The lack of results so far from the various "stimulus" plans seems to have got the American Left worried already. How else can one explain the appearance in the NYT of an article which declares that Obama's actions are similar to Hitler's and that Hitler was successful in his economic policies? I would never have predicted an article like that in the NYT in a million years!
Taranto writes at some length about the broader aspects of the comparison so I will confine myself to the economic argument in the article. Although I am a former High School Economics teacher, I am not fully engaged with economic statistics these days so I will speak in general terms and hope that a more detailed critique will emerge from elsewhere.
The Hitler comparison is in fact only one of the dubious comparisons used in the article. The writer declares successes where few others would. That the Hoover/FDR policies did not cure unemployment is, I think, undeniable but to our NYT writer they were a success -- as were the policies behind the Japanese doldrums of the 1990s. So one must suspect from the outset some flimsiness in the Hitler comparison too.
Much has been written about the German economic recovery of the 1930s but the first point that needs to be made is surely that Germany's position at that time was very different from that of the USA today. The twin impacts of a currency totally destroyed by inflation under the Weimar regime and a continuing demand for "reparations" were huge negative factors for the German economy at that time. And the large reductions in those problems were more the work of the brilliant Hjalmar Schacht at the Reichsbank than anyone else. Just relieving Germany of those problems was a very good "stimulus" to an economic recovery.
And it was also the manoeuvring of Schacht that enabled Hitler to finance his public works programmes. The programmes concerned did of course run up huge debts and it was only Schacht that kept Germany out of some form of bankruptcy. But Schacht could only do so much and by 1939 Germany was effectively "broke" and it is often contended that Hitler's march to war in that year was as much an economic necessity as an ideological imperative. Germany's generals certainly did not think that they were ready for war at that time. They felt that their buildup would not be complete until a couple of years further down the track. And the outbreak of war in 1939 in fact saw Germany facing French forces that were in most ways numerically superior to it.
So Hitler went to war to loot the gold in the Bank of France and elsewhere as much as for any other reason. Thanks to the brilliance of General von Manstein he initially succeeded in his objectives. One shudders to think what might have happened if he had put Manstein in charge of the Russian campaign.
Obama does not have to go to war to deal with the debt problem he is creating. Because America is the provider of the world's reserve currency, he can simply print all the greenbacks he likes to pay his government's bills. And he has already started doing that on a large scale. That is of course called "inflation" and there are plenty of commentaries from all sorts of sources on the evils of that. That it rewards debtors and penalizers savers has always been obvious but in the present case it has also started the process of snatching away from the world its reserve currency. And the consequences of discouraging saving (and hence capital formation) worldwide must indeed be grim.
The gold bugs are of course as happy as pigs in mud at the moment and gold exporting countries, such as Australia, are doing a roaring trade. But the net effect of that is to increase the Reserve Bank of Australia's holding of American paper -- and it is precisely that which now seems unwise. So from that alone one can see that the gold standard has its own problems -- which is why it was abandoned many years ago.
By Sheldon Richman
We expected little of sense to come out of the G-20 summit, and it met our expectations with flying colors.
When you don’t understand how the economy got into a mess, you are not likely to understand how it can get out. Politicians either can’t or won’t graps the key fact: “the free market” did not cause our problems. How do we know this? It’s logic: the nonexistent cannot be the cause of anything. I’d like someone to show me this free market that brought on all the current turmoil. Please. The banking industry gets most of the blame, but banking has been part of a formal government-sponsored cartel since 1914 and is regulated, as well as privileged, by multiple layers of authorities, among them the Federal Reserve, the Federal Deposit Insurance Corporation, and the Comptroller of the Currency. An international agreement among the major central bankers, the Basel Accord, controls capital requirements and related matters. (Before 1914 a patchwork of regulations existed.) And let’s not forget the regulators in the states. With perhaps a local or exception or two, there has never been an unregulated banking industry in America (or most anywhere else).
This only scratches the surface of the corporate state’s stewardship of the economy. But politicians, who wield power and spend coercively acquired money for a living, have no incentive to see this. How could they? That’s not how the game of politics is played. They have no reason to see things in a way that would counsel against their exercising authority.
So, with complete predictability, the Gang of 20 promised to spend over a trillion dollars they don’t have to “stimulate” the world economy, to help struggling countries through the IMF (its record is so good at that), and other noble purposes. The G-20 also endorsed worldwide inflation by central banks and promised—I love this one—to “take action against” tax havens.
“The era of banking secrecy is over,” said the communiqué, as though that were a good thing. “We stand ready to deploy sanctions to protect our public finances and financial systems.”
The Obama administration led us to believe it was standing firm against a world regulatory authority, which was pushed by French President Sarkozy. But you be the judge. Here’s what the communiqué says:
“We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires…. In particular we agree: … to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission…; to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks; to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds; to endorse and implement the FSF’s tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms….”
And more—as if the regulators could have the requisite knowledge to manage economic affairs. This is a regulatory cartel, and to the extent it squelches competition among jurisdictions, it will produce all the evils of a coercive monopoly. That of course is the point. There is to be no safe haven where people can protect their wealth from the grasping politicians.
Economies Aren’t Run
The presumptuous and undistinguished assembly in London—why are they regarded by the media as wise men and women of accomplishment?—aspire to run the world economy, and they know that out-and-out nationalization is not necessary to that end. Of course, they disclaim any such objective. The current White House occupant, Barack Obama, said in his post-conference news conference that he believes in the free market—he did say that!—but that government must set rules to keep it from running “off the rails.”
Well, of course, an economy is not a locomotive and there are no rails. It’s people engaging in exchanges. “Society is purely and solely a continual series of exchanges,” said the eighteenth-century French liberal economist Destutt de Tracy. So Obama’s idea translates into politicians regulating our peaceful, consensual conduct in order to bring about or to avoid certain outcomes. The current economic turmoil has politicians convinced that they must limit risk taken by financial firms. This, pardon me, is a bad joke. It is none other than government itself that has systematically socialized risk in the financial industry and therefore encouraged individuals and firms to undertake greater risks than they would have taken otherwise. The irony is that the more the politicians strive for a risk-free society, the greater the danger to us all. That’s moral hazard, the largest manufacturer of which is the state.
If banks, hedge funds, and other sorts of operations (including government-sponsored enterprises) assume the Federal Reserve or the Treasury will bail them out in a crisis, they will be less risk-averse than they would have been without that guarantee. If depositors see an FDIC sticker on every bank they encounter, they won’t be too particular about which one they entrust with their money. Safety will not be a competitive factor because deposit insurance makes them all appear equal. The bankers know this.
Full Market Discipline
If politicians were really interested in reducing reckless financial activity with the potential for external harm, they would want to see the full force of market discipline at work. The full force. But remember the point about political incentives. Letting market forces discipline banks, insurance companies, automakers, and other firms would leave politicians and bureaucrats little to do. Market discipline—the threat of loss and bankruptcy—is the product of laissez faire, and, loosely translated, that means: “Politicians, keep your cotton-picking hands off peaceful voluntary exchange.”
We face a serious challenge. On the one hand, people who understand markets realize that government regulation—which includes the corporate safety net—was the essential cause of the economic failure. Any seeming irrationality by bankers and financial managers must be grasped in the context of well-understood government guarantees, including the implied promise by the Federal Reserve—the Great Counterfeiter—to buy toxic assets and provide fiat liquidity in a crunch. This was the indispensable underpinning of the government housing policy that encouraged the making and securitizing of dubious mortgage loans (prime and subprime) and the underwriting of those who invested in them.
On the other hand, people who don’t understand markets or who dislike markets can always blame them for any problem that arises. After all, government regulators, no how much power they have, can’t be everywhere watching everything, can they? So as I’ve written elsewhere, “No matter how much the government controls the economic system, any problem will be blamed on whatever small zone of freedom that remains.” (I modestly acknowledge that Laurence Vance has dubbed this, Richman’s Law. I have no objection.) And the “solution” will be—of course—more regulation. Just ask Obama and Treasury Secretary Timothy Geithner. Don’t think of regulation as being imposed. Think of it as the modest price for government privileges and protection.
So the market’s opponents can rely on demagogic sound bites and pervasive economic ignorance, while the market’s defenders must ask people to think. Sad to say, this puts the freedom philosophy at a disadvantage. And so we press on.
I have recently put a couple of things up on my personal blog -- for anybody outside family who takes an interest in my boring personal life. I like my life to be boring, mind you.
Unemployment rate hits 8.5%: "The nation's unemployment rate shot up to 8.5% in March as employers shed 663,000 jobs and cut workers' hours to a record low, the Labor Department said Friday in a report showing continued rapid deterioration in the job market. A record 13.2 million Americans were out of work last month. Firms have cut 5.1 million jobs since the recession began in December 2007, with nearly two-thirds of the cuts happening in the last five months. The unemployment rate was up from a seasonally adjusted 8.1% in February, and at 8.5% it is the highest since November 1983. A year ago the rate was 5.1%. For the first time since 1985, less than 60% of the U.S. population was working."
The O-man gets some things right: "US President Barack Obama has urged the NATO allies to boost their own military strengths, and has warned that Europe is more likely to fall victim to a terror attack than the US. In Europe on his first major overseas trip since becoming president in January, and seeking to drum up support for his new Afghan strategy, Mr Obama praised Washington's partners but said they should raise their game. "NATO is the most successful alliance in modern history. The basic premise of NATO was that Europe's security was the United States' security, and vice-versa," Mr Obama said in France ahead of NATO's 60th anniversary summit. "That is its central tenet, that is a pillar of American foreign policy that has been unchanging over the last 60 years. It is something that I am here to affirm," he added, standing alongside France's President Nicolas Sarkozy. "We would like to see Europe have much more robust defence capabilities. That is not something we discourage, we are not looking to be the patron of Europe, we are looking to be partners with Europe," he said. "The more capable they are defensively, the more we can act in concert on the shared challenges that we face."
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)