Given the recent passage and signing of H.R. 1424, the Emergency Economic Stabilization Act of 2008, I think it’s appropriate to give Murray Rothbard’s take on what they are doing.

From America’s Great Depression, page 19 and 20:

If government wishes to see a depression ended as quickly as possible, and the economy returned to normal prosperity, what course should it adopt? The first and clearest injunction is: don’t interfere with the market’s adjustment process. The more the government intervenes to delay the market’s adjustment, the longer and more grueling the depression will be, and the more difficult will be the road to complete recovery. Government hampering aggravates and perpetuates the depression. Yet, government depression policy has always (and would have even more today) aggravated the very evils it has loudly tried to cure. If, in fact, we list logically the various ways that government could hamper market adjustment, we will find that we have precisely listed the favorite “anti-depression” arsenal of government policy. Thus, here are the ways the adjustment process can be hobbled:

1. Prevent or delay liquidation. Lend money to shaky businesses, call on banks to lend further, etc.
2. Inflate further. Further inflation blocks the necessary fall in prices, thus delaying adjustment and prolonging depression. Furthercredit expansion creates more malinvestments, which, in their turn, will have to be liquidated in some later depression. A government “easy money” policy prevents the market’s return to the necessary higher interest rates.
3. Keep wage rates up. Artificial maintenance of wage rates in a depression insures permanent mass unemployment. Furthermore, in a deflation, when prices are falling, keeping the same rate of money wages means that real wage rates have been pushed higher. In the face of falling business demand, this greatly aggravates the unemployment problem.
4. Keep prices up. Keeping prices above their free-market levels will create unsalable surpluses, and prevent a return to prosperity.
5. Stimulate consumption and discourage saving. We have seen that more saving and less consumption would speed recovery; more consumption and less saving aggravate the shortage of saved capital even further. Government can encourage consumption by “food stamp plans” and relief payments. It can discourage savings and investment by higher taxes, particularly on the wealthy and on corporations and estates. As a matter of fact, any increase of taxes and government spending will discourage saving and investment and stimulate consumption, since government spending is all consumption. Some of the private funds would have been saved and invested; all of the government funds are consumed.¹⁵ Any increase in the relative size of government in the economy, therefore, shifts the societal consumption–investment ratio in favor of consumption, and prolongs the depression.
6. Subsidize unemployment. Any subsidization of unemployment (via unemployment “insurance,” relief, etc.) will prolong unemployment indefinitely, and delay the shift of workers to the fields where jobs are available.

These, then, are the measures which will delay the recovery process and aggravate the depression. Yet, they are the time-honored favorites of government policy, and, as we shall see, they were the policies adopted in the 1929–1933 depression, by a government known to many historians as a “laissez-faire” administration.

Since deflation also speeds recovery, the government should encourage, rather than interfere with, a credit contraction.

¹⁵In recent years, particularly in the literature on the “under-developed countries,” there has been a great deal of discussion of government “investment.” There can be no such investment, however. “Investment” is defined as expenditures made not for the direct satisfaction of those who make it, but for other, ultimate consumers. Machines are produced not to serve the entrepreneur, but to serve the ultimate consumers, who in turn remunerate the entrepreneurs. But government acquires its funds by seizing them from private individuals; the spending of the funds, therefore, gratifies the desires of government officials. Government officials have forcibly shifted production from satisfying private consumers to satisfying themselves; their spending is therefore pure consumption and can by no stretch of the term be called “investment.” (Of course, to the extent that government officials do not realize this, their “consumption” is really wastespending.)

Sound familiar?

From http://mises.org:

The events taking place in the financial market offer an illustration of the soundness of the Austrian theory of money, banking, and credit cycles, and Mises.org is your source not only for analysis of these events but also the economic theory that helps explain what is happening and what to do about it. There are many thousands of articles available, and also the full text of thousands of books as well as journal articles. It is impossible to draw attention to the full range of literature one can use to understand the crisis.

However, below we offer a brief look into the topics most discussed in these times, with extended treatments of each in the sidebar. Mises.org also offers both a blog and a community forum for reading and discussing them all.

It’s never been more important to spread a sound view of money and banking, not only as a protection against the fallacies of “stabilization” and “reflation” but also as way to see what kind of reforms are essential now.

Fannie Mae and Freddie Mac

• Freddie Mac: A Mercantilist Enterprise, by Paul Cleveland, March 14, 2005
• Fannie Mae: Another New Deal Monstrosity, by Karen De Coster, July 2, 2007
• How Fannie and Freddie Made Me a Grumpy Economist, by Christopher Westley, July 21, 2008
• Who Made the Fannie and Freddie Threat? By Frank Shostak, March 5, 2004
• Are Fannie and Freddie Too Big to Fail? By Frank Shostak, September 17, 2008
• Fannie Mae Distorts Markets, by Robert Blumen, June 17, 2002

The Housing Bubble

• The Real Cost of a Full Bailout, by Don Rich, August 22, 2008
• The Subprime Mortgage “Crisis” Will Fix Itself, by Steve Berger, May 30, 2007
• Did the Fed Cause the Housing Bubble? By Robert Murphy, April 14, 2008
• The Mortgage Market Mess, by Christopher Westley, May 17, 2007
• Housing Bubble: Myth or Reality? By Frank Shostak, March 4, 2003

Inflationary Finance

• What’s Behind the Financial Market Crisis? by Antony Mueller, September 18, 2008
• Our Financial House of Cards, by George Reisman, March 25, 2008
• Will Central Bankers Become Central Planners? by Robert Blumen, July 31, 2008
• Inflation is a Policy that Cannot Last, by Thorsten Polleit, March 14, 2008
• The Widening Safety Net, by Christopher Mayer, March 19, 2004
• The Fed’s New Tricks Are Creating Disaster, Frank Shostak, March 18, 2008
• The Fed’s War on the Middle Class, by Mark Thornton, June 4, 2008.

Community Reinvestment Act

• The CRA Scam and its Defenders, by Thomas DiLorenzo, April 30, 2008
• Regulatory Sneak Attack, by Thomas DiLorenzo, September 16, 1999

Short Selling

• Short-Sale Restrictions Are an Exercise in Naked Power, by Robert Murphy, August 11, 2008
• The Social Function of Futures Markets, Robert Murphy, November 29, 2006
• Don’t Sell Short Selling Short, April 6, 2007

The Austrian Theory of the Business Cycle

• The Idiocy of Wall Street, by Don Rich, September 24, 2008
• The Fed is Culpable, by Hans F. Sennholz, November 11, 2002
• Skyscrapers and Business Cycles, by Mark Thornton, August 23, 2008
• Economic Outlook 2008: Darkening Clouds, Dominick Armentano, January 2, 2008
• Business Cycle Primer, Llewellyn H. Rockwell, Jr. February 8, 2001
• Economics Depressions: Their Cause and Cure, by Murray Rothbard

Who Predicted This?

• The Financial Apocalyptics are Back, Robert Blumen
• Sowing the Seeds of the Next Crisis, Thorsten Polleit, April 25, 2006
• Credit Crisis: Precursor of Great Inflation, by Thorsten Polleit, February 7, 2008
• Mr. Bailout, by Anton Mueller, September 30, 2004
• America’s Unsustainable Boom, by Stefan Karlsson, November 8, 2004
• Who Predicted the Bubble? Who Predicted the Crash? By Mark Thornton, July 14, 2003

What To Do

• Don’t Bail Them Out, by Llewellyn H. Rockwell, Jr., September 10, 2008
• How to Avoid Another Depression, by Mark Thornton, September 10, 2008
• Taking Money Back, By Murray N. Rothbard, June 14, 2008
• Beware the Alchemists, by Ludwig von Mises, February 3, 2006
• Reflation in American History, by H.A. Scott Trask, October 31, 2003
• Money and Freedom, by Joseph Salerno, February 2, 2002
• The Case for a Genuine Gold Dollar, by Murray Rothbard

Books to Distribute

• The Theory of Money and Credit, by Ludwig von Mises
• America’s Great Depression, by Murray Rothbard
• The Mystery of Banking, by Murray Rothbard
• Prices and Production, by F.A. Hayek
• Causes of the Economic Crisis, by Ludwig von Mises
• Austrian Theory of the Trade Cycle and Other Essays, Ludwig von Mises et al.
• Understanding the Dollar Crisis, by Percy Greaves
• The Case Against the Fed, by Murray Rothbard
• Money, Bank Credit, and Economic Cycles, by Jesus Huerta de Soto
• History of American Currency, by William Graham Sumner
• Banking and the Business Cycle, by C.A. Phillips
• Fiat Money Inflation in France, by Andrew Dickson White

http://www.forbes.com/…

Despite these steps, more is needed. We must now take further decisive action to fundamentally and comprehensively address the root cause of our financial system stresses.

To restore confidence in our markets and our financial institutions so they can fuel continued growth and prosperity, we must address the underlying problem.

OH OH! So the Federal Reserve is going to be dismantled?! Remove regulations which are only show or there to help those at the top already?

And this morning, we’ve taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee program for the U.S. money market and mutual fund industry.

The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy.

First, to provide critical additional funding to our mortgage markets, the GSEs Fannie Mae and Freddie Mac, will increase their purchases of mortgage-backed securities. These two enterprises must carry out their mission to support the mortgage market.

Second, to increase the availability of capital for new home loans, Treasury will expand the MBS purchase program we announced earlier this month. This will complement the capital provided by the GSEs, it will help facilitate mortgage availability and affordability.

These two steps will provide some initial support to mortgage assets, but they are not enough. Many of the illiquid assets clogging our system today do not meet the regulatory requirements to be eligible for the purchase by the GSEs or by the Treasury program.

I look forward to working with Congress to pass necessary legislation to remove these troubled assets from our financial system. When we get through this difficult period - which we will - our next task must be to improve the financial regulatory structure so that these past excesses do not recur.

This crisis demonstrates in vivid terms that our financial regulatory structure is suboptimal, duplicative and outdated. I have put forward my ideas for a modernized financial oversight structure that matches our modern economy and more closely links the regulatory structure to the reasons why we regulate.

Damn! No.

More artificial risk reduction. This will only continue the distortion price signals and cause more malinvestment. More regulation that will either further enrich Wall Street at the expense of those on Main Street or will stifle their ability to do what they need to do.

Q: Mr. Secretary, what is the alternative here? What is the dire picture you painted for members of Congress last night to try and convince them to support this effort? What is the alternative?

PAULSON: This is what we need to do. Because for some time we’ve been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets.

We’ve worked with Congress on a number of the steps, all of which were important, leading up to this. But this is the way we stabilize the system and get at the root cause.

The root cause is central control of the economy. Something every American child is taught is a bad thing. Look at what happened to those evil commies. While the message we received was hyperbolic it’s has some truth. Central control isn’t only inefficient. It’s an inherently flawed system doomed to failure. These neo-Keynesians just won’t give up on their desire to control or antiquated theories. I saw Obama talking about how the fundamental reasons for this crisis include: not spending enough on infrastructure, not spending enough on education, not spending enough on labor (wages), not taxing the rich enough, etc. Just because you spend capital on something does not mean it’s good. It does not mean that’s what should be done. It does not mean you’ll receive a positive capital growth from the deal. The cost of education has doubled in real dollars since the 1970’s with at best a static result. The fundamental problems are the distortions of the pricing signals due to regulation and primarily the Fed’s interest rate and money supply manipulation. If you make debt cheap, or give it away like it is now (interest < price inflation), individuals will fall into the moral hazard trap and over estimate. They will over consume. Over invest. The illusion of wealth furthers the problem.

I wonder what could be the best practical policy to get this information out. I’m not looking to turn everyone into economists… I just want the to recognize something I think everyone does to some degree but stops short of applying it equally across others and the market as a whole. Perhaps just putting Henry Hazlitt’s Economics in One Lesson [pdf] in public places with Rothbard’s The Case Against the Fed [pdf] sprinkled about would help? I think after the recent happenings people would be happy to read through one of these while waiting for the doctor instead of reading People.

This morning I met a few bloggers though one in particular I’ve had some more extensive discussion with was Julia Rocchi of the Case Foundation. She’s blogging at their site SocialCitizens.org/blog. I’m glad to see some of my criticisms were noted by her on the post “questioning service.”

Voluntarism can be a great thing and the inhabitants of the United States are these most generous people in the world. State involvement taints this. While the service itself is not mandatory (for the moment) the taxes used to fund these state run projects makes all tax payers participants regardless of whether or not they agree with the way it’s being spent. And given the governments track record on thriftiness we may as well hand out cash on the sidewalk. Yes, that same argument may be said about all tax money utilization. I would argue that’s one of the reasons to oppose taxation in general (and that it’s theft). Government incentivized voluntarism, isn’t. Just as welfare is not charity. The government is taking money from one individual in order to pay another to “serve.” True voluntarism is completely from oneself. It is the “altruistic” (non-tangible selfishness) spending of time, money, labor, and skill.

As I’ve mentioned so often before, there is what is seen when the government promotes these projects and that which is not seen. What does not get seen is the potential lost because of government incentivizing individuals away from their free market path. The investments which would have been made with the money which was taxed away. The capital which would have been created due to those investments in the private sectors need to serve the customers. The jobs that were never created, the businesses never started. Many may scoff at these suggestions but that’s why it’s the problem of the seen and not seen.

As government grows, and we all know it does, more and more resources will be taken from the tax payers to be thrown around by politicians at their whim until such time that we have a near complete centralized control of resources. At which point our society will crumble.

Those who advocate more government involvement in anything let alone voluntarism need to take a serious look, both practically and morally, at what they ask for. Does government interference in the market lead to lesser or greater standard of living? Does the threat of violence, which is how government functions, not negate the good they intend to perform with the money and capital obtained?

Society would not accept as a defense from a theft that he was robbing John in order to feed Paul who’s starving. Society should also not accept that defense when the government uses it.

For those interested in this topic I recommend reading:

• The Road to Serfdom by F.A. Hayek
• Healing Our World by Mary J. Ruwart <== this one in particular for liberal leaning individuals.
• The Market for Liberty by Linda and Morris Tannehill
• and other works by those at Mises.org including Murray Rothbard, Ludwig von Mises, John Taylor Gatto, Robert Murphy, Henry Hazlitt, Lew Rockwell, etc.

http://www.thestar.com/…

The first American war resister deported from Canada – where he had fled after refusing to be deployed to Iraq – was sentenced to 15 months in jail yesterday at a court martial hearing in Colorado.

Pte. Robin Long, 25, of Boise, Idaho, was also given a dishonourable discharge after pleading guilty to charges of desertion.

The sentence was the longest any convicted army deserter had received since the beginning of the 2003 Iraq war, said retired U.S. Army Col. Ann Wright, a former diplomat who resigned from her post out of protest at the war’s outset.

Wright testified against the legality of the Iraq war on Long’s behalf.

Of the thousands of soldiers sentenced for desertion or going AWOL – and the estimated two dozen tried for protesting the war – only former army sergeant Kevin Benderman received an equal sentence in 2005.

About two-dozen anti-war supporters gathered around the courthouse at Fort Carson in Colorado Springs, Colo., yesterday afternoon as a military judge handed down Long’s sentence.

Though initially sentenced to 30 months in prison, that time was reduced to the 15-month maximum military prosecutors had agreed on when arranging a plea deal last week.

Long, 25, came to Canada in 2005 to flee a scheduled deployment to Iraq. While here, he was briefly engaged to an Ontario woman – with whom he had a child last year – before he moved to British Columbia, supporters have said.

He was deported and taken into the custody of the U.S. Army last month following a series of failed attempts to gain refugee status or permanent residency in Canada.

Late last week, Long’s lawyers reached an agreement with prosecutors that would see him plead guilty on charges of desertion with the intent to stay away permanently.

In return, prosecutors agreed not to move forward on the most serious charges of desertion with the intent to shirk hazardous duty.

Standing calmly and waiting for his sentence after three hours of testimony at yesterday’s hearing, Long appeared stoic and ready to serve his time in a military jail, supporters said.

“He was very calm and very measured,” said Wright. “He fully anticipated that he would be serving the entire 15 months.”

The dishonourable discharge he received could also go down as a felony offence and could restrict his future right to vote or carry a firearm, his lawyer said.

“(He) would pretty much become a second-class citizen,” his Oklahoma-based civilian lawyer, James M. Branum, told the Star earlier this week.

Like many of the other roughly 200 other American war resisters currently living in Canada, Long has said he opposed the conflict in Iraq on legal and moral grounds.

13th Amendment of the United States Constitution:

Section 1. Neither slavery nor involuntary servitude, except as a punishment for crime where of the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

Section 2. Congress shall have the power to enforce this article by appropriate legislation.

Unlike property, a man’s will is inalienable and therefore intransferable. Should a contract provide for payments upfront then breaking the contract would constitute theft which the person breaking the contract and therefore commiting the theft would be expected to pay back. However, that person would still be free to exit without the threat of violence against them.

Murray Rothbard covers this in better detail in The Ethics of Liberty.

http://www.bloomberg.com/…

Federal Reserve Chairman Ben S. Bernanke said risks to both U.S. growth and inflation have increased, abandoning officials’ June assessment that threats to the expansion had “diminished somewhat.”

There are “significant downside risks to the outlook for growth,” and “upside risks to the inflation outlook have intensified,” Bernanke said in semiannual testimony on the economy to the Senate Banking Committee in Washington.

Bernanke cited higher energy prices, reduced access to credit and a further deepening in the housing recession as dangers to growth. At the same time, he said: “We must be particularly alert to any indications, such as an erosion of longer-term inflation expectations, that the inflationary impulses from commodity prices are becoming embedded” in wages and prices.

ARGH. Way to pass the fucking buck. I’ll let Lew Rockwell speak for me:

It’s hard to be shocked at a lying federal official, but to see the head inflator, Ben Bernanke, warning the senate about inflation as if it were some extraneous force of nature is laughable. [Quoting above]

In other words, the Fed - the government agency created to inflate, and the only source of inflation - is keeping an eye on the wayward private sector, in case foolish people wake up to the Fed’s schemes, and realize they have engineered very high inflation indeed, at the same time as they have engineered a global depression, and prices zoom as the economy falls of the edge. In that case, it will be essential - from DC’s standpoint - to blame business people and consumers, so as to divert attention from their criminal selves. It is our job not to let them get away with it.

The Bloomberg article continues:

Retail sales rose 0.1 percent from the previous month, the Commerce Department reported today, less than economists forecast. Producer prices jumped 1.8 percent, the most since November, the Labor Department said. From a year ago, prices climbed 9.2 percent, a surge unseen since 1981.

Fed governors and district bank presidents now see the economy expanding 1 percent to 1.6 percent this year, up from 0.3 percent to 1.2 percent in their April outlook. Consumer prices will rise 3.8 percent to 4.2 percent this year compared with a projected range of 3.1 percent to 3.4 percent in April. The economy should expand at a 2 percent to 2.8 percent rate in 2009, identical to the April forecasts.

9.2%

Anyone reading this expecting to get a >= 9.2% raise this year?

Not all this turmoil is lost on the public thankfully. I’ve gotten a chance to rant about the Federal Reserve and this economic setup, with an actual attentive audience, more often then I’ve in the past. In fact my boss was talking about picking up something to better understand the Federal Reserve System. I’m going to bring in a copy of The Case Against the Fed by Murray Rothbard. Maybe I’ll be able to get it passed around the office. It’s a pretty quick read and given the urgency which people likely feel concerning this situation it may not be a difficult sell.