Cafe Hayek: Higgs on the Bailout

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October 07, 2008

Higgs on the Bailout

Don Boudreaux

Here's Bob Higgs on the bailout 'plan.' I especially like this paragraph:

Sure enough, in the days after the bill’s initial defeat, its managers took the monstrosity that had failed on Monday and made it even uglier. Their purpose, of course, was to buy off the bill’s opponents in Congress by sweetening it with all sorts of more or less unrelated provisions intended to channel benefits to the opponents’ constituents and supporters. In short, in Washington last week, business went on as usual: Congress is the name; corruption is the game.

Yes. Thank goodness we Americans have mature, responsible, wise, and courageous 'leaders' in government to regulate markets.

Children can be excused for believing in Santa Claus; they are, after all, children. Adults cannot be excused for believing in the beneficence and wisdom of the state. This institution's foolishness and predations are visible for all who care to see. I can respect at least the intelligence of those who defend the state as their means of extracting wealth from others -- that is, for example, I can respect the intelligence of U.S. auto executives who defend the state as their means of extracting the $25 billion recently ponied up by Uncle Sam to help G.M., Ford, and Chrysler. I can respect their intelligence even as I loathe their ethics.

But I cannot respect the intelligence of adults who continue to insist that empowering strangers sitting beneath a marble dome to take and spend other people's money is wise and sensible. And my respect for such alleged 'intelligence' dissolves even further when I reflect upon the fact that those persons who insist on trusting the state (because its top officials are elected democratically) see -- or should see -- the disgraceful behavior that these officials each engage in to win their gaudy glory.

Posted by Don Boudreaux in Current Affairs, Financial Markets, Government intervention in housing, Politics | Permalink

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Comments

The supposed out for the libertarians with their ideological backs to the wall is to blame the coming world recession on government and the fact that we don't truly have a free market.

Whatever intelligence I do have its an insult to it when people bring up Freddie and Fannie and the CRA as the cause of this collapse. The facts and the logic just don't support the hopes that the claim will sound good. Even the people writing these things, I think, know they are not true but must be written to protect a fractured ideology. It is in my opinion a case of cognitive dissonance.

The current world crisis was a result of the financial weapons of mass destruction as predicted by an expert long ago. This also well documented on the most recent 60 Minutes piece.

""The instruments themselves are at the heart of this mess," Grant says. "They are complex, in effect, mortgage science projects devised by these Nobel-tracked physicists who came to work on Wall Street for the very purpose of creating complex instruments with all manner of detailed protocols, and who gets paid when and how much. And the complexity of the structures is at the very center of the crisis of credit today."
says Jim Grant, the editor of "Grant's Interest Rate Observer.

I still support government by the people because as of yet it is the best thing history has seen for the advancement of the human condition. Like the free marketers who claim the free market didn't fail because it wasn't quite truly totally free I will make the same sort of claim to hold onto my ideology.

Government by the people has not failed as we don't have that... we have a government run by corporations... by plutocrats. This is the result of classic liberal forces powering our government and the publics image of it. Here should be placed a picture of Milton Friedman and Ronald Reagan shaking hands with Reagan being quoted as saying the government is not the solution its the problem. That ideology has ruled the day since that hand shake and ultimately led to rule by plutocrats just as I would predict any libertarian based society to result in.

Now maybe I suffer from delusions as well but I think there is a real solution ... a fix... that can return us to a government by the people. But at least I have a hope for a solution.

When I read the post above I see some one complaining about the system as it is who also seems to know of a better system. Apparently a much better system but can not even attempt to put into words with out massive self contradiction how we human social beings are to get to this better system. And I also believe I see some one who has not thought of the likely real world human psychosocial reasons why such a system is doomed to failure and why no such system can be found existing in the real world.

I don't have all the answers but I do believe my intelligence demands respect too because I sure as heck don't see the obvious answers being written about here. And I'm not convinced it's my ideas that have brought the global society to the precipice of total collapse... no one seems to know what the next few days much less the next few years could look like. A bump on the road or a massive die off of people I really can't exclude either but the best way to get the worst result is to have closed minds.

Professors thanks again for this good blog.

Posted by: muirgeo | Oct 7, 2008 10:18:14 AM

Right on cue, the village idiot appears. You lack intelligence, Muirdiot, thus there is nothing to respect. However, as you lack basic intelligence, you probably don't understand this.

Posted by: Methinks | Oct 7, 2008 11:20:38 AM

methinks

To see a world in a grain of sand
And a heaven in a wildflower,
Hold infinity in the palm of your hand
And eternity in an hour.

Posted by: muirgeo | Oct 7, 2008 12:40:45 PM

Muirgeo,

Jim Grant is a freemarket Austrian leaning analyst. Very interesting that you would quote him to support your otherwise silly statements.

The reason why all these derivatives were possible, is not because of a lack of supervision of the child, who was playing with a loaded gun, but the loaded gun itself. Loaded gun was provided by Government regulation - taxation, inflation and interest rate manipulation. Banking is one of the most regulated businesses and all regulations are created to favor the bankers themselves, as can be expected from an all powerful government on the payroll of the plutocrats. It is a cartel and like all cartels, it exists only with government help and regulation. The whole deposit banking is a giant pyramid scheme. Read Murray Rothbard's Case against the Fed.

Posted by: Oil Shock | Oct 7, 2008 12:53:03 PM

"Government by the people has not failed as we don't have that... we have a government run by corporations... by plutocrats."

Which is the inevitable result of any system of government. The incentives in such a system are simply broken. The government merely allows corporations to use force-by-proxy upon the consumers. The worst thing we could do to corporations would be to give them a free market, which would leave them no choice but to serve the consumers.

"This is the result of classic liberal forces powering our government and the publics image of it. Here should be placed a picture of Milton Friedman and Ronald Reagan shaking hands with Reagan being quoted as saying the government is not the solution its the problem. That ideology has ruled the day since that hand shake and ultimately led to rule by plutocrats just as I would predict any libertarian based society to result in."

Government pork was invented by Milton Friedman and Ronald Reagan? I sincerely hope you don't actually believe that.

Besides, the free market ideology most certainly has not been in power for a long time, if it ever was. Even though the Republicans pay lip service to free market ideals, just about everything they do (particularly under Bush) contradicts them. I don't know how you think "classical liberal forces" run the government.

Posted by: Will | Oct 7, 2008 1:31:33 PM

Guys,
I come on here just to read and laugh at Muirgeo's postings, but I absolutely savor the way you all tear him apart. Thanks.

Posted by: Rick | Oct 7, 2008 1:56:26 PM

Muirgeo,

it seems Will beat me to the punch:

You say:

Government by the people has not failed as we don't have that... we have a government run by corporations... by plutocrats."

SAME THING. This is where all your grand ideas about what society should look like and how we can romantically achieve it fall part. A government by the people IS a government run by plutocrats elected by "the people". Ever wonder nearly all politicians are upper class? Plebs like you and me elect them to do wonderful things that never turn out the way you intend. Then they ask for more power. And the Plebs keep giving it too them with grand promises that never come to fruition. The self-reinforcing cycle keeps intensifying and then, before you know it, government power becomes very high stakes because IT CONTROLS EVERYTHING.

You want a government where Jack Smith on Main St. in Oklahoma and Tyrone Jackson working in the Bronx have the same power as well organized and connected plutocrats? A silly dream. An impossible dream. A dream that drives plebs into self-enslavement.

And then who the Plebs blame? They blame their few fellow plebs like me and others here who were wise to this charade from the start and never wanted to have anything to with it.

Plebs like me and others here would rather others join us and tell the government to stop doing us so many favors, to decentralize and shrink its scope.

Who would lose by doing this? Not the plebs but rather the wealthy and connected who use it as a tool for legal rent-seeking.

You simply don't get this.

Posted by: John V | Oct 7, 2008 2:11:57 PM

He doesn't want to get it. He's made so much investment in his model, he derives his identity from it. George is now the product of his hatreds and fears as he clings tightly to the oligarchical structure with the promise of people controlled government.

I can VOTE! I am all powerful! Yay!

Posted by: Sam Grove | Oct 7, 2008 3:12:53 PM

The bailout was the wrong thing to pass. It's time to do something right.

Please support this proposal and get your Congressional representative to sponsor this solution to our current monetary crisis.

A complete list from the Detailed Executive Summaries of the National Economic Stabilization and Recovery Act:
http://nesara.org/bill/index.htm

Immediate Relief and Results

# Eliminates more than $1 trillion of the nation’s public debt
# Reduces future private debt by more than $1 trillion
# Immediately eliminates some private debt, especially for many homeowners

# Workers maintain better control of their earnings
# Production is no longer taxed, just consumption
# Most of the necessities of life are not taxed

# Encourages production thus revitalizing industry in America
# Encourages rebuilding of inner cities
# Discourages wasteful uses of natural resources

# Exposes the true cost of government
# Greatly eliminates the struggle between tax “protesters” and bureaucracy
# Allows the “underground” to resurface and become a viable contribution to production of goods and services
# Greatly restricts the influence of special interests and lobbyists

The Federal Reserve System

# The Federal Reserve Act of 1913 is amended
# The Federal Reserve System is abolished and replaced by a new Treasury Reserve System
# Control of the currency is moved from private control of the Fed to public control of Congress and the new Treasury Reserve System

# Congress sets the standards for the new monetary system but the people create as much or as little currency as they need
# Functions of the Federal Open Market Committee are transferred to the Board of Governors of the new Treasury Reserve System
# A new mechanism, the Treasury Reserve Account, is created to provide the Treasury Reserve System Board of Governors a better method to fine-tune the money supply, effectively eliminating inflation

# The Treasury Reserve System Board of Governors will continue using the previous three mechanisms for controlling the money supply: 1. Setting reserve requirements. 2. Setting the national discount rate. 3. Purchasing U.S. Treasury securities on the open market.
# All U.S. Treasury securities purchased by the Treasury Reserve System Board of Governors will be immediately turned over to the U.S. Treasury and cancelled out of existence.

Monetary Policy
# People are provided with several alternatives for currency
# Constitutional currency is restored
# Currency becomes debt free as the people stop paying interest payments for their use of a public utility

# Unlike previous policy, the new Treasury Reserve Board is provided one very specific mandate: maintain a stable currency
# Expansion of the economy is returned to the free market
# Private coinage is encouraged

# Exchange ratios for the various currencies are published at least weekly
# Printing of redeemable gold and silver certificates is allowed
# Postal money orders are made available in denominations of gold and silver coin

Banking

# Returns the banking industry to serving public interests
# For secured loans, compound interest is outlawed and replaced with a monetization fee
# Provides stricter banking controls by imposing excise taxes to discourage high or runaway monetization fees

# On secured loans obtained from a fractional reserve bank, principal must be paid in full before the bank begins collecting its monetization fee
# Eliminates the facade for banking insurance (FDIC)
# Except for fraud and criminal activities, virtually eliminates bank failures

# Banks are prohibited from using as reserves any commercial paper
# Only Treasury credit-notes can be used as bank reserves
# Banks are prohibited from purchasing government issued debt, effectively removing banks from influencing monetary policy

# Checking accounts against gold and silver deposits are prohibited
# Commingling of funds among the various money accounts without owner’s permission is prohibited
# All currency deposits with banks are general warrant deposits and custody accounts.

The Income Tax

# The Income Tax Act of 1939 is amended
# People need no longer fear the IRS
# Billions of hours of nonproductive labor are eliminated

# Mounds of paper work are eliminated
# The cost of the income tax is no longer hidden and embedded in the cost of doing business and passed down the chain with the consumer paying the final tab
# Most likely eliminates state income tax plans because state income taxation piggybacks on federal income taxation

# The IRS is reformed into the National Tax Service
# Volumes of complicated tax code are history
# Eliminates personal income taxes

# Eliminates corporate income taxes
# Eliminates gift taxes and estate taxes
# Eliminates capital gains taxes

Sales and Use Tax

# Tax rate of 14%
# Government entities are exempt
# Government mandated expenses such as licenses, permits, passports, are exempt

# Sales of bullion, coin and currency are exempt
# Sales made by or to nonprofit schools are exempt
# Sales of prescription drugs, medical supplies and services are exempt

# Real estate rents and leases are exempt
# Sales of groceries are exempt
# Sales of plants, livestock and fish used in the production of food for human consumption are exempt

# Insurance sales are exempt
# Segregated portions of labor in retail service contracts are exempt
# Incidental or occasional sales such as garage or rummage sales are exempt

# Sales for the purposes of recycling are exempt
# Meals provided by companies at company expense are exempt
# Sales that are nonprofit in nature are exempt