incentive for each individual to exploit the common property for his own benefit, and quickly, before it’s all gone. The obvious solution is to treat every possible economic resource as private property. Libertarians are all in agreement on this, though they disagree as to the list of things that could be private property.
As to the possibility of treating all things as common property, we need only look to history for a dramatic answer. All communist experiments, it seems, are started on the hope that altruism will motivate the whole group to do their best for the common good. These experiments have all failed quickly, unless a tyrant, benevolent or not, took control of all economic activity of the commune. And eventually even these communes fail, because the economy of a large group is too complex for one person to manage. As to freedom, under full communism, each person becomes common property and a slave to the group.
The tragedy of the commons is the only excuse I can find for the existence of government. But government is power, the negation of freedom, and power corrupts. For this reason, and for the love of liberty, we must find a better solution in every possible case. Here are likely examples of privatization of things now treated as commons. I have arranged them by my perception of the ease of privatization.
THE U.S. MAIL
The US Mail has responded fairly well to efforts to make it a self-supporting business. However, probably the only reason it has survived until now is the government decreed monopoly on delivering letters. The government should remove this restraint and sell off what remains of the system to compete in the free market.
SPORTS STADIUMS
Some of these are public (government) property. Others are privately owned but heavily subsidized, particularly in the initial location and construction. I don’t see how anyone can justify any degree of subsidy, from taxpayers’ money, of such projects. (I’m not a sports fan) The usual plea is that they bring business to the local economy. Perhaps, then the local merchants will subsidize them? Not likely! Let them operate as self supporting private enterprise. If they are that important to you, you should be willing to pay whatever it costs to use them. And if you are thinking of the benefits to others, perhaps you would make a donation to keep them going. As to the government owned stadiums, they should be sold off. A buyer might well decide it would be more profitable to demolish the stadium and build housing or a shopping mall on the site. His profit is the proof that he’s providing what the consumers really want most.
MUSEUMS, LIBRARIES, PARKS, ETC
It seems that these amenities provide such great benefits that we can’t conceive of doing without them. If the benefits are that great, then they should be able to be self supporting from admission charges, subscriptions, or contributions.
SCHOOLS
Most people cannot conceive of privatizing our public schools. After all, didn’t we all get a very good education in public schools? What examples of private schooling do we have to compare it with?
Well, there are private schools, mostly doing a very good job, or they wouldn’t be able to compete as they do with a public school system. The parents of the students in these schools not only pay their tuition, but also support the public schools through their taxes. Expensive? Yes, but not nearly as expensive as public schools. The difference is, of course, that the expense of public schools is communized, while private schools are paid by the students or their parents. Empty nesters like me are not forced to support them. As it is, my taxes support public schools, but I also contribute what I can to support the Mises Institute, which teaches Austrian (Free Market) Economics.
And what do we get for the taxes we pay to support public schools? I see youngsters who have never been taught a bit of grammar (remember “Grammar” Schools), they can’t do much math, even with a calculator, know little or nothing of Geography, Science, or spelling. They have been taught a history which glorifies the state and justifies its wars. They graduate from public schools believing that the State is the solution, not the cause, of our problems.
Their education lacks continuity because of constant experimentation in subject matter and teaching methods. They have been taught by members of the most powerful union (and lobbying group) in the country, firm believers in the supremacy of the state. The students graduate prepared to become patriotic cannon fodder and willing taxpayers, though badly equipped to earn a living.
As long as any part of school funds comes from the Federal Government, patriotism will be the most urgent goal of our school system.
WELFARE
There seems to be a pretty general agreement, even among those who live on welfare benefits, that the system is broken. I see the basic reason as this: Government has little or no incentive to make it work. It is seen simply as a means to buy votes and support bureaucrats, and the more people living on welfare, the more votes it gets and the more bureaucratic salaries it can justify.
The purpose of welfare should be a temporary hand up to get people through a bad time: a safety net but not a hammock. Private charity sees it that way, for private charity has to make do with limited funds, whereas Government can tax us without limit.
Many people with charitable instincts feel that to abandon the welfare system is cruelty. But Government welfare is not charity. It is Robin Hood, making a comfortable living robbing rich and poor alike, giving maybe half of the loot back to the poor, and deliberately encouraging their dependency. The welfare state was invented by Otto Von Bismarck in Germany in the 19th century, expressly to make the people dependent on the State. (Actually, he re-invented it. The same scheme was the beginning of the end for the Roman Empire)
If altruism compels you to give to the poor, do so, personally or through your favorite charity. Not by way of government. The government will rake off at least half of what you give for itself, and hold a pistol to my head to make me contribute too. Charity is voluntary and personal. Government welfare uses coercively collected taxes from everyone, and wastes most of it in bureaucratic growth.
PENSIONS
I am a member of the AARP, which has probably the most effective lobbying activity in Congress. It is committed to statist intervention and the massive redistribution of wealth which is the Social Security system.
When I started working in the 1940s, as I remember it, I paid 1.5% of my income into the Social Security system. At that time few people were yet qualified to collect even a partial pension, so small contributions were enough to cover current pensions. It was obvious to me then that this was a pyramid scheme, bound to collapse in time. I couldn’t imagine then that workers would be willing to pay more than 20% of their income to support the lucky few who got into the scheme before it became too expensive to be self supporting.
Social Security has been bankrupt for years now, dependent on counterfeiting to meet the growing outgoing payments. The scheme was originally set up in such a way that it seemed as if workers were paying into a savings fund which they would recover as a pension when they retired. In fact, through the years, the current deductions simply went to pay the current pensioners. As years went by, more and more workers began to collect bigger and bigger pensions, and the number of younger workers to support the pensioners actually began to shrink. The scheme is bankrupt.
The fact is that, if workers had simply saved and invested the same part of each paycheck, they would end up with bigger pensions than Social security would pay. And those savings would have provided capital for industry, increasing productivity and making all of us more prosperous, instead of supporting an ever-growing bureaucracy.
The government is now searching for ways to get out of the pensions business by devising a scheme to convert to self-financed pensions, hopefully a scheme which won’t lose them too many votes. The communal system was an easy source of disguised tax money for politicians to spend in its early days. Now it has failed and they’re trying to sweep it under the carpet. Millions of pensioners (including myself) are now dependent on this scheme. To get the government out of this obligation will cause a lot of people a lot of pain. When it happens, I hope I can find an employer willing to ignore my age and hire me.
It is obviously more efficient and fair for people to provide for their own retirement: to privatize pensions. The transition will be a knotty problem, well beyond the capabilities, motivations, and courage of politicians. Suggestions, anyone?
COMMONS THAT ARE HARDER TO PRIVATIZE
There are many libertarians who firmly believe that government has no legitimate place in the scheme of things. They are anarchists. Despite the image which the word conjures up of a wild-eyed lunatic throwing a bomb, the word “anarchy” simply means “without a government”, and anarchists can explain plausibly how anarchy could be not only workable, but superior to government in providing each function which government claims as its own.
The fact is that much of what government does can be done better by free individuals or voluntary groups, and the anarchists simply propose to extend this to every function of government, including police, courts, jails, National defense, & streets & highways. For some interesting reading on this subject I suggest a small book, “Chaos Theory”, by Robert P. Murphy, available from the Mises Institute.

BUBBLES Forever Blowing

May 23, 2010

BUBBLES
Government policy is the fundamental cause of asset bubbles, such as the recent housing bubble, and the 1929 stock market crash. The basic driving force is price inflation caused by the ever-increasing money supply. The Federal Reserve System provides the increasing money supply but in the long run, government policy drives the Fed. (The independence of the Fed is a convenient myth).
The consequence of inflation is a draining away of the value of each dollar. If you have cash in your wallet, under your mattress, or in a savings account in the bank, it is losing value every day.
What to do? The solution is to buy some asset which will grow in value to compensate for price inflation. Better yet, borrow money to invest in some asset. Live your life on credit. Your cash balance will be negative, so in reality you can’t lose anything to the depreciation of the value of cash.
In fact, you will gain by inflation if your loan (mortgage) is on a fixed interest basis. In time, inflation will affect your dollar income. You’ll get more dollars (of less value per dollar) to pay off your mortgage. You pay your mortgage with cheaper money.
Government policy gave us further motivation to buy homes. The Fed influences all interest rates by setting the interest rates at which it lends to banks. When this rate is low, mortgage rates are low. Currently, the Fed rate of interest to banks is essentially 0%. You can’t go much lower than that.
The Federal agencies, Freddie Mae and Freddy Mac were created in the 1930s to encourage home buying, by guaranteeing home loans. This reduced risk to lending agencies, so they charged lower interest rates. Freddie Mae and Freddy Mac didn’t have a fraction of the reserves that would be needed if there were a spate of mortgage defaults.
Income tax encourages debt. With a tax deduction on interest paid, the effective interest you pay on a mortgage is much reduced.
Finally, in recent years, the government has actively “encouraged” lending institutions to relax qualifications for home loans. Many people ended up buying homes that they couldn’t really afford.
When many of these people defaulted, the system collapsed. The government bailout of some major banks, and Fannie Mae and Freddie Mac, saved them at a cost of trillions of (counterfeit) dollars, but the housing bubble was burst.
PSYCHOLOGY
There is a big psychological factor in any bubble. With all the encouragement by government, it seemed like a “can’t lose” opportunity. And there were enough winners to make it look tempting to take out a mortgage. I was a winner in the mortgage game, many years ago at a time and place where home prices were rising rapidly.
Inflation alone gives us an incentive to spend dollars of diminishing value to buy assets which will retain value. Easy credit makes it possible to do this with borrowed money. The Stock Market Crash of 1929 was caused by this same combination: inflation and easy credit.
Stock prices were climbing rapidly. People were making fortunes, if they pulled out in time. People who had never bought stocks plunged hysterically into the market with all they had, and more. The stock market is always speculative. In the short term, it’s very risky. When the bubble burst, many people lost a fortune – of borrowed money.
The crash in the housing market was really less painful than the Stock Market crash. As long as homeowners had the income to pay their mortgage, their “losses” weren’t really losses. They saw house prices rise and then fall, but they still had the same house with the same mortgage payments to meet. Only if they sold the house did they sustain a real loss.
When a bubble bursts, the government points an accusing finger at supposed culprits. The finger is pointing the wrong way. Government policy builds bubbles. Any random event can burst the bubble.

THE AMERICAN EMPIRE

May 21, 2010

The American Empire
Through the years I have learned to suspect much of the American History that was taught in school. Even when I was studying it, it raised questions that remained unanswered. For example:
Why did we need the Constitution? What was wrong with the Articles of Confederation?

Just what was the war of 1812 about? Were we invaded?
Why did the Southern States secede from the Union immediately when Abe Lincoln and the new Republican Party were elected to govern? Slavery couldn’t explain it.

Why did we then proceed to conquer the confederacy and force it back into the Union?

When the English speaking settlers in Mexico rebelled, why did we go to war with Mexico and then strip Mexico of vast territories? (Texas, New Mexico, Arizona, Nevada, and California)

Why, upon dubious provocation, did we conquer Cuba and Hawaii and the Philippines?

Why, before we entered WW2, did we set up a naval blockade of Japan, a deliberate provocation to war?

All of these actions, of course, were to maintain and expand the boundaries of the USA. In recent years I have reading history from a different viewpoint than was given me in my public school education. Slowly, the answers filtered through.

The Constitutional Convention was convened by people dissatisfied with the Confederation, for various reasons. They were mostly merchants, financiers, and speculators. Many wanted a strong central government on the British Whig model, which was a close coupling of Government, business, and finance with a central bank to provide cheap credit in order to expand business and enrich them all. The government was to subsidize infrastructure (roads & canals) to expand commerce. The strongest advocate of this model was Alexander Hamilton. The strongest opponent was Thomas Jefferson. In the end, Hamilton got it his way, though it took 120 years to get a permanent central bank (The Federal Reserve). The nation grew, with the Louisiana Purchase and then the acquisition of Texas and the Western states in the war with Mexico. This wasn’t yet an empire, just the acquisition of a vast territory, to our “natural boundaries”.

The Federal Government, meanwhile, grew in power, pushing beyond the limits spelled out in the Constitution and its amendments. The Monroe Doctrine declared a National interest in all of North and South America, prepared to prevent any further colonization. That sounded to me like the beginnings of the American Empire. Indeed, many people in South & Central America feel that they have become colonies of the USA.

Unanticipated by the designers of the Constitution, Politics quickly divided US voters into two parties, the Democrats (Thomas Jefferson) and the Whigs (Alexander Hamilton) This division remained in place until Abe Lincoln came on the scene. The Whigs were losing favor, so Abe organized the Republican Party, with the same goals, and pretty much the same people as the former Whig party.

Lincoln ran for president on a platform of subsidized roads, canals, and railroads, and a steep protective tariff on machinery to protect the Northern manufacturers from British competition.

He declared himself indifferent to the question of slavery. The South was strictly agricultural and would be the ones bound to pay the tariff, or start buying machinery from Northern factories at much higher prices. When the election was won by Lincoln and his Republican party, the southern states seceded from the union. The issue was taxation, not slavery.

Lincoln then set about what was then the most vindictive war in history. He reduced the South to shambles, leaving Southerners starving in their bombed out cities. The Union was restored, at great cost, and then we went on to fill the West, exterminating the remaining Native American Indians as we went.

For the next 40 years, Americans and European immigrants spread out to fill the country “from sea to shining sea”.
Then we decided we didn’t like the government in Cuba, still a Spanish Colony. There was a mysterious explosion on a US Navy ship moored in Havana Harbor in Cuba. No Casualties, because there was nobody on board at the time. This was considered sufficient provocation in Washington DC; we declared war with Spain. We installed a friendly government in Cuba and then went on to conquer the Philippines and Hawaii in the Pacific Ocean. By 1900 we had a real empire spanning half the globe.

In WW1, starting in 1914 in Europe, we supported Britain and France with Cheap credit and munitions until we joined the war in 1919. When the war ended in 1920, Germany was burdened with heavy reparations to France & Britain, who were, in turn, heavily in debt to us. We had acquired some more empire of a different sort: a financial interest in Europe.

In WW2, starting in 1939 in Europe, President Franklin D Roosevelt tried desperately to get the Germans to sink an American Ship. This was the same ruse by which President Wilson got us into WW1, but this time it didn’t succeed. So Roosevelt turned his attention to Japan, an Ally of Germany.
Japan was building an empire in Asia.

Being an island nation with few natural resources, Japan depended on imports to supply the materials of war.

We set up a naval blockade to stop all goods shipped to Japan, using our Navy fleet based in Hawaii. Finally, December 7 1941, Japan attacked Pearl Harbor. We immediately declared war on Germany, Japan, and Italy. By 1946 we had defeated all three of them. Europe was deeply in debt to us, and Japan was our prisoner. We set up a new Constitution and government in Japan, and it became an American possession of a sort.

After WW2, our then President Truman declared the Cold War. We proposed to stop the spread of communism across the world. We fought in Greece, Korea, and Viet Nam, without success. You can’t fight an idea with bullets. We created NATO, a military alliance with several European countries plus Turkey.

Essentially all members of NATO were pledged to protect all other members from aggressors.

For me, the final proof that we are an empire is this one fact; we now have 700 military bases in 170 foreign countries. This has been the situation for so long that we take it for granted. Stop and think about that. How many foreign countries have military bases in the USA? NONE!

We wouldn’t tolerate such an infringement of our sovereignty.
So why do all those countries so undervalue their sovereignty? Answer; they are all members of the American Empire. Within that empire, many unpopular rulers are kept in power by support from the USA. Saddam Hussein was one of our clients until we decided to overthrow him.

George Washington, when he left the presidency, warned us to avoid foreign entanglements. He must be spinning in his grave!

PRICE “GOUGING”

May 21, 2010

PRICE “GOUGING”.
We depend on, and take for granted, the supply chain which brings us goods from all over the world. In an emergency, like a hurricane, flood, earthquake, or war, the supplies of various items are interrupted. What to do?
The free market has the answer. Supply and demand directs products and services to the people who want them most, as measured by their willingness to pay. Price is the signal which controls supply and demand to keep them in balance.
The market does this quickly and efficiently, directed by prices. Yes, prices may rise dramatically, for a time. And yes, somebody will make profits, for a time. It is the prospect of those profits that will impel producers, and all the people in the supply chain, to the extraordinary efforts needed to get the most essential items to the people who want them most, as quickly as possible.
It is the suddenly higher prices that impel consumers to reassess their priorities and limit their consumption to whatever they see as most essential.
You may feel that poor people may die for lack of cash. In an emergency, government always fails. Nobody yet has found a way to eliminate poverty. As always, charity does the best possible job of relieving the effects of poverty.
In an emergency, people show their best qualities. Those who share the emergency share what they have, and rescue others if they can. Outsiders come to help and bring supplies. People far away send supplies.
Do you think the government should step in to prevent price gouging? All that government has to offer is to freeze prices, which will simply extend the shortages.