Friday, October 31, 2008

Where's My Bailout?


Thursday, October 30, 2008

Wage Slavery vs The Real Thing

Sometimes we hear the claim that capitalism turns people into "wage slaves." An odd kind of slavery it must be that allows people the freedom to walk away from the wage anytime they want to.

Consider the contrast with chattel slavery. Born into slavery and sold for the equivalent of $400 when she was just 12, she was raped for the first time by her master when she was 13. She eventually bore him three children. Two survived. Both were taken from her. For almost nine years, she had to work long hours in the fields and in his home without pay. If she did anything wrong or tried to escape, she was beaten. But after she fled and married a man of her own choice, she was charged with bigamy and sentenced to six months in jail. “No woman”, she says, “should suffer the way I did.”

Are we talking about a slave on a cotton plantation in the American deep South of the early 19th century? No, Hadijatou Mani lives in the 21st century. She also has the great misfortune of living in Niger, an African country where the government turns a blind eye towards slavery. According to The Economist, there are an estimated 43,000 slaves in Niger, and tens of thousands more in other countries in Western Africa.

If capitalism did nothing more than turn chattel slaves into wage slaves, it would still be a wonderful thing. Just ask a real slave like Haijatou.

And if you ever need confirmation of the questionable value of government paper, remember that the the 1962 UN Slavery Convention condemns chattel slavery, the curiously named 1981 African Charter on Human and People's Rights condemns it, and so does the Niger constitution and criminal law.

"Aristotle said that some people were only fit to be slaves. I do not contradict him. But I reject slavery because I see no men fit to be masters." - C.S. Lewis

Tuesday, October 28, 2008

The Pretense of Knowledge

Over at The Austrian Economists, Richard Ebeling comments on "the pretense of knowledge" and the "hubris of the intellectuals." He writes:

"What these debates about whether we are in a credit crunch or not; whether we are faced with a coming serious inflation or instead deflation; whether this will be a "normal" recession or a coming real depression, etc., etc., -- what this should remind all of us of is Hayek's points about the pretense of knowledge, or what Wilhelm Roepke called the hubris of the intellectuals.

In fact, neither Austrian Economists nor our Neoclassical and Chicago and Rational Expectations "colleagues" know what is happening in the economy -- nor exactly how and why it hit right now or where the present "crisis" is taking us.

The "deadly sin" of hubris clearly has been greater with our economist colleagues. So using all available information (i.e., statistical patterns of past events) and inserting it in the "correct" model of how the macroeconomic "really" works . . .

Did Robert Lucus or Thomas Sargent know this was going to happen, when and why? Hmmmm. Or did I miss that op-ed piece of theirs in the WSJ? (Oh, they kept it as private, secret information so they could make a "killing" in the market -- now I know who the evil "short-sellers" have been.)

But more seriously Austrians have long insisted that the laws of economics are essentially logical relationships, not empirical ones; that economics can "predict" but only in qualitative terms, not quantitative ones; that economics can only make "pattern" predictions.

This economic crisis may I suggest, again reinforces the reality of the Austrian approach to social phenomena.

Austrians (true to their theory of the logic of the interconnections between credit expansion, market rates of interest, the term structure of investment, and relative price and allocation effects caused by the non-neutrality of money) have often warned of the inflationary and destabilizing consequences from Fed policy over the last decade.

But no Austrian could (or did) claim to know when the cycle would turn, or what would set it off, and how the downturn would or could play itself out, i.e., in what in historical retrospect we will see from the vantage point of some future moment as the actual patterns and also unique time-sequence of the "micro" steps by which this will play out.

We could not and cannot know these things. As Karl Popper pointed out in "The Poverty of Historicism," knowledge of the future is logically impossible. If we live in a world in which knowledge changes, he said, then it is impossible to know tomorrow's knowledge today. Otherwise, it would be today's knowledge and not a knowledge of the future, the details of which can only be known when the future comes.

We know how the Great Depression of the 1930s played out because it is now history. We know, for example, that FDR ran on a "conservative" platform of balancing the budget, cutting taxes, maintaining the gold standard, limiting Federal intrusiveness in state-level affairs, etc.

And we know that he did the exact opposite of these things when actually in office.
But instead of reading histories of the Great Depression, suppose we went into the archives of the newspapers of the time -- the "Wall Street Journal," the "New York Times" -- and, say, from 1929 to 1935 read the stories, day-by-day, the analysis and the commentaries and interpretations of what was happening and where it was leading.

I would suggest that virtually no one knew where the process was leading. Because it depended upon the "complex phenomena" of individual decisions, political policy choices, ideological influences, and everyday actions based on the expectations held at each moment in time. And these intersecting actions and events generated the unique path-dependent process that we call the history of that time.

All of our analysis, expectations and predictions should be implicitly framed with the inescapable humility of what our limited minds can know about the workings of our world.

Indeed, this is the reason we Austrians are always suspicious of political solutions to our social and economic problems. The working through the problem -- including an economy-wide economic crisis -- requires more knowledge about the present and the future than any one mind or group of minds can master or ever possess.

So, are we suffering from "tight" or "easy" credit conditions? Has the stock market and housing market "bottomed out"? Will globalization be part of the solution to the problem, or will governments impose forms of trade restrictions to shore up domestic output and employment levels against foreign competition? Will the next president actually be more concerned with "spreading the wealth" or letting the market adjust so the "pie" can keep growing (or growing faster than wrong-headed policy would allow)?

We will know all the answers -- when some future economic historian (maybe even an "Austrian") writes the history of our times, and tries to tell those future readers how it all happened and why."

CEO = "Congressional Executive Officer"

Suddenly every politician knows how to run a business. For example, Congressman Henry Waxman attacked American International Group for spending $440,000 on a conference for its top-performing life insurance agents. 

No mention of the fact the agents were self-employed. No mention of the fact without top performing agents, the company would be in even worse shape. No mention of the morality and common sense of paying for performance. Just another cheap shot at a seriously wounded enterprise. Just another case of a politician willing to pretend expertise, so long as it grabs a headline, a contribution or a vote.

Read more from The Economist here.

Monday, October 27, 2008

Gabriel Over the White House

In this clip from Cato Weekly Video, Gene Healy, author of The Cult of the Presidency, discusses changing American attitudes towards executive authority. The film discussed, Gabriel Over the White House, was released in 1933 just after the election of Franklin Delano Roosevelt.

Sunday, October 26, 2008

Who Will Be the Next Bastiat?

With this little story from Cafe Hayek, Professor Walter Williams of George Mason University takes the lead in the ongoing reality-show, Who Will Be the Next Bastiat?

"Today on my way to lunch I passed a homeless guy with a sign that read 'Vote Obama, I need the money.'  I laughed.  Once in the restaurant my server had on a 'Obama 08' tie, again I laughed as he had given away his political preference -- just imagine the coincidence.  When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need -- the homeless guy outside. The server angrily stormed from my sight. I went outside, gave the homeless guy $10 and told him to thank the server inside as I've decided he could use the money more. The homeless guy was grateful.  At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn even though the actual recipient needed money more.  I guess redistribution of wealth is an easier thing to swallow in concept than in practical application."

Saturday, October 25, 2008

Initiative for Public Choice & Market Process

The Initiative for Public Choice & Market Process at the College of Charleston has launched a new web site at

The Initiative for Public Choice & Market Process advances the understanding of the economic, political and moral foundations of a free market economy. The Initiative supports the growth and development of teaching and research at the College of Charleston School of Business and Economics while engaging students and the greater Charleston business community.

Friday, October 24, 2008

This is Not Your Father's Capitalism

Bill Gross, manager of the world's largest bond fund, says capitalism is not dead, but it has changed forever.

Listen to him here.

Thursday, October 23, 2008

Capitalism is Dead, and I Don't Feel So Good Myself

Suddenly, socialism is cool, at least in places that never had to deal with a Great Leap Forward or a Great Proletarian Cultural Revolution.

For the rapidly shrinking population of native English-speaking capitalists, I offer distressing evidence of the current state of affairs from the best English-language magazine in the world, The Economist:

If capitalism is dead, what will take its place?

There is undeniably something deep and ineradicable in human nature that longs for the kind of relationships found in healthy families and in close friendships. "If only the rest of the world was like this" we say to ourselves, "it would be a better place." This explains, at least in part, the persistent appeal of political philosophies like socialism, communism, and communitarianism, and the draw of religious fundamentalism. They all promise a world that offers the reassurance of familiar small-scale human relationships.

Unfortunately, it is also a world that does not work very well. The problem is one of scale. Intense relationships don't scale up. Eventually, we run out of something I call emotional capital.

Like every other form of capital, the emotional capital of human nature is a limited resource. We must use it carefully and with discrimination. No one can honestly claim to treat everyone the same way. Such a thing would be an abomination to universally recognized primary relationships like those between husband and wife, parent and child, brother and sister, or the special relationship between close friends. In different times and in different places, these relationships have varied in relative importance and in form, but they are everywhere the most important forces of small-scale, long-term social cohesion.

Things quickly get more complicated when we try to build a larger social order the same way we build smaller ones. It's like trying to be everybody's best friend. Beyond a small number of relationships, human nature simply cannot monitor things well enough to avoid neglecting the people who really matter; or avoid being exploited; or avoid being made a slave to someone else's desires.

What, then, prompts otherwise cautious humans to rush towards social theories that raise the awful specters of neglect, exploitation and slavery? I can think of three reasons this might happen. Or, more appropriately, we could say that there are three kinds of people who are drawn to the idea of a social order where everyone is family and everyone is a friend. I call them the Faithful, the Prince, and the Frightened.

The Faithful are those people who genuinely believe small-scale, primary relationships are the right model for large scale social order. The Faithful are a combination of well-educated intellectuals and secular mystics who genuinely believe the power of the state can bring to every human relationship the kind of empathy we experience in our closest ones. These people are not evil. They are often likeable, even lovable, and can usually defend their beliefs well. They cannot or do not want to believe that emotional capital is a limited resource. Beyond their vision lies mostly disappointment.

On the other hand, the Prince is cynical, calculating, and solely self-serving. He does not invoke primary relationships to improve the social order. He wears them like a garment of public virtue, even while he sins in private. He uses them to acquire, keep, and gain power over others. Once powerful, he lays claim to all emotional capital. He demands more than respect. He demands to be loved, even worshiped. Beyond love and worship lie fear and cruelty.

Finally, the Frightened are driven to this kind of thinking by a crisis. When a distinct population, identified by geography, race, political boundaries, or some other marker, is attacked or otherwise threatened, either from the outside or inside, the members of that population will draw together around what they have in common. If the threat is large enough, what they have in common will actually become their primary relationship, supplanting all others.

From the Frightened comes the brave, and dulce et decorum est pro patria mori. Moments of crisis drive humans to make sacrifices they would not normally make, break human bonds they would not normally break, and submit to depredations they would normally resist.

But such a moment cannot last, not without a new crisis to sustain it, for human nature inevitably reverts back to the primary relationships that form the backbone of the social order. Humans can make stunning sacrifices, if they believe the sacrifices are necessary, and therein lies many noble acts and heroic moments worthy of our highest praise. But it is madness to expect endless years of such behavior. Beyond the vision of the Frightened lies the return to normal. Home. Hearth. Plow.

Capitalism is not dead so much as it has been abandoned. For their own reasons, the Faithful, the Prince, and the Frightened are driving us away from it. Before we go much further, we should ask, whose vision is likely to dominate? What lies beyond?

Wednesday, October 22, 2008

Prove It

"The GOP gets itself elected by telling us government programs don't work. Then they go to Washington and prove it."

Overheard on The Big Show

Tuesday, October 21, 2008

How to Save Capitalism

How to save capitalism? Try it first. 

In this interview with NPR, economist Joseph Stiglitz -- himself no fan of "free market fundamentalists" -- makes the point that the combination of private gain and social risk is properly called a mixed economy, not a free market one. 

Monday, October 20, 2008

The Fed Speaks in Charleston

The Fed speaks in Charleston Thursday night!

The Initiative for Public Choice & Market Process is pleased to announce the first BB&T Free Market Process Speaker Series.

Dr. Gerald Dwyer, Vice President, the Federal Reserve Bank of Atlanta, will present a current analysis of financial markets. This event is open to all faculty and members of the business community.

If you would like more information about this event please contact Peter Calcagno, Department of Economics and Finance, 843-953-4279, or email

Date: Thursday, 23 October 2008
Time: 7 pm
Venue: College of Charleston Beatty Center, Wachovia Auditorium
Location: 5 Liberty Street, Charleston, SC

Saturday, October 18, 2008

Blame the Occupants

Massive government intervention in the banking system is driving the political left into delirious pronouncements that the free market is finally dead.

It is also driving conservatives and libertarians into apoplexy for the same reason.

Neither side has it right. Since the creation of the Federal Reserve in 1913, the banking system has been a government construction, from its foundation to the top floor. Within this imposing structure, most bankers have tried to operate according to the laws of the market, but government has repeatedly destabilized those laws by arbitrarily ignoring or rewriting them.

Consumers and bankers are both the victims of a massive government failure, not a market failure. It was not greed that led consumers to borrow too much money, and it was not greed that led bankers to lend it. It was not greed that led investment banks to turn those loans into securities, and it was not greed that led investors to buy them. All along the way, through this chain of economic decision making, one thing remains constant: government encouraged consumers to borrow, encouraged bankers to lend, encouraged investment banks to securitize loans, and encouraged investors to invest. More than any other agent, government is to blame.

Blaming the market for the collapse of the entire structure is like blaming the occupants of a building for its shoddy construction, not the architects.

Friday, October 17, 2008

Acts of Genius

What does this phrase describe: "...complete freedom and a relentless pressure to produce?"

The dreams of Milton Friedman? Friedrich Hayek? The nightmares of Naomi Klein?

No. This actually describes the Princeton University math department in 1948 under its chairman, Solomon Lefschetz. In her bestselling biography of the Nobel laureate and Princeton graduate John Nash, A Beautiful Mind, Sylvia Nasar says that Lefschetz's goal was to get his graduate students producing original research as quickly as possible. Anything else was a waste of time.

In complete defiance of the traditional rules of university administration, the department "subjected its students to a maximum of pressure but a wonderful minimum of bureaucracy." The department had no course requirements. When a student took a course, he always received a passing grade, whether he attended class or not. Transcripts were "works of fiction" prepared "to satisfy the Philistines." Students could earn a passing grade in a foreign language competency exam simply by promising they would learn the text later.

In return for providing such freedom, Lefschetz expected a graduate mathematician to either brilliantly succeed or pack off to a lesser institution. At Princeton, the only thing that mattered was honestly achieved results. It was a pure meritocracy.

At its best, business is also a meritocracy. Unfortunately, there are many places where the creative spirit of business falls prey to the mindless and stultifying adherence to pointless rules. Creativity that changes the world cannot be planned, but it can be smothered.

We should always remember that a set of policies and procedures is not real genius. At best, it can create and sustain the conditions that encourage genius, the "freedom and the relentless pressure to produce." These are the essential conditions that have, can, and will open up the full range of human genius, in every kind of work and in every human endeavor. We are surrounded by acts of genius everyday; we just don't recognize them because they are not our kind of genius.

Beautiful minds don't all come from Princeton, but they do come from places that share the atmosphere of the Princeton math department in 1948.

Thursday, October 16, 2008

Stossel's "Politically Incorrect Guide to Politics"

John Stossel's "Politically Incorrect Guide to Politics" will air on ABC's news magazine 20/20 on Friday, October 17 at 10pm ET.

Amid the claims and counter-claims of what one or the other candidate will do, we have to stop and ask: Are we voting for a competent human being, or hoping for a savior?

Stossel says, "Give me a break. Obama and McCain would have to be a combination of Superman and Santa Claus to do what their supporters say they will do."

Click here for more details.

Small Government, R.I.P.

From NPR...

"The idea that an economy serving 300 million souls in a dangerous world can be well-served by a "small government" was always silly — as silly as the idea that more government automatically solves more problems."

Read more here.

Wednesday, October 15, 2008

Denationalizing Drug Approval

"What one thing do you think that countries, companies or individuals must do to make the world a better place in 2008?"

Daniel Klein, economist at George Mason University, offers his answer to the Davos Question, saying that drugs approved in Canada, Britain, and other places gain automatic approval in the United States. The drug-approving agencies of recognized countries would become more responsive to the needs of humanity. The proposal is called Drug Approval Denationalization.

Tuesday, October 14, 2008

The Quotable Frédéric Bastiat

"I have not made an alliance with anyone; I have not joined either side. On each question, I have voted according to my own conscience."

Monday, October 13, 2008

The Great Danger Going Forward

Steve Forbes, a strong defender of deregulation and market forces, makes a case for the bailout, while adding cautionary notes about the future.

An excerpt: "The great danger going forward will be the political reaction. Will we apply growth-stunting regulations in the name of "never again"? Will we raise taxes in part to punish the "rich," harming the capital creation so necessary for growth? The answers will determine whether we have a Reaganesque recovery or the drawn-out stagnation of the 1930s."

Sunday, October 12, 2008

Myth and Reality

From Arnold Kling at EconLog...

"The myth is that mortgage securitization reflects the genius of Wall Street. The reality is that it reflects the stupidity of the way that regulatory capital requirements are calculated...

...It is not widely understood, and most people would rather believe a different narrative. The Left wants to blame deregulation. The Right wants to blame lending to minorities. But this blog is giving you the true narrative. I have not seen anyone refute it."

Saturday, October 11, 2008

Photos of Dismay

Friday, October 10, 2008

BB&T Free Market Process Speaker Series

The Initiative for Public Choice & Market Process is pleased to announce the first BB&T Free Market Process Speaker Series. Dr. Gerald Dwyer, Vice President, the Federal Reserve Bank of Atlanta, will present a current analysis of financial markets.

This event is open to all faculty and members of the business community. If you would like more information about this event please contact Peter Calcagno, Department of Economics and Finance, 843-953-4279, or email

Date: Thursday, 23 October 2008
Time: 7 pm
Venue: College of Charleston Beatty Center, Wachovia Auditorium
Location: 5 Liberty Street, Charleston, SC

Thursday, October 9, 2008

Patterned Principles of Justice

"Mistakes this huge require an impoverished political philosophy to grease the skids. Fannie and Freddie didn't design their horrific lending policies by chance. No, behind this lending fiasco lay the strong collective preference for the "patterned principles" of justice that Robert Nozick attacked so powerfully in his 1974 masterpiece, Anarchy, State, and Utopia."

Wednesday, October 8, 2008

November 2008 Meetings

In November, the Bastiat Society is offering two meetings.

In our first meeting on Monday, November 3rd, Professor Russ Sobel will discuss his book Unleashing Capitalism: Why Prosperity Stops at the West Virginia Border and How to Fix It. This book on West Virginia economic policy reform has been the subject of over 200 speeches and media appearances (including presentations to the West Virginia Governor and Legislature) and the book was named winner of the 2008 Sir Anthony Fisher Award for best state policy publication of the year.

Russell S. Sobel is Professor of Economics and holder of the James Clark Coffman Distinguished Chair in Entrepreneurial Studies at West Virginia University. He has published over 150 books and articles on economic policy, including a nationally-best-selling collegiate Principles of Economics textbook. Dr. Sobel served as the founding Director of the WVU Entrepreneurship Center from 2002-2006. His research has been featured in the New York Times, Wall Street Journal, Washington Post, US News and World Report, and The Economist Magazine, as well as appearances on CNBC, Fox News, CSPAN, and the CBS Evening News. He has received numerous awards for both his teaching and research.

Dr. Sobel gives lectures and teaches economic principles at various seminars across the country each year, including an annual course in economics for U.S. Congressional Staff. He also serves on the advisory boards of five major professional and academic organizations, and as Senior Economist and Director of the Center for Economic Growth for the Public Policy Foundation of West Virginia. He received his Ph.D. in Economics from Florida State University in 1994.

Date: Monday, November 3rd
Time: 5 pm reception, 6 pm presentation
Location: Imaging Arts Gallery, 175 King Street, Charleston, SC
RSVP: Diana Larson

In our second meeting for the month, on November 12th, Dr. Richard Ebeling returns to the Bastiat Society. Richard was formerly the President of the Foundation for Economic Education in May 2003.

Richard discovered the freedom philosophy as a teenager while attending Hollywood High in Los Angeles, when he came across The Freeman and the writings of Friedrich Hayek and Ludwig von Mises. He earned a B.A. in economics at California State University, Sacramento, an M.A. at Rutgers University, and a Ph.D. at Middlesex University in London, England.

A passionate advocate of free markets and constitutionally limited government, Richard has written, edited and contributed to over 30 books and published numerous articles. He lectures extensively in the United States and around the world and is a popular guest on radio and television talk shows.

He has not only written and lectured about the cause of liberty, but also lived it. In 1991, while consulting on market reform and privatization in the former Soviet Union, he joined the defenders of freedom and faced the Soviet tanks in Vilnius, Lithuania, and again in Moscow, Russia, during the attempted hard-line communist insurrection.

In 1996 he discovered the "lost papers" of Ludwig von Mises in a formerly secret KGB in Moscow and brought to America copies of virtually the entire collection of 10,000 pages. He is currently completing the editorial work of the papers, Selected Writings of Ludwig von Mises, published by Liberty Fund.

Date:Wednesday, November 12th
Time: 5 pm reception, 6 pm program
Location: Imaging Arts Gallery, 175 King Street, Charleston,

Monday, October 6, 2008

Beyond Talking Points

"Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else..."

"Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror."

Columnist Jeff Jacoby, "Frank's Fingerprints Are All Over The Financial Fiasco," Boston Globe, September 28, 2008.

Sunday, October 5, 2008

Who's to Blame

"To blame laissez faire for today's economic crisis is akin to blaming the human body's natural and normal functioning for the illness suffered by someone who's overdosing on heroin."

Economist Don Boudreaux of George Mason University writing at Cafe Hayek.

Saturday, October 4, 2008

Minority Vices

Populism flatters the people, contrasting their virtue with the alleged vices of some minority -- in other times, Jews or railroad owners or hard-money advocates; today, the villain is "Wall Street greed," which is contrasted with the supposed sobriety of "Main Street."

Conservative columnist George Will, "A Vote Against Rashness," Washington Post, Wednesday, October 1.

Friday, October 3, 2008

Thursday, October 2, 2008

Fading Capitalism

Chinese capitalism has run its course.

That is the conclusion of a new book by Yasheng Huang, a professor at the Massachusetts Institute of Technology. The Economist reports:

"Mr Huang has gone far beyond the superficial data on gross domestic product (GDP) and foreign direct investment that satisfy most researchers. Instead, he has unearthed thousands of long-forgotten pages of memoranda and policy documents issued by bank chairmen, businessmen and state officials. In the process he has discovered two Chinas: one, from not so long ago, vibrant,entrepreneurial and rural; the other, today’s China, urban and controlled by the state."

Read the rest here.