Credit Controls Punish Responsible

The following article originally was published on May 24, 2009, by Colorado Daily.

Udall's credit controls punish the responsible

by Ari Armstrong

Didn't Sen. Mark Udall's mama ever teach him to read contracts before signing them?

If he had learned that lesson, he wouldn't impose new federal controls on credit cards -- controls that would punish the responsible and the poor in order to reward irresponsible whiners.

Nobody is forcing you to get a credit card. If you don't like the terms that a credit card offers, you are perfectly free to reject them.

Michael Riley writes in the Denver Post that Udall "hatched the idea in 2005 after watching a staff member's experience with a credit-card company that boosted his interest rate to 21 percent even though he had never missed a payment."

If you sign up for a credit card that tells you it will raise your rate whenever it wants, then why are you complaining when the company does exactly what it said it was going to do to you?

If you don't like the deal, then pay off the card and cancel it.

What if you're not able to pay off your card or transfer your balance elsewhere? If you can't handle your balance, then don't charge it in the first place.

The new controls will have two main effects. They will ensure that the young and the poor have less access to credit. And they will make it harder for responsible cardholders to negotiate good terms.

An Associated Press article summarizes the key provisions of the Senate bill. It would force credit card companies to lower rates even for people who miss payments, increasing rates for the rest of us.

It would require a "45 days notice before rates are increased," making it harder for credit cards to lower rates for others. It "requires anyone under 21 to prove that they can repay the money before being given a card," making it harder for young adults to build their credit.

Additional Federal Reserve controls would limit "excessive fees" charged to "people with bad credit," limiting their ability to rebuild credit.

For a few years, my wife and I got in over our heads and faced high balances and interest charges. We made a budget, controlled our spending and steadily paid off our debts. The more debt we paid off, the better the credit terms we could negotiate.

Today credit card companies pay us to use their cards. Our American Express card charges an insanely high interest rate on balances -- which is why we never carry a balance on that card. The card also pays cash back for purchases and offers free monthly interest when we pay in full.

We carry about $6,000 on a Chase MasterCard at guaranteed 0 percent interest forever (provided we make all our payments). Counting inflation, the credit card company effectively pays us to keep the balance.

Of course, if you bury high-interest charges beneath a no-interest balance, it's not such a good deal -- which is why we don't do that.

We worked hard to earn good credit terms, and now Udall wants to punish us to buy the votes of the whiner demographic.

Udall's scheme flows from one fundamental premise: You're just too stupid to live your own life without the "help" of federal politicians.

Unfortunately, those who push for political control over their lives would drag the rest of us down with them.


Ari Armstrong, a guest writer for the Independence Institute, is the author of "Values of Harry Potter" and the publisher of FreeColorado.com.

Yes, Tapy, Free Market Would Revitalize Economy

I had so much fun responding to letters in the Denver Post yesterday that I thought I'd have another go. Today the Post published a letter by Frank Tapy that supports political economic controls. I replied:

What is remarkable about Tapy’s letter is that, while it contains a string of ad hominem attacks, it contains not a single argument in favor of his position.

Meanwhile, free-market advocates have explained in detail how federal controls involving Freddie Mac, Fannie May, the Community Reinvestment Act, the Federal Reserve, and more promoted risky lending that is at the root of the real estate and stock bubble.

Tapy’s claim that a free market will lead to “the collapse of the economic system,” whereas increased political controls supposedly will save it, is laughable. If he were correct, then Soviet Russia and Maoist China should have become the wealthiest nations, while Hong Kong should have failed. The crisis of today’s economic system is the result of political interventions in the economy, yet Tapy calls for more of the same poison.

Prosperity results when individuals have the liberty and the legal protection of their rights of property and contract to produce as they know best and to enjoy the fruits of their labor. When politicians violate people’s rights by trying to centrally plan the economy, they impede and discourage production.

Right now, the federal government is taking massive wealth out of the free economy that is desperately needed for investment and squandering it on corporate welfare. Right now, the federal government is seizing the wealth of the responsible in order to reward the irresponsible. Right now, the federal government is undermining the stability of the dollar and loading down our children with debt. And this is what is Tapy thinks will “revitalize” the economy? Seriously?

What we need is a renewal of economic liberty. What we need is a government that protects individual rights instead of violating them on a massive scale.

No amount of “continuous evaluation and modification” of political controls, no “long-term assessment” of political meddling will achieve prosperity. We need freedom.

-Ari Armstrong
http://www.freecolorado.com/

Political Controls Provoke Producers to Go On Strike

The following article originally was published March 2, 2009, by the Grand Junction Free Press.

Political controls provoke producers to go on strike

by Linn and Ari Armstrong

The economy has recovered from every recession so far, so it's a good bet that, eventually, the economy will recover from the current recession as well. We can be sure that, so long as the recession lasts, Barack Obama will blame outside forces, and as soon as the recession has ended Obama will take the credit.

Assuming the economy starts growing again, it will do so in spite of, not because of, Obama's new forced wealth transfers and political controls of the economy. The controls of Obama, the Congress, and the state legislature, on top of earlier controls promoted by both political parties, threaten economic prosperity.

Such controls violate the rights of producers -- of doctors, engineers, programmers, builders -- to set their own destiny, control their own business and property, and interact with others on a voluntary basis. Political controls subject producers to the whims of bureaucrats.

Controls also forcibly transfer wealth from some people to others, thereby reducing the incentive to produce wealth. Around 40 percent of each new dollar earned goes to taxes. The deficit spending of Obama and George W. Bush threatens to impose the hidden tax of inflation.

When producers face the twin threat of bureaucratic meddling and confiscation of the fruits of their labor, many throw up their hands and either quit producing or cut back. They go on strike, in part or in full, loudly or quietly.

We have talked with countless friends who have decided to invest less or work less. Many would rather work on the house or the car, where at least their labor is not taxed, than spend more time in their chosen field where they are largely directed by bureaucrats and forced to hand over much of their earnings to others.

We have heard of doctors leaving medicine or certain specialties to avoid the associated bureaucratic nightmares.

We have heard of entrepreneurs who would rather sell their dreams to safe corporations than risk opening a new business under the regulatory nightmare of Sarbanes-Oxley and other controls.

We have heard the outrage of working-class families, who are struggling to make their ends meet even as they are forced to subsidize the irresponsible, such as the woman in California who added octuplets to her six prior children. We hear, "Why am I working so hard?"

This idea of a strike of producers is hardly new. In 1937, Harold Ickes, FDR's Secretary of the Interior, "gave a radio speech assailing America's wealthy, charging that sixty families who ran the nation were on strike against the rest of the country," writes Amity Shlaes in The Forgotten Man.

The next year, Wendell Willkie fired back at a similar claim made by Assistant Attorney General Robert Jackson. Willkie said, "Mr. Jackson has previously spoken of a 'strike of capital' against the government. If there is any strike of capital it comes from these millions of small investors, not from the wealthy few... The main problem is to restore the confidence of investors in American business, and to do this will require more than pleasant speaking on the part of government. For several years the government has taken definite action to show its hostility to business." [See This Is Wendell Willkie (New York: Dodd, Mead and Company, 1940), p. 70.]

Ayn Rand, who lived through both the Russian Revolution and the Great Depression, made the idea of the productive strike the theme of her 1957 novel, Atlas Shrugged. For many years the working title was "The Strike." Rand described the theme as "what happens to the world when the Prime Movers go on strike."

Rand wrote of her "fantastic premise," a "hypothetical case" in which the world's top producers disappear, one by one. (Much of the drama takes place in a fictional valley near Ouray.) But the truth behind Rand's literary device remains: political economic controls discourage the producers from creating the wealth necessary for our lives.

Today the fantastic pushes through reality. In a touching YouTube video called "My Strike," a man begins his address by quoting Atlas Shrugged. He explains how friends of his have left their fields. He says, "Now I'm on strike... I woke up one morning and could not think of a single reason to come to work... We live in a time when billions of dollars of market capitalization can be wiped out by a single political speech, statutory command, or regulatory decree. And those politicians consume our lives as much as our dollars."

It's no wonder that sales of Atlas Shrugged have tripled over the same period last year, reports the Ayn Rand Institute.

Perhaps it's time for you to fold up this paper, roll up your sleeves, and get back to work. Because that's what we always do, right? We go back to work, no matter what the politicians do to us or how much they take from us. Until they cross that line and we the producers say, "No more."

A Good Beer Needs No Political Force

The following article was published by Colorado Daily on January 26, 2009, under the title, "Free our beer: Stop telling grocers what they can and can't sell." It also appears on the Independence Institute's web page as "A Good Beer Needs No Political Force."

Game time is ten minutes from now. Tortilla chips, check. Salsa, check. Okay, where's the real beer? If you've ever wanted to buy food and fine beer at the same store, tough luck. State law says that's a crime.

Last year the Democrats pushed through the free-market reform of allowing liquor stores and their customers to conduct business on Sundays. Yet the Colorado liquor industry remains hampered by Prohibition-era controls. State law prohibits liquor stores from opening chains and selling food. It forbids grocery stores from selling anything but low-alcohol beer, and that's the big fight this year.

In a January 11 article for the Rocky Mountain News, John Carlson, executive director of the Colorado Brewers Guild, argues that the grocery-store restrictions promote "the diverse array of beer styles for which Colorado is nationally known... because independent liquor stores offer [craft brewers] vital access to market." However, truly "independent" liquor stores wouldn't demand protectionism imposed by politicians and their army of bureaucrats.

The point of the free market is not to maximize choices in beer or any other item, but to protect liberty. If having the most beers available were the goal, the state could force all liquor stores to carry every single beer brewed throughout the world. State law could also force existing brewers to expand ten-fold the styles of beer they produce. Somehow, I doubt the people paying Carlson's salary would appreciate such laws.

Free markets do offer consumers vast choices by protecting their right to exchange on mutually agreeable terms. People naturally seek a wide variety of goods and services. When politicians attempt to ensure "choice" by forcibly intervening in trade, they destroy people's choice to buy and sell as they see fit.

Choice does not justify force. For example, we have fewer choices today in horse-drawn buggies, hand-sewn clothing, and pet rocks. If politicians tried to force us to buy more of those things, they would undermine our choice to shop for other goods.

Carlson implausibly claims that grocery store sales would restrict the diversity of beer. The rise of microbrews is due to consumer demand, not protectionism. Some grocery stores would stock a wide selection, expanding the ability of craft brewers to get their product to market. Many stores would continue to compete for the business of those who just can't decide between that Smokejumper Porter and Mephistopheles' Stout.

Stores properly compete on diversity of selection, price, and customer service. Some people just want an ice-cold Coors. Others want the global sampler pack. Some shop for convenience, others for rare beers sold by knowledgeable employees. Telling grocery stores they can sell only low-alcohol beer is a bit like telling Wal-Mart it can sell only Britney Spears in the music aisle. We don't protect butcher shops by forcing grocery stores to sell only fatty hamburger.

By forcibly limiting the choices of shoppers who prefer a basic selection at lower prices, Colorado law forces some beer drinkers to subsidize those with more eccentric tastes.

Protectionism helps some businesses by harming their competitors. It violates the spirit of camaraderie, liberty, and free competition that craft brewers are supposed to represent. At game time, root for your team, and root also for the freedom to buy goods and services from anyone willing to sell them. And don't forget the salsa.


Ari Armstrong is a guest writer for the Independence Institute and the editor of FreeColorado.com.

Fines for Plastic Bags?

Last year I wrote about a proposal to fine the use of plastic shopping bags. Now it's back, this time with the support of the children, because when children support political economic planning it's so much cuter than when adults do it.

You can read about the story at 9News, the Rocky Mountain News, the Denver Post, or various other Colorado news sources. The upshot is that State Senator Jennifer Veiga and Representative Joe Miklosi want to impose a six-cent fine on plastic bag use, half of which would go to government-run education (because it is so obviously free from propaganda).

There are two main reasons, and several minor ones, why this is a horrible idea.

How stores supply bags to customers is properly between those parties, not politicians. Grocery stores have the right to provide the bags they want and that they believe their customers desire. Shoppers have the right to use those bags or bring their own. This is a matter of property rights and freedom of contract, and Veiga and Miklosi would violate both.

A government that can micromanage our shopping bags can control every other aspect of our life as well. If the "problem" is that plastic bags create waste, don't we need political controls on all other sorts of waste? All around us there is wasteful driving, wasteful packaging, wasteful thermostat-setting, wasteful clothing, wasteful everything -- according to the environmentalist zealots. Maybe we should just let the sate seize total control of the grocery stores, shut down the wasteful ones, and ensure the stores sell only non-wasteful products, as defined by politicians and bureaucrats. Clearly that is a recipe for tyranny of the highest order.

Now for the minor reasons. Plastic bags are cheap and convenient. Many people use them for trash-bag liners or to clean up after their wasteful pets. (Maybe those should be banned, too -- just think of all the poop and food baggage they generate.) Cloth bags are a nuisance for those shopping on the fly. Besides, grocery stores such as King Soopers already provide a modest financial incentive for bringing your own bags.

This proposal is social-engineering. It is wrong. It is immoral. The very fact that it has been proposed and lavished with media attention illustrates how far our nation has moved away from the principle of individual rights. It is a great scheme by the environmentalists, though: they spend our tax dollars to propagandize to children, who in return propagandize for environmentalist causes which would expand funding for government-run schools. Brilliant. [Update: Kent Denver School, which features the children pushing for the fine, is a "non-profit, private independent school." This does not change the arguments, though it does indicate how widespread is the anti-capitalist, environmentalist agenda.]

Update, January 30, 2009: The Rocky points out in an editorial:

Merchants would keep half the fee; the rest would underwrite a state "plastic bag reduction education fund . . . for the purpose of educating consumers" about the other part of the bill: an outright ban on plastic bags taking effect July 1, 2012. ...

Because the 6-cent arbitrary charge appears to be a tax, it must be presented to voters for approval, according to TABOR.

I had been relying on this comment from 9News: "The other three cents would go back to the state to fund education."

I did try to look up the bill before posting this article. I could not find it in the listings on the legislative web page, so I called the state capital and learned that, because the bill had not yet been introduced, it was not available online. I am happy to correct the record now.

The "plastic bag reduction education fund" makes the bill even worse, much worse, as it would force consumers to fund environmentalist propaganda, adding to the violation of their rights an infringement on their freedom of speech, which entails the right not to fund speech one finds objectionable.

Barack Obama and the Politics of Cynicism

Barack Obama said many wonderful things in his inauguration address, and he said them very well. Ultimately, however, Obama offers the message that economic liberty must be forcibly restrained because free-market principles no longer apply.

Obama calls his opponents cynics. What is cynicism, and which side exhibits it? Obama uses the term basically to mean a nay-sayer. The modern term but loosely connects to its Greek roots; Oxford's dictionary defines a cynic by today's usage: "A person disposed to rail or find fault; now usually: One who shows a disposition to disbelieve in the sincerity or goodness of human motives and actions, and is wont to express this by sneers and sarcasm; a sneering fault finder."

Obviously merely finding fault is not cynicism; anyone who takes any position whatsoever necessarily finds fault with the other side. Instead, cynicism is faulting others' positions or motives without good reason, or faulting mankind as such though no such conclusion is warranted; it is substituting the sneer for the argument. So what does Obama have to say about cynicism?

Obama complains about "worn-out dogmas that for far too long have strangled our politics"; he says "the time has come to set aside childish things." He leaves his meaning obscure, but clearly he's setting up somebody for a fall.

Obama then offers due praise to the American spirit:

[I]t has been the risk-takers, the doers, the makers of things -- some celebrated, but more often men and women obscure in their labor -- who have carried us up the long, rugged path towards prosperity and freedom. ... We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished.

He then summarizes his ambitious goals:

The state of our economy calls for action: bold and swift. And we will act not only to create new jobs but to lay a new foundation for growth.

We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together.

We will restore science to its rightful place and wield technology's wonders to raise health care's quality... and lower its costs.

We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age.

Obama's vision for the federal government is ambitious. He wants the federal government to aggressively fund not only transportation infrastructure, but communications, scientific investigation, health care, energy production, and education. Later he says the federal government should also help people find jobs and prepare for retirement. The scope of this federal control of the economy is breathtaking. Though he invokes the spirit of the Founders, the sort of federal government that Obama promotes bears little resemblance to the government instituted by the Founders, the purpose of which is to defend our "unalienable Rights" to "Life, Liberty and the pursuit of Happiness."

Far from endorsing a free market, Obama instead lauds the "watchful eye" of the federal government. This is not merely the eye of a "night watchman" who guards against force and fraud and helps resolve disputes peaceably. That sort of watch protects a free market. Instead, Obama proposes a "watchful eye" that observes -- and controls -- how people spend large fractions of their money, which corporations receive federal funding, how individuals and companies conduct business, and how individuals receive health care and other basic services. It is a Watchful Eye with a far and penetrating gaze.

Here is the segment in which Obama discusses his Watchful Eye and the alleged cynicism of those who do not care to be so watched:

Now, there are some who question the scale of our ambitions, who suggest that our system cannot tolerate too many big plans. Their memories are short, for they have forgotten what this country has already done, what free men and women can achieve when imagination is joined to common purpose and necessity to courage.

What the cynics fail to understand is that the ground has shifted beneath them, that the stale political arguments that have consumed us for so long, no longer apply.

The question we ask today is not whether our government is too big or too small, but whether it works, whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified.

Where the answer is yes, we intend to move forward. Where the answer is no, programs will end.

And those of us who manage the public's dollars will be held to account, to spend wisely, reform bad habits, and do our business in the light of day, because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched.

But this crisis has reminded us that without a watchful eye, the market can spin out of control. The nation cannot prosper long when it favors only the prosperous.

Notably, Obama completely ignores the fundamental cause of our economic troubles: a network of federal controls that promoted risky loans. In other words, the cause of the problem was the federal government's "watchful eye," yet Obama considers it the only solution.

Obama's passage echoes the writings of Jim Wallis, who preaches "progressive" religion:

One could say that people of faith should endorse a "limited" view of government. This is not the old conservative proposal for small government, sometimes cynically argued in order to reduce the public sector's ability to counter the power of the wealthy and ensure more fairness and balance in a society. But neither is it an argument for big government that usurps more and more control in a society and puts in jeopardy both individual rights and countervailing powers to the state. Clearly, the answer to the endless left-right debate is neither small government nor big government, but rather effective, smart, and good government.

Obama (following Wallis) is right about one thing: the central issue is not about small versus big government. The central issue is about whether government protects or violates individual rights. If a large number of citizens roam the countryside victimizing innocents, government must exert considerable force stopping them. If a foreign aggressor threatens to destroy us or take us over, government must grow to a size necessary to stop the threat. In all cases, it is the proper job of government to protect us from force and fraud and oversee the peaceable resolution of disputes. That is, it is the proper job of government to protect our rights, whatever size of government that requires.

Central to liberty is the right to use one's own wealth and resources as one deems best. We have the right to interact with each other on a voluntary basis, rather than by force. We have the right to exchange and cooperate to mutual advantage. We have the right to volunteer our services or donate our wealth as we see fit. We have a basic, fundamental human right to live in economic liberty. The term for such a socio-economic system, in which the rights of each person are consistently upheld, is capitalism, characterized by the free market.

Notice that Obama does not praise a "free market," but a market under the federal government's Watchful Eye. Obama does not endorse economic liberty, free markets, or individual rights in the economic sphere. He endorses the massive, forced redistribution of wealth by politicians and bureaucrats. He endorses far-reaching economic controls by the same. His vision of the federal government is not one that protects individual rights in the economic sphere, but one that aggressively violates them.

Yet Obama, like Wallis, holds that no principles are necessary in the economic sphere. True, Obama praises the "old" virtues of "honesty and hard work, courage and fair play, tolerance and curiosity, loyalty and patriotism." But these can remain sufficiently vague so as not to challenge the propriety of the Watchful Eye.

To Obama, anyone who upholds government as the defender of economic liberty must be dogmatic, childish, cynical, detached from reality, and "stale" in their arguments. Obama's alternative is a pragmatic appeal to government that "works" to oversee the economy. But this raises several questions. If economic liberty is a dogma, then what is it that Obama advocates? Who is to determine whether the government is "working?" For whom is it "working?" How can a government "work" to violate individual rights without straying from justice and prosperity? How can a government that violates economic rights protect rights generally?

Theory and fact, ideology and history demonstrate that economic liberty promotes justice and prosperity, while political controls promote the opposite. Obama's memory seems to have shut out practically all of the 20th Century. Those who argue that federally-controlled medicine wouldn't work (to take but one example) do not embrace cynicism: they embrace reality.

So who here is the true cynic?

Advocates of economic liberty hold that each individual properly lives his own life and pursues his own ends, consonant with the rights of others. Such advocates hold that, when people are free from force and fraud, they will join together on a voluntary basis to create a just, prosperous, and peaceful society. This view is the opposite of cynicism: it is a view rooted in the belief that people tend to do a good job leading their own lives and cooperating with others, and that the best society is a free one.

Obama, on the other hand, unleashes a string of personal attacks against the defenders of economic liberty. He implies that a government that protects individual rights is inadequate for preserving the "greatness of our nation." He holds that people, if left to their own choices in a system of economic liberty, will tend to do the wrong thing. What people need is not liberty, by Obama's view, but the guidance of a Watchful Eye. He holds that people must be watched -- and controlled -- by federal politicians and bureaucrats.

I can imagine no more cynical view than that.

Ritter's New Mandate

The Denver Post reports:

... Ritter threw his support behind a proposal requiring homebuilders to offer buyers the option of putting solar panels on their home or having the home pre-wired for the panels.

"Homebuyers already have choices when it comes to countertops, paint colors and flooring," he said. "People should have similar options when it comes to sustainability."

Come on, Bill, buyers already have that "option." What Ritter wants is not the option but the requirement. The result of this will be to marginally increase the cost of homes.

Buyers and sellers -- of homes and other goods -- have the right to negotiate mutually-agreeable terms. Buyers who want solar panels are free to demand them, and sellers are free to provide them.

The problem for Ritter is that most people don't want to put up the extra expense of buying solar panels. Which is why Ritter wants to force people to explore that "option."

Jon Caldara had a great reply for the Post, even though safety codes too should be a matter of private contract and tort enforcement: "That's insane. Why don't we also require them to offer Corian countertops as well? This is between a private builder and a private owner, and the government's only responsibility is to make sure the building is up to safety codes."

Congress Against the Economy

The New Clarion (a nice new online publication) pointed to a recent article by Michael Malone lamenting the federal roadblocks to entrepreneurship:

From the beginning of this decade, the process of new company creation has been under assault by legislators and regulators. ...Congress, the SEC and the Financial Accounting Standards Board (FASB) have piled burdens onto the economy that put entrepreneurship at risk.

The new laws and regulations... have managed to kill the creation of new public companies in the U.S., cripple the venture capital business, and damage entrepreneurship. According to the National Venture Capital Association, in all of 2008 there have been just six companies that have gone public. Compare that with 269 IPOs in 1999, 272 in 1996, and 365 in 1986.

Faced with crushing reporting costs if they go public, new companies are instead selling themselves to big, existing corporations. ...

For all of this, we can first thank Sarbanes-Oxley. Cooked up in the wake of accounting scandals earlier this decade, it has essentially killed the creation of new public companies in America... and cost U.S. industry more than $200 billion by some estimates.

So, while the modern economic mess was primarily caused by federal encouragement of risky loans, Congress has "helped" to destroy productivity in other ways as well. (For some additional examples, see Veronique de Rugy's article for Reason.)

Notice also that, even as the federal government prevents sensible mergers that would take advantage of economies of scale and better management (as with Whole Foods), in other ways the federal government encourages uneconomic conglomeration.

America's politicians may yet be able to push the nation into another Great Depression.

Attorney General Bilks Drug Producer

Tillie Fong reports:

Colorado will get $1.2 million from a national settlement with Cephalon Inc., after the pharmaceutical company was accused of marketing and promoting three drugs for "off-label" use.

The announcement by the Colorado attorney general's office Monday said the money will be used to reimburse the state Medicaid system. ...

While it is legal for doctors to prescribe Food and Drug Administration-approved drugs for off- label use, drug companies are not allowed to market or promote directly their drugs for such purposes.

Is there any claim that Cephalon's advertisements were fraudulent? No. Is there claim that Cephalon has acted negligently? None that I'm aware of. (I checked the AG's web page and found no media release on the matter.)

So this company has been punished for advertising its products and selling them to willing customers. Doing business is now often a crime in the United States.

These restrictions are a violation of the company's rights of free speech, property, and association.

While often the attorney general's office does important work protecting people's rights, in this case it has helped violate people's rights and undermined the proper purpose of government.

Let us say that a company does act fraudulently or negligently. Is there a proper government role in such cases? Yes! There is a role for both criminal fraud and criminal negligence. However, the more important role for government is to provide the legal context for tort. That is, people should be able to sue a company for fraud or negligence. Now, torts should be restricted such that companies may not be punished for unforeseeable harms or for transactions in which customers voluntarily accept risk.

But in no case would fraud or negligence justify the government transferring wealth from the company at fault to a welfare program! Instead, any damages should go directly to the victims. (Whether a state welfare agency decides to pay for certain drugs for certain purposes is a different issue, and not one that justifies legally punishing drug producers.)

In this case, though, there were no victims -- except for the company itself and its customers.

Ayn Rand Doesn't Need a Bailout

The Following article originally was published on November 10, 2008, in Grand Junction's Free Press.

Ayn Rand doesn't need a bailout

by Linn and Ari Armstrong

Ayn Rand recognized a common pattern in the growth of political power: the enemies of liberty blame the free market for economic problems caused by government interference, then use those problems as a pretext for yet more political controls. Much of Rand's prescient novel Atlas Shrugged revolves around that cycle.

Now Rand's critics sound exactly like the villains of Atlas. They wouldn't attack her if they didn't recognize her as a barrier to their grand central plans.

Recently Alan Greenspan fueled the Rand hunt. In an October 23 statement to a Congressional committee, Greenspan said he had "found a flaw" in his ideology of "free, competitive markets."

There's just one problem with Greenspan's statement: he practiced no such ideology. For two decades, Greenspan served as Chairman of the Federal Reserve, a central-planning agency tasked with manipulating the money supply. Greenspan's flaw is that he long ago abandoned the ideology of liberty.

Two decades before becoming a central planner, Greenspan, while still in association with Rand, warned of the dangers of the Federal Reserve. In a 1966 article, Greenspan noted that, in the late 20s, the "Federal Reserves pumped excessive reserves into American banks." This "spilled over into the stock market -- triggering a fantastic speculative boom." Sound familiar? Greenspan became the monster he once warned against.

Today's crisis centers around risky home loans. But were these loans made on a free market? No. Instead, they were encouraged, and in some cases mandated, by the federal government.

Not everyone has forgotten Rand's wise criticisms of central planning. Before the election, we asked Yaron Brook of the Ayn Rand Institute to summarize the causes of today's crisis.

Brook answered, "The most harmful instances of government interference in the economy include, but are not limited to: the Federal Reserve Board's inflationary policy of keeping interest rates artificially low and the money supply artificially high, the government's hand in the creation and management of Fannie Mae and Freddie Mac, other government 'affordable housing' policies including the Community Reinvestment Act, and the policy of bailing out large financial institutions deemed 'too big to fail'."

Brook further explained the damage of government inflation: "As Ludwig Von Mises and other members of the Austrian school of economics stressed, inflation does not simply raise everyone's prices. It leads to massive, unfair redistributions of wealth. It starts with the injection of money into one sector of the economy, where participants are rewarded with higher prices for their products -- most recently, we saw an enormous redistribution of wealth to those involved in home-buying -- and then gradually spreads to drive up all prices higher than they would be absent the inflationary spending."

The cycle Rand warned about is in full force. Brook noted, "Unfortunately, despite a few enlightened and courageous voices out there, most politicians and commentators are blaming greed and the market for the current crisis and demanding more government control of markets as the solution -- and most of the public believes them. The media share the general cultural antipathy toward genuine capitalism, so they are inclined to publicize views that blame the market for today's problems."

Both major candidates for president followed that stock line. While John McCain also blamed unspecified "corruption in Washington," he emphasized the "greed and mismanagement of Wall Street."

Barack Obama blamed greed and deregulation, despite the fact that nobody can point to the repeal of a regulation that could have caused the crisis. By contrast, the mechanisms by which government controls caused the crisis are clear.

Obama's rhetoric ignores the nature of the free market, in which the government consistently protects the individual rights of each participant.

Can people be "greedy" on a free market? If that means they can pursue their own prosperity and happiness while respecting the rights of others, sure. If greed means people can use political force to get their way, then we're no longer talking about the free market -- we're talking about the sort of system that McCain and Obama advocate.

Does the government "regulate" the market by protecting property rights, resolving contractual disputes, arresting those who threaten and practice brute force, and rooting out fraud? In a sense, yes. But by imposing political controls that infringe people's rights, the government makes the market irregular and disrupts the rational plans of individual participants.

Unfortunately, Obama has sworn to impose even more economic controls. He wants more corporate welfare and more central planning for energy. He wants to further socialize medicine, even though costs are so high because of existing political controls of the health market. He wants increased federal spending, resulting in higher taxes or more deficit spending.

Obama's central plans are bound to create more economic problems, which he will no doubt blame on whatever liberty we have left. At least Rand through her works will continue to set the record straight.

Yes, FDR Made Depression Worse and Longer

As the federal government seizes control of much more of the U.S. economy -- and prepares to do so at an accelerated pace, argues David Brooks of the New York Times -- it is useful to examine our greatest economic crisis, the Great Depression. Was it caused by a "failure of free markets" or by a failure of federal controls? Was it solved, or worsened, by new government interventions?

I've entered this debate in a small way through the Rocky Mountain News. After reviewing the debate there, I'll turn to the material in the books that have persuaded me that the Great Depression was caused, worsened, and lengthened by the federal controls particularly of the Hoover and Roosevelt administrations.

In an October 2 editorial, the writers argue that, in her debate, Sarah Palin "let Biden largely escape with his (and Obama's) tedious riff that the current implosion on Wall Street is largely a result of Republican deregulation -- when Democrats were by and large the strongest defenders of Fannie Mae and Freddie Mac's trip into the wild side of lending."

I left the following comment:

I am pleased that the Rocky recognizes the true cause of the financial crisis: foolish federal controls that encouraged and forced risky lending. For more details about this, please see Yaron Brook's article for Forbes:
http://tinyurl.com/59hs8e

Unfortunately, the Rocky, in advocating the bailout, doesn't carry its insight far enough. If federal controls got us into this mess, why should we count on them to get us out? What we need is for government to do its job of protecting rights of property and contract, and otherwise leaving us alone. The bailout is the opposite of that approach.

The Rocky seems to be concerned that, absent some magnificent expenditure of tax dollars (via deficits), the market will not correct quickly enough. I don't know how long it will take the market to correct. But it's clear that more federal intervention will only delay that correction and cause more distortion.

The Rocky might be comforted to realize that the Great Depression was primarily worsened and extended by the misguided policies of Hoover and FDR. We need not repeat those mistakes.

Johan Goldberg just came out with an article summarizing Hoover's idiotic controls:
http://tinyurl.com/5y5f3s

For more, see the books of Andrew Bernstein and Thomas DiLorenzo on the history of capitalism. I also just received a copy of FDR's Folly, which I expect to be good.

Somebody called "paperboy" suggested that I'm out of my mind, that I am guilty of "rationalizations and denials of objective reality," and that I'm a "neocon free-market-dolt" (despite the facts that I'm not a conservative of any stripe and the neoconservatives are enemies of free markets). Notice that "paperboy" does not make a single argument or invoke a single grain of evidence to advance his case: he merely relies on ad hominem attack.

On October 1, Vincent Carroll (who is the editorial page editor at the Rocky) blasted Mark Udall's reasons for opposing the bailout. I figured that, for Udall to vote against the bailout at all, being mired in his left-wing politics, he deserved some praise, even if Udall hardly gets his economic story straight.

Despite his occasional sympathy for economic liberty, Carroll clearly was frightened into supporting the bailout:

Steven Pearlstein, the Pulitzer Prize-winning business columnist at The Washington Post... began warning a long time ago about the perilous state of the subprime markets - even saying last year that the credit squeeze was "a financial, economic and political time bomb."

Pearlstein has spent the past couple of weeks futilely trying to persuade the public to rise above its justifiable anger over the financial crisis in order to recognize the stakes involved for the majority of us who were neither reckless lenders or reckless borrowers.

"Now let me tell you something very simple and very important," he wrote last week. "You can try to prevent a financial meltdown or you can teach Wall Street a lesson, but you can't do both at the same time.

"So which will it be?"

But that line of argument fails; even if some people opposed the bailout to "teach Wall Street a lesson," that was not the real reason to oppose it.

Carroll took on the free-market economists who opposed the bailout:

Yes, there are principled reasons for opposing the credit-market bailout - although they are more often articulated by the libertarian right than the progressive left. Libertarians understandably fear a greater permanent role for government in micromanaging financial markets if the bailout deal goes through; they also typically dismiss fears of economic collapse reminiscent of 1873 or 1929 as "ridiculous scaremongering," to quote one of them. But how can they be so sure? Which celestial authority revealed to them that this country will never have another serious depression?

Carroll's case is pretty weak. The economists I've read, such as Jeffrey Miron, rely on economic data and theory, not a "celestial authority." (Also check out Russell Roberts's critique of the bailout.) Meanwhile, why does Carroll think the bailout will do any good? Has he elevated Henry Paulson to the level of a celestial authority?

I dashed off a quick letter that the Rocky published on October 13:

At least the Rocky's Vincent Carroll recognizes that many offer good reasons to oppose the bailout ("Playing to the crowd," On Point, Oct. 1), but he is too quick to liken the modern situation to the period before the Great Depression.

The Depression was set off by the federal controls of the Hoover administration, but "FDR's economic policies made the Great Depression much worse" and "caused it to last much longer than it otherwise would have," economist Thomas DiLorenzo writes in his history of American capitalism. We have more to fear from new, misguided federal controls than we do from the existing crisis.

I am grateful to Mark Udall for listening to his constituents and voting against the bailout. Meanwhile, Carroll relies more on authority than argument to make his case for the bailout.

"Anderson" comments:

Another ideological claim that the depression (or any other adverse economic doing) is/was a result of government intervention. What a simple explanation!

Let's not kid ourselves, the current crisis arose largely out of speculative greed, and I'm sure the same had something to do with the great depression as well.

"Anderson's" claim is obviously the product of leftist ideology, for which he has absolutely no backing. He just assumes that "speculative greed," rather than federal controls, caused the Great Depression.

So now is the time for some facts. I'll be relying mostly on three books: FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression, by historian Jim Powell; How Capitalism Saved America, by economist Thomas DiLorenzo; and The Capitalist Manifesto, by philosopher Andrew Bernstein. (I know some will be tempted to dismiss my sources out of hand because their authors adhere to different political philosophies, but I encourage readers to look at the underlying facts presented by the works.)

First some basic timelines (in case Joe Biden is reading). Calvin Coolidge served in the office of the presidency from August 1923 to March 1929. Herbert Hoover then served till March 1933. Franklin Delano Roosevelt served till April 1945. The Dow Jones Industrial Average peaked at 381 on September 3, 1929. Black Tuesday was October 29, 1929. By November 13, the Dow had fallen to 199. By July 8, 1932, it had fallen to 41.

There is some debate over the effects of pre-Hoover policies. Powell argues that Benjamin Strong, governor of the Federal Reserve Bank of New York, propped up the stock market by cutting the discount rate, buying British pounds with gold (making "bonds less attractive investments than stocks"), and prodding the "Federal Reserve Open Market Investment Committee to buy $200 million worth of government securities from banks, injecting that much cash into the banking system" (pages 28-29). Regardless of how one judges the effects of such measures, obviously America's investment system was hardly free market even then. Powell's account meshes with the general Austrian account, in which inflationary policies create a bubble destined to pop. DiLorenzo quotes Murray Rothbard, who claimed that from 1921 to 1929 "the money supply increased by $28.0 billion, a 61.8 percent increase..." (177) On the other side, Bernstein argues, following Richard Salsman, that the "prosperity of the 1920s was genuine, not a chimera built on air" (377). My sense is that both accounts are right; most of the gains of the '20s reflected real growth of productivity, but nevertheless pre-Hoover policies artificially inflated the stock market.

Beyond the point of how much inflationary policy contributed to the subsequent bust, the accounts are pretty much the same. Powell notes that by October 1928 the discount rate had been raised to 6 percent, in an intentional effort to quell the stock market's growth (it worked). This lead to "steady deflationary pressure on the economy," Powell quotes Milton Friedman (29).

DiLorenzo emphasizes that, even before he became president, Hoover was a "hyperinterventionist" as Secretary of Commerce (160). Importantly, before and during his presedency, Hoover worked tirelessly to artificially inflate monetary (as opposed to real) wages (163-64). This proved particularly disastrous as deflation overtook the nation.

Bernstein emphasizes that the Smoot-Hawley tariff, considered by all to be a contributer to the depth of the Great Depression, actually helped set it off. Hoover was promoting tariff protectionism by the summer of 1929, Bernstein notes. "On October 21st, an amendment to limit tariffs to agricultural products was defeated in the Senate. On October 24th, the stock market suffered its first one-day crash. On October 29th, amid rumors that Hoover would not veto the Smoot-Hawley Bill, stock prices crashed even further," Bernstein writes. Why was this significant? "Over the next three years (1930-1933), U.S. exports plunged 64% and farm exports by 60%" (378).

FDR continued Hoover's interventionist policies and dramatically expanded them, raising taxes and imposing crushing controls. Bernstein summarizes:

The interventionist schemes of the Roosevelt administration were an unmitigated economic disaster. Suffice it to say that by 1937, after more than four years of Roosevelt's policies (and after eight years of the combined Hoover-Roosevelt New Deal) -- after the National Industrial Recovery Act, the abandonment of the gold standard, the tripling of taxes, more labor legislation and many similar acts of governmental interference -- unemployement rose to more than ten million, and business activity fell to virtually the same low reached in 1932. (382)

DiLorenzo reinforces the point with a series of charts (pages 180-83). The first pertains to the unemployment rate, and it is reproduced below (the year precedes the percent unemployed):

1929: 3.2
1930: 8.7
1931: 15.9
1932: 23.6
1933: 24.9
1934: 21.7
1935: 20.1
1936: 16.9
1937: 14.3
1938: 19.0
1939: 17.2
1940: 14.6

If FDR was the nation's economic savior, then what explains the general lack of recovery, including the "Rosevelt recession" of 1938 with an unemployment rate of 19 percent?

The claim that FDR "saved us" from the Great Depression is simple ignorance or outright deception. Roosevelt inherited the economic problems largely created by Hoover and made them much worse.

The historical case is of obvious relevance to us today. Ominously, the Associated Press has described the federal government's "decision to buy shares in the nation's leading banks" as "a kind of federal intervention not seen since the Depression era."

If David Brooks is right, and I fear he is, the Bush-Obama administrations could give us something uncomfortably close to what the Hoover-Roosevelt administrations once gave the nation. You gotta love bipartisanship.

John Lewis vs. EPA Tyranny

On October 18, John Lewis of Duke University will speak in Arvada. His topic: "A Call to Action: Understanding and Defeating the EPA's Plan for Environmental Dictatorship." The talk is sponsored by Front Range Objectivism.

Read the details, and rsvp by Monday, October 13.

Allard Against the Bailout

Following is an e-mail letter I received from Senator Wayne Allard:

October 10, 2008...

Dear Ari:

Thank you for writing to me about the recent troubling activity on Wall Street. I understand your concern and appreciate your taking the time to contact me.

The U.S. economy began facing challenges last year due in large part to problems in the subprime mortgage market. The severity of the problems became quite apparent in March 2008, when Bear Stearns collapsed. At the beginning of September 2008, the federal government took control of the two housing government sponsored enterprises, Fannie Mae and Freddie Mac. Unfortunately, the difficulties that began in the subprime mortgage market had spread to other market sectors, causing Lehman Brothers to file for bankruptcy and Merrill Lynch to be bought out by Bank of America. The Federal Reserve and Treasury intervened to prevent a bankruptcy filing by AIG and took over the company. Additional firms showed weakening under market pressures.

These events touched off a significant crisis of confidence in our financial markets. Without capital flowing freely, illiquidity left them virtually frozen. The frozen capital markets represent a threat not only to the financial sector, but the business sector and entire economy as well.

To prevent a financial crisis, Treasury Secretary Paulson and Federal Reserve Chairman Bernanke released a proposal to allow the federal government to purchase up to $700 billion of the troubled, illiquid assets. These assets would be held by the government for some period of time, after which they would be sold, potentially for a profit. The Treasury Department believes this will promote market stability and help protect American families and the U.S. economy by fundamentally and comprehensively addressing the root cause of our financial system's current distress.

After receipt of the initial Treasury plan Congress made several key changes. While the legislation provides the Secretary of the Treasury with the authority to use up to $700 billion to purchase troubled assets, the money is not available all at once. An initial amount of $250 billion is available followed by installments of $100 billion and $350 billion, upon approval of the President. The legislation establishes a Department of the Treasury insurance program for distressed assets that guarantees those assets, including mortgage backed securities, that were issued before March 18, 2008. Treasury would collect premiums from financial institutions that chose to participate. Additionally, the bill increases the Federal Deposit Insurance Corporation (FDIC) limit from $100,000 to $250,000 through 2009. Another adjustment made was a limit placed on executive compensation or "golden parachutes" for firms in which the government acquires a significant stake. To address concerns over long term accountability, an oversight board comprised of federal banking regulators is established and a provision in the package states that if, after five years, the government has incurred losses from the program, the President must put forth a proposal for recovering government assets from firms that profited from federal assistance.

After long and careful deliberation I voted against the bailout package. Taxpayers are and have always been my number one priority. I have serious concerns that Congress held no hearings in creating this $700 billion package, nor did it use a deliberative process to provide a reasonable assurance that this proposal would even work. I am unwilling to leave a huge legacy of debt for generations to come without confidence that it would be worth the price. I have always believed that the government should live within its means and thus have opposed increasing the federal debt limit. The bill before Congress would significantly increase the national debt.

I have seen no evidence that the Emergency Economic Stabilization Act is in the best long term interests of taxpayers and the economy, and I also strongly oppose the additional spending provisions rolled into the bill. We shouldn't spend this kind of taxpayer money on assumptions and guesswork. I believe that Congress can find a way to unfreeze the credit markets without unfairly penalizing American families for the greed and mismanagement on Wall Street.

Congress should act to preserve our free-market tradition. We have never propped up failed businesses on Main Street; we should not prop up failure and malfeasance on Wall Street. During my remaining time in the Senate I will continue to advocate for this belief.

Sincerely,
Wayne Allard
United States Senator

Harsanyi Lists More Bailout Pork

A few days ago, I mentioned a few items of pork that the Senate loaded into the so-called bailout. Dave Harsanyi of The Denver Post has listed a few more:

Republican New Hampshire's Judd Gregg, who was actually referred to as the money man, told America, "This is not a time for rhetoric; it's a time for responsibility."

Responsibility? Does Gregg mean the inclusion of $6 million for the manufacturers of kids' wooden arrows? ... How about $128 million cost-recovery for motor-racing tracks? Are the film and television industries in such desperate straits that they need $10 million? At least we know those perks were inducement for three votes.

But then, what is the anxiety-ridden citizen to make of the $192 million headed to the Puerto Rican and Virgin Islands rum producers? Or the $33 million in credits headed to business interests in gorgeous American Samoa?

The bailout is quite possibly the biggest politician- and media-perpetrated scam in my lifetime. This is organized theft on a massive scale.

Letter to Mark Udall Regarding the Bailout

Dear Congressman Udall,

I am writing to thank you for voting against the so-called "bailout," not just once, but both times. That showed real guts, and the sort of independence that Colorado could use in the U.S. Senate. You took on not only the bullying of the Bush administration and "leaders" of your own party, but their sycophantic media, which promoted the bailout in "news" stories and editorials alike.

For the most part, the American public saw past the ruse and opposed the bailout. Most members of Congress and most journalists failed the American people on this matter, utterly. But you stood with us.

I'd also like to thank Senator Allard for voting against the bailout, along with Congress members John Salazar, Marilyn Musgrave, and Doug Lamborn.

The mortgage crisis was caused by ill-conceived federal controls -- particularly programs that encouraged and even required risky lending -- and the bailout will just add more of the same. What we need are not massive new wealth transfers and more concentration of power in the hands of bureaucrats, but a truly free market, in which the government rigorously protects rights of property and contract, roots out fraud and deception, and otherwise leaves people free to manage their own affairs and enter into voluntary agreements.

I was already already going to vote for you, though reluctantly, based on your strong endorsement of the separation of church and state and religious freedom. Now, even though I disagree with you on many other issues, I will be proud to vote for the man who, knowing the bailout was wrong, stood up and courageously voted against it.

Please note, however, that I will vigorously oppose you if ever you take the wrong side and try to reduce or restrict the liberty of the American people. Your recent vote, though, gives me some hope that you will remain open to reason and honest argument, and closed to the shrill pleadings of interest groups looking for political favoritism.

In our age, political cynicism is the coin of the realm. But this time your vote was pure as gold. I sincerely hope you have struck a vein, and I will vote for you for the office of U.S. Senate with that hope.

Sincerely,
Ari Armstrong

Media Cheerleaders Push Bailout

I am stunned by the level of media cheerleading for the bailout. This is quite possibly the most serious example of journalistic dereliction of duty in my lifetime. Every news story I've read on the matter is grotesquely biased in favor of the bailout. While the editorial pages I've seen have been little better, at least some of them have passed along substantive dissenting views.

Nevertheless, one can learn some interesting facts from the news accounts; even cheerleaders often follow the game. I'll take a peek at the Associated Press article currently leading at the web page of the Rocky Mountain News.

The article relates the statement of Senator Wayne Allard, who voted against the bailout:

“In considering proposals to stabilize the economy, taxpayers have always been my top priority,” said Allard. “In creating this $700 billion package, Congress held no hearings, nor did it use a process to provide a reasonable assurance that this proposal would even work. I am unwilling to leave a huge legacy of debt for generations to come without confidence that it would be worth the price.

“I have always believed that the government should live within its means and thus have opposed increasing the federal debt limit. The bill before Congress would increase the national debt to a whopping $11.3 trillion. I believe that Congress can find a way to unfreeze the credit markets without unfairly penalizing American families for the greed and mismanagement on Wall Street.” ...

It would have been pleasant if Allard had correctly identified the cause of the crisis -- primarily federal encouragement of risky loans -- rather than blame the foggy "greed and mismanagement on Wall Street." (Senator Ken Salazar, who voted in favor, says he's "angry and frustrated" that "the economy has reached this point." But "the economy" is the sum total of all the players, including the federal politicians who caused the crisis.)

But at least Allard points to the simple fact that all this money is going to come from... thin air. Meaning inflationary, deficit spending.

The AP relates: "Senators loaded the economic rescue bill with tax breaks and other sweeteners..." That's grand. At the same time the federal government is going to be spending more money, it's going to be taking in less money. Tax cuts without corresponding spending cuts are worthless -- except insofar as they cloak redistributions of wealth.

What are the other "sweeteners?" Federal backing of more bank deposits. So that banks can mismanage their assets without scaring their customers. Various other forms of tax cuts (again without any corresponding spending restraints). "$8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana." "Help for rural schools was aimed mainly at lawmakers in the West." Because what we need right now is even more deficit spending, even more forced wealth transfers. The article's closing paragraph contains this gem: "The rescue bill hitched a ride on a popular measure that gives people with mental illness better health insurance coverage." I don't know the details of this, but presumably it's some sort of mandate that will transfer certain insurance costs to other premium payers.

As the AP summarizes, "the long list of sweeteners [the Senate] added was designed to attract votes from various constituencies." In other words, the $700 billion transfer by itself didn't pay off enough special-interest groups.

And if all that weren't comforting enough, Victor Davis Hanson offers a a heartening preview of the foreign-policy implications of America's economic woes.

This thought has been crossing my mind quite a lot lately: certain things are starting to feel altogether too much like the decaying world of Atlas Shrugged.

But, hey, who is John Galt?

Economist Akacem Opposes Bailout

Metro State economist Mohammed Akacem adds his voice to those who oppose the bailout in today's Rocky Mountain News:

... Supporters of the bailout warn us against the systemic risk involved if we do not do anything. Well, of course there is financial pain involved, but we need to decide whom we want to feel the pain. Should those who were responsible for causing this debacle -- whether banks or unwise borrowers -- pay for this? Or should the innocent taxpayer who had nothing to do with it in the first place pay for it?

Just as the supporters of the bailout warned us about what could happen if we did not go along in order to scare us into submission, it is time to warn them about what could happen if we do. Rewarding risky behavior simply invites more of it. It is called moral hazard. If we decide to remain hostage to the too-big-to-fail doctrine and succumb to the fearmongering that goes along with it, we might as well say goodbye to the market economy as we know it. ...

Paul Hsieh also quotes some good commentary opposing the bailout. And the Ayn Rand Center has put up a web page devoted to the matter.

For a couple of more humorous takes on the mess, see recent posts by Diana and Paul. In fact, the last post is so funny -- so painfully funny -- that I'll repost it below:

SUBJECT: REQUEST FOR URGENT BUSINESS RELATIONSHIP

DEAR AMERICAN:

I NEED TO ASK YOU TO SUPPORT AN URGENT SECRET BUSINESS RELATIONSHIP WITH A TRANSFER OF FUNDS OF GREAT MAGNITUDE.

I AM MINISTRY OF THE TREASURY OF THE REPUBLIC OF AMERICA. MY COUNTRY HAS HAD CRISIS THAT HAS CAUSED THE NEED FOR LARGE TRANSFER OF FUNDS OF 800 BILLION DOLLARS US. IF YOU WOULD ASSIST ME IN THIS TRANSFER, IT WOULD BE MOST PROFITABLE TO YOU.

I AM WORKING WITH MR. PHIL GRAM, LOBBYIST FOR UBS, WHO WILL BE MY REPLACEMENT AS MINISTRY OF THE TREASURY IN JANUARY. AS A SENATOR, YOU MAY KNOW HIM AS THE LEADER OF THE AMERICAN BANKING DEREGULATION MOVEMENT IN THE 1990S. THIS TRANSACTIN IS 100% SAFE.

THIS IS A MATTER OF GREAT URGENCY. WE NEED A BLANK CHECK. WE NEED THE FUNDS AS QUICKLY AS POSSIBLE. WE CANNOT DIRECTLY TRANSFER THESE FUNDS IN THE NAMES OF OUR CLOSE FRIENDS BECAUSE WE ARE CONSTANTLY UNDER SURVEILLANCE. MY FAMILY LAWYER ADVISED ME THAT I SHOULD LOOK FOR A RELIABLE AND TRUSTWORTHY PERSON WHO WILL ACT AS A NEXT OF KIN SO THE FUNDS CAN BE TRANSFERRED.

PLEASE REPLY WITH ALL OF YOUR BANK ACCOUNT, IRA AND COLLEGE FUND ACCOUNT NUMBERS AND THOSE OF YOUR CHILDREN AND GRANDCHILDREN TO WALLSTREETBAILOUT@TREASURY.GOV
SO THAT WE MAY TRANSFER YOUR COMMISSION FOR THIS TRANSACTION. AFTER I RECEIVE THAT INFORMATION, I WILL RESPOND WITH DETAILED INFORMATION ABOUT SAFEGUARDS THAT WILL BE USED TO PROTECT THE FUNDS.

YOURS FAITHFULLY MINISTER OF TREASURY PAULSON

Bailouts and the Religious Right

Originally I rejected the following comment because it is snarky and anonymous:

Anonymous has left a new comment on your post "Stop the Bailout: Three Links":

hmmm... now, who is threatening to socialize this country the most right now? we better watch out for those faith-based groups forming during this time of economic turmoil!!

Yet the comment does raise a serious point, so I will offer a serious answer.

Is the threat coming from the religious right or the socialist left? The answer is both. I fear both sides, both Democrats and Republicans, right and left. However, I continue to hold that today's major threat is the faith-based politics of the right.

Which would most negatively impact my life: implementation of the bailout, or implementation of Amendment 48? There is no question that Amendment 48, the darling of the religious right, would be much more disastrous for my life and the lives of most Coloradans.

But there is a deeper issue here. There is no direct connection between the bailout and faith-based politics. But there is an indirect connection. Increasingly the religious right is apathetic or outright hostile toward free markets. George W. Bush, who has made faith-based politics a centerpiece of his presidency, has led the country into deeper deficits, dramatically more state spending, and entitlements that are spinning out of control. And, notably, who is pushing the bailout? George W. Bush. "Who is threatening to socialize this country the most right now?" It is indeed our faith-based president, who holds nothing but contempt for free markets and economic liberty. With his faith-based welfare, Bush has brought the religious right onto the welfare-state gravy train.

And where is John McCain, who pandered to the religious right with his selection of Sarah Palin? Oh, right -- he's pushing the bailout proposal, too. Where's Sarah Palin? Where is this Pitbull with Lipstick? Is she standing with the American people against the bailout? Hell, no. If she becomes vice president or president, is she going to stand up for economic liberty in the White House? Hell, no. She has talked about simultaneously cutting taxes and balancing the budget, but without a serious commitment to spending cuts, her talk is just fantasy.

Bush has expressed a view uncomfortably close to a doctrine of divine command. Palin has praised a witch-hunting minister who prayed to God for her political success. In general, people who believe they're in power by God's authority cannot be trusted to govern according to the principles of individual rights and free-market economics.

To invoke Ayn Rand's phrasing, we are faced by the duel threat of the mystics of muscle -- the socialist left -- and the mystics of spirit -- the religious right. The most frightening (but unsurprising) trend is the merging of the two.

Americans Oppose Bailout

Americans are steamed about the bailout proposal.

The Rocky Mountain News quotes Mark Udall on the constituent reply:

"People are mad," Udall said. "My calls are mixed, between people who say 'No' and people who say 'Hell no.' "

Rational Passion includes this tidbit by Peter Robinson:

A colleague here at the Hoover Institution spoke recently with a senior, and Democratic, member of the California congressional delegation. In the last week, she said, her office had received roughly 15,000 telephone calls, letters, and emails. How many favored the bailout?

Ten.

So, in reply, "Leaders seek new deal," quotes a headline at the top of The Denver Post's web page. The Rocky Mountain News online leads with a story about how Obama and McCain are joining Bush to "save" the bailout package. The level of media cheerleading for the bailout has been extraordinary.

Meanwhile, Bloomberg reports, "The Federal Reserve will pump an additional $630 billion into the global financial system, flooding banks with cash to alleviate the worst banking crisis since the Great Depression." As economists in the Austrian tradition like to emphasize, a fractional reserve system that can be manipulated by a central agency is prone to bubbles and deflationary retractions.

John Lewis has the following to say about the bailout:

... I am opposed to bailing out these firms. But what I am more opposed to is the entire political culture of regulation--including manipulation of interest rates, Sarbanes-Oxley, changes in accounting rules, the Community Renewal Act, and a scad of others--that has fostered this mess. Two weeks ago no politician in Washington knew this was coming. Suddenly, after several all-nighters, they have enough knowledge to grant a quarter of a trillion dollars to a government bureaucrat, to dole out as he sees fit--and to promise another half-trillion, should his actions make it worse.

Meanwhile, the country focuses on the allegedly evil CEOs, "speculators" (read "investors"), and loan initiators who were earlier damned for NOT making loan money available to high-risk borrowers. I remind you that the Community Renewal Act penalizes firms for not making such risky loans. Now, suddenly, those firms are villified for following the law. ...

The government is not saving Main Street--it is nationalizing it. Is it not true that, with the takeover of Fannie Mae and Freddie Mac, the government now holds paper on tens of millions of American mortgages? What does granting American citizens "equity positions" and "profits" in companies seized by the government mean, except communism? Don't we condemn Hugo Chavez for nationalizing oil companies? ...

Interesting times, indeed.

Liberty 1, Bailout 0

The fight is hardly over, but today bore witness to a remarkable convergence. The American public maintained the common-sense position that forcibly transferring other people's money to bureaucrats and irresponsible financial institutions is a stupid idea. And the House of Representatives actually voted that way, defeating the Bush-Paulson-Bernanke bailout, at least in the first round.

The pointed drop in the stock market proved a sobering reply. Yet that doesn't change the fundamental issues. Those investors counting on taking money from others by force deserve to lose their shirts, frankly. What needs to happen is for people to learn that, even if misguided federal policies are pushing the market in a dangerous direction, it's foolish to march whistling down that path with the expectation that the feds will bail them out with tax funds (or deficit spending). We need a market correction -- a correction to the years-long, politician-induced lending spree that caused the real-estate bubble and piled up mountains of bad debt.

How did the Colorado delegation vote? "Among Colorado's representatives, the proposed bailout was supported by Tom Tancredo, Diana DeGette and Ed Perlmutter. The issue was opposed by John Salazar, Mark Udall, Marilyn Musgrave and Doug Lamborn." Thank you, Salazar, Udall, Musgrave, and Lamborn. Shame on you, Tancredo, DeGette, and Perlmutter.

Today I link to three great critiques of the bailout.

First, Craig Biddle of The Objective Standard writes to members of Congress:

I and other Americans will forever condemn any and all politicians who vote for or in any way support a bail out of Wall Street.

Every thinking American knows that the cause of this catastrophe was government intervention in the economy via the Federal Reserve, Fannie Mae, Freddie Mac, the Community Reinvestment Act, etc. The notion that more government intervention will solve the problem is absurd, and to act on that notion would be an obscene dereliction of responsibility and a travesty of justice.

The only sound solution to this problem is for the government to acknowledge that its intervention is the fundamental cause of the situation, and, correspondingly, to remove its hands from the economy and let the market correct itself via bankruptcy procedures, liquidations, takeovers, etc. This would lead to a highly volatile market for a brief time, but the market would quickly reallocate assets to those who are most competent, and the economy would begin to recover.

This is not rocket science; it is economics 101, and Americans know it. Don’t test us.

Second, The Crucible & Column brings us "'How Your Government Can Wreck Your Economy and Get Away with It' in 6 Easy Steps." Following are the first two:

1. Set up a Mechanism to Launder Risky Home Mortgage Debt. Create an agency whose sole purpose is to "offer liquidity to the secondary mortgage market." The agency will guarantee home loans for a small "insurance" fee, or it will buy them and repackage them as "mortgage-backed securities" also guaranteed to pay, regardless of default. Set low standards for the types of loans that will quality, and make sure your fees are low so lots of people will sign up for your insurance. Sell these new low risk securities into the financial markets. Viola! You make risky debt look good, and sell it to "suckers" thereby providing liquidity to the mortgage market. Oh, it's true that some of them won't fall for it, but all we need a few, the dumber ones, and the ones who know what's going on, but who are hoping to find a sucker of their own to pass the buck to. Oh, almost forgot. Make sure you set up this agency as a "private" company. Imply that you'll save it if it gets into trouble, but don't promise it explicitly. Give it a nifty, folksy name like Freddie Mac or Fannie Mae.They'll love that.

2. Force banks to offer Risky Debt. What? Not enough people are helping you issue risky debt? Well, that's easy. Just pass a law that forces banks to lend to high-risk prospects. Tell them you won't let them do things like merge with other banks unless they can prove they are issuing risky debt the way you want them too. Make sure the law states that they specifically shouldn't look at things like applicants' income, or current assets when making decisions about them. If it doesn't work so well at first we can just revise it, so our money laundering agency gets into the act too. Oh, name again. We certainly don't want something like the "Let's Issue More Risky Debt Act", so we need something that will tug at their heartstrings. Got it! the "Community Reinvestment Act"! They'll love that.

Third, Jeffrey Miron has written a powerful piece for CNN (thanks to Damon Payne):

... This bailout was a terrible idea. Here's why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government. ...

Please read the rest of Miron's excellent article -- and mention it to your friends.

Today was a good day for liberty. The war is hardly over, but in our era good days for liberty are increasingly rare and cause enough to celebrate.

Mesa County Candidates Discuss Economics, Self-Defense

The following article originally was published by Grand Junction's Free Press.

Candidates discuss economics, self-defense

September 29, 2008

by Linn and Ari Armstrong

For many of us, the election can't be over soon enough. The same goes for many of our candidates. Those running for office, with rare exception, believe that they are running for the cause of good government. They become emotionally vested in the race and their proposals. They spend a great deal of time and money (sometimes their own) seeking office. It's exhausting.

When candidates attend forums, often only a few voters show up. Candidates have little opportunity to communicate directly with the voters at large. Usually there are two types of people who attend these forums: those looking for handouts or political favors and those trying to keep from suffering more abuse at the hands of politicians. For those looking at the big picture, these forums offer a painful reminder that politicians have pushed government well beyond its proper bounds.

Your senior author recently attended two forums for candidates. The Pro Second Amendment Committee (PSAC) hosted its forum on September 19; the Mises Economics Study Group held its event on September 24.

PSAC has been around since 1989, motivated by the threat of California's so-called assault gun ban. We're pleased to note that, while the federal government imposed a ban on the sale of certain "assault" weapons in 1994, that ban sunset in 2004, thanks in large part to the work of groups like PSAC.

Sandy Caskey, president of the group, did an excellent job of organizing and conducting the forum. All of the candidates running for office in Mesa County attended, except Marcia Neal, a candidate for state school board.

The candidates shared their views on the importance of the Second Amendment. They all strongly support it, of course. Some of us half expected to see Charlton Heston descend from the heavens to shake their hands.

Unfortunately, the next segment could have aired on Saturday Night Live. None of the candidates seemed to know that Colorado is an open-carry state. Most of them thought the question of open carry should be "studied."

Dan Robinson, a candidate for county commissioner, suggested that technology circumscribes our rights. "Plastic guns cannot be identified in metal detectors and should be controlled," he said. Setting aside the fact that no such gun exists, we wonder if Robinson would extend his argument about technology to the First Amendment. Should we restrict freedom of the press because we now have electricity and the internet?

Your senior author asked the candidates if they would use the power and prestige of their office to press for gun safety in the schools. Some candidates dodged the question by assuming this meant mandatory classroom instruction. Janet Rowland, a candidate for county commissioner, said she would promote voluntary gun safety, and for that she earns our high marks (despite our previous differences with her on other matters).

For the Mises group, Don and Sue McFarland opened their home to over 40 guests. Marcia Neal again offered a very persuasive reason for not attending, this time joined by D. D. Lewis, a candidate for county commissioner. Representative Bernie Buescher failed to respond to several requests to attend the forum.

As an aside, this discussion group is important. With various politicians -- including our Republican president -- promoting $700 billion in new corporate welfare, now is a great time for candidates to turn to the wisdom of master economist Ludwig von Mises. Even though we sometimes disagree with the outfit now bearing his name, at least it makes available many of Mises's works at www.mises.org/misesbooks.asp. To take one example, readers who think of themselves as liberals ought to check out Mises's book Liberalism, which promotes the concept at its truest.

The first pitch to the candidates was a hardball: defend the morality of capitalism or socialism. Such fundamental issues rarely concern today's politicians. The good news is that no candidate choose to defend socialism. The bad news is that none seemed to be able to defend capitalism. We were mildly impressed by County Commissioner Craig Meis, who started down the right path.

We suggest candidates read Ayn Rand's book, Capitalism: The Unknown Ideal. Then they'll be ready for the question next time. In fact, voters too might ask themselves whether they can outline the differences between these fundamentally opposed economic systems and defend one over the other.

If more people would read Mises and Rand, they would be on the lookout for the sorts of misguided political controls that caused the current financial crisis. Notably, in her book on capitalism Rand notes that economic crises "blamed on businessmen were caused, necessitated, and made possible only by government intervention in business." That perfectly summarizes recent events.

Today's pragmatic political climate turns most candidates into invertebrates. The major political problem is fantasizing about how best to spend other people's money. So we sincerely appreciate those candidates who made an effort to talk about central ideas, if only for an evening.

Linn is a local political activist and firearms instructor with the Grand Valley Training Club. His son Ari edits FreeColorado.com from the Denver area.

Stop the Bailout: Three Links

Diana Hsieh points to the following media release from Senator Jim DeMint:

"After reviewing the Administration's proposed bailout plan, I believe it is completely unacceptable. This plan does nothing to address the misguided government policies that created this mess and it could make matters much worse by socializing an entire sector of the U.S. economy. This plan fails to oversee or regulate the government failures that led to this crisis. Instead it greatly increases the role for Secretary Paulson whose market predictions have been consistently wrong in the last year, and provides corporate welfare for investment firms on Wall Street that don't want to disclose their assets and sell them to private investors for market rates. Most Americans are paying their bills on time and investing responsibly and should not be forced to pay for the reckless actions of some on Wall Street, especially when no one can guarantee this will solve our current problems."

"This plan will not only cause our nation to fall off the debt cliff, it could send the value of the dollar into a free-fall as investors around the world question our ability to repay our debts. It's also very likely that this plan will extend the cycle of bailouts, encouraging other companies to behave in reckless ways that create the need for even more bailouts, triggering an endless run on our treasury. This plan may make things look better for Wall Street in the next couple months, but the long-term consequences to our economy could be disastrous.

"There are much better ways of dealing with this problem than forcing American taxpayers to pay for every asset some investor doesn't want anymore. We should start by reforming government policies and programs that created this mess, including the Federal Reserve's easy money policy, the congressional charters of Fannie Mae and Freddie Mac, and the Community Reinvestment Act. Then Congress should pass a number of permanent and proven pro-growth reforms to encourage capital formation and boost asset values. We need to make permanent reductions in the corporate tax and the capital gains tax rates. We have the second highest corporate tax rate in the world, which encourages companies to take jobs and investment overseas."

"It's a sad fact, but Americans can no longer trust the economic information they are getting from this Administration. The Administration said the bailout of Bear Stearns would stop the bleeding and solve the problem, but they were wrong. They said $150 billion in new government spending using rebate checks would solve the problem, but they were wrong again. They said new authority to bailout Fannie Mae and Freddie Mac would solve the problem without being used, but they were wrong again. Now they want us to trust them to spend nearly a trillion dollars on more government bailouts. It's completely irresponsible and I cannot support it."

Paul Hsieh cites an article in Tech Crunch by Michael Arrington:

These people (the U.S. government) need to be stopped. Every time we get ourselves into an economic mess, there’s usually some milestone idiocy we can point back to as the government action that made the meltdown inevitable.

Take the current housing crisis that has now spread to the financial markets in general. The cause was too-easy credit that fueled a massive increase in housing prices as people bought houses they couldn’t afford with mortgages they weren’t able to pay off.

In 1999 there was roughly $5 trillion in total U.S. mortgage debt. That number ballooned to $12 trillion by 2007, and we know what happened from there (data is from the U.S. Office of Federal Housing Enterprise Oversight). To put this into perspective, total U.S. GDP is about $11 trillion annually, and U.S. government debt is around $9 trillion. If the housing market really falls apart (meaning more than conservative estimates of a 20% drop), there’s no way the government can simply cover these losses.

Why did it happen? Let’s go back to 1999, when Fannie Mae, the nation’s biggest underwriter of home mortgages, was under pressure by the Clinton administration to find a way to get more loans to “borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans.” A pilot program was launched, which soon became general policy. Money flowed to people who couldn’t afford to pay it back.

Paul also noted a release by John Allison, President & CEO of BB&T:

Freddie Mac and Fannie Mae are the primary cause of the mortgage crisis. These government supported enterprises distorted normal market risk mechanisms. While individual private financial institutions have made serious mistakes, the problems in the financial system have been caused by government policies including, affordable housing (now sub-prime), combined with the market disruptions caused by the Federal Reserve holding interest rates too low and then raising interest rates too high.

There is no panic on Main Street and in sound financial institutions. The problems are in high-risk financial institutions and on Wall Street. ...

Let's hope enough people in Congress are listening.

Brook: Stop the Bailouts

Yaron Brook issued the following statements about the bailout:

"Over the last year, the central planners at the Federal Reserve and the Treasury Department have pretended that by bailing out homeowners, then bailing out investment banks, then bailing out Fannie Mae and Freddie Mac, they were wisely 'steering' the economy to protect us against some undefined 'systemic risk.'

"But the mounting financial problems reveal that Paulson and Bernanke are as clueless as any other central planners who try to control an entire economy. They are not saving us from anything; they are delaying some of the pain that necessarily follows from a Fed-induced credit bubble, and redistributing that pain to innocent victims. They are punishing responsible individuals and rewarding irresponsible individuals.

"The bailouts must stop. The government must make clear that from now on, those who are in financial trouble must turn to the private market for help if they are to avoid failure; the government must no longer foist their failures on others, and invite another crisis in the future."

Now is a good time to let your congresscritters know you oppose the proposed massive redistribution of wealth.