Instead of deploying the flawed and simplistic "left-right" political spectrum -- two ends of a spectrum that depict similars instead of opposites -- Lawrence Reed argues in this guest post that we should judge political and economic systems by whom they empower: the State, or the individual.

The Big Problem With the Traditional 'Political Spectrum' Children Are Taught in Schools

guest post by Lawrence Reed

In classes on Government and Political Science, with few exceptions, students in both high school and university are taught that the so-called “political spectrum” (or “political/economic” spectrum) looks like this: Communism and Socialism reside on the Left, Capitalism and Fascism dwell on the Right. Various mixtures of those things lie somewhere in between:

This is not only false and misleading, it is also idiocy. Toss it into the trash bin and demand a refund from the teacher who presented it as fact, or as any kind of insightful educational tool.

At the very least, a spectrum that looks like that should raise some tough questions. Why should socialists and fascists be depicted as virtual opposites when they share so much in common—from their fundamental, intellectual principles to their methods of implementation? If a political spectrum is supposed to illustrate a range of relationships between the individual and the State, or the very size and scope of the State, then why are systems of Big State/Small Individuals present at both ends of it?

On any other topic, the two ends of a spectrum would depict opposites. Let’s say you wanted to illustrate a range for stupidity. It would look like this:

How much sense would it make for “Extremely Stupid” to appear at both the far Left and the far Right ends of the range?

For the same reason, you would create only confusion with a spectrum that looks like this:

If you wanted to depict a range of options regarding the size of government, a more meaningful range would be this one:

Let us get back to that first sketch above, the spectrum that is most often presented to students as gospel. It is a big reason why so many people think that the communism of Lenin and Stalin was diametrically opposed to the fascism of Hitler and Mussolini (even if people who lived under those systems could not tell much difference).

I must say that in the first place, I am not a fan of one-dimensional spectra as a device for understanding politics, especially when those who construct them insert terms along the range that are not all compatible with what the range is supposed to depict. (Capitalism, for example, is not a political system; it is an economic one. It is entirely possible (though uncommon and ultimately unstable) for a one-party political monopoly to allow a considerable degree of economic freedom. And the spectra shown here are literally one-dimensional, when it would take at least two dimensions, if not three, to truly show the complexity of political positioning.) But my purpose here is not to go that broad, but to deal only with the defective one-dimensional political/economic spectrum that most students learn.

My contention is that if Communism, Socialism, Fascism and Capitalism all appear on the same range line it is terribly misleading and utterly useless, to place the first two on the left and the second two on the right. 

If we were to place opposites at each end, then, the placement that makes the most sense is probably this one:

I can already hear the spluttering from the cheap (communist-leaning seasts!) The perspective represented in that last sketch, just above, immediately arouses dispute because its implications are quite different from what students are typically taught. The inevitable objections include these three:

1. Communism and fascism cannot be close together because communists and fascists fought each other bitterly. Hitler attacked Stalin, for example!

This objection is equivalent to claiming, “Al Capone and Bugs Moran hated and fought each other so they can’t both be considered gangsters.” Or, “Since Argentina and Brazil compete so fiercely in football, both teams cannot be composed of footballers.”

Both communism and fascism demonstrate in actual practice an extremely low regard for the lives and rights of their subject peoples. Why should anyone expect their practitioners to be nice to each other, especially when they are rivals for territory and influence on the world stage?

We should remember that Hitler and Stalin were allies before they were enemies. They secretly agreed to carve up Poland in August 1939, leading directly to World War II. The fact that Hitler turned on Stalin two years later is nothing more than proof of the proverb, “There’s no honour among thieves.” Thieves are still thieves even if they steal from each other.

2. Under communism as Karl Marx defined it, government “withers away.” So it cannot be aligned closely with socialism because socialism involves lots of government.

Marx’s conception of communism is worse than purely hypothetical. It is sheer lunacy. The idea that the absolutist despots of the all-powerful “proletarian dictatorship” would one day simply walk away from power has no precedent to point to and no logic behind it. Even as a prophecy, it strains credulity to the breaking point.

Communism is my Sketch 5 appears where it does because in actual practice, it is just a little more radical than the worst socialism. It is the difference between the murderous, totalitarian Khmer Rouge of Cambodia and, say, the socialism of Castro’s Cuba.

3. Communism and Fascism are radically different because in focus, one is internationalist and the other is nationalist (as in Hitler’s “national socialism”).

Big deal. Again, chocolate and vanilla are two different flavors of ice cream, but they’re both ice cream. Was it any consolation to the French or the Norwegians or the Poles that Hitler was a national socialist instead of an international socialist? Did it make any difference to the Ethiopians that Mussolini was an Italian nationalist instead of a Soviet internationalist?

Endless confusion persists in political analysis because of the false dichotomy the conventional spectrum (Sketch 1) suggests. People are taught to think that fascists Mussolini and Hitler were polar opposites of communists Lenin, Stalin, and Mao. In fact, however, they were all peas in the same collectivist pod. They all claimed to be socialists. They all sought to concentrate power in the State and to glorify the State. They all stomped on individuals who wanted nothing more than to pursue their own ambitions in peaceful commerce. They all denigrated private property, either by outright seizure or regulating it to serve the purposes of the State.

Don’t take my word for it. Consider these remarks of the two principal Fascist kingpins, Adolf Hitler and Benito Mussolini. Ask yourself, “Are these remarks materially different from what Lenin, Stalin and Mao—or even Marx—believed and said?”

In a February 24, 1920 speech outlining the Nazi 25-Point Program, Hitler proclaimed, “The common good before the individual good!”

In a speech to Italy’s Chamber of Deputies on December 9, 1928, Mussolini declared, “All within the State, nothing outside the State, nothing against the State!”

“To put it quite clearly,” said Hitler in a 1931 interview with journalist Richard Breitling, a core program of his Party was “the nationalisation of all public companies, in other words socialisation, or what is known here as socialism…the principle of authority. The good of the community takes priority over that of the individual. But the State should retain control; every owner should feel himself to be an agent of the State; it is his duty not to misuse his possessions to the detriment of the State or the interests of his fellow countrymen. That is the overriding point. The Third Reich will always retain the right to control property owners.”

“This is what we propose now to the Treasury,” announced Mussolini on June 19, 1919. “Either the property owners expropriate themselves, or we summon the masses of war veterans to march against these obstacles and overthrow them.”

Less than two weeks before (on June 6, 1919), the future Il Duce virtually plagiarised The Communist Manifesto when he said, “We want an extraordinary heavy taxation, with a progressive character, on capital, that will represent an authentic partial expropriation of all wealth; seizures of all assets of religious congregations and suppression of all the ecclesiastic Episcopal revenues.”

This line from Hitler’s May Day speech at Templehof Air Field in 1934 could have come straight from Lenin: “The hammer will once more become the symbol of the German worker and the sickle the sign of the German peasant.”

That’s the same socialist fanatic who declared in an October 5, 1937 speech, “There is a difference between the theoretical knowledge of socialism and the practical life of socialism. People are not born socialists but must first be taught how to become them.” (Please note: communists and fascists share a common hostility to private and home schooling.)

Mussolini asserted that “there are plenty of intellectual affinities between us” (socialists of the communist variety and socialists of the fascist flavour). In the same interview in 1921, he said, “Tomorrow, Fascists and Communists, both persecuted by the police, may arrive at an agreement, sinking their differences until the time comes to share the spoils…Like them, we believe in the necessity for a centralized and unitary state, imposing an iron discipline on everyone, but with the difference that they reach this conclusion through the idea of class, we through the idea of the nation.”

Hitler once declared, “National Socialism is the determination to create a new man. There will no longer exist any individual arbitrary will, nor realms in which the individual belongs to himself. The time of happiness as a private matter is over.” In 1932 his fascist soul mate Mussolini echoed the most doctrinaire Bolshevik when he stated, “It was inevitable that I should become a Socialist ultra, a Blanquist, indeed a communist. I carried about a medallion with Marx’s head on it in my pocket. I think I regarded it as a sort of talisman… [Marx] had a profound critical intelligence and was in some sense even a prophet.”

The same Mussolini advised the American businessman and politician Grover Whalen in 1939, “You want to know what fascism is like? It is like your New Deal!” He was referring to the central planning, anti-capitalist mandates and sky-high taxes of Franklin Roosevelt.

On and on it goes. Based on what they said and what they did, it is ludicrous to separate Fascism from the Left and make it out to be just a purified form of classical liberal Capitalism. If you insist on using the conventional spectrum as depicted in Sketch 1, you are deceiving yourself as to the differences between Communism and Fascism. They both belong firmly on the socialist Left. Actual differences amounted to minimalist window-dressing. Even their primary implementers said so.

Instead of deploying flawed and simplistic spectrum charts, let us judge political and economic systems by whom they empower—the State or the individual. That makes things a lot clearer.

* * * * * 

Lawrence Read is the President Emeritus io the Foundation for Economic Education (FEE). This article was adapted from an issue of the FEE Daily email newsletter, and then appeared at the FEE blog. 

WAR: "Does blowing up millions of dollars worth of resources sound like a good way to fix the economy?

"While it’s true that war can increase aggregate spending (and therefore GDP numbers), consider what happens with the spending. It purchases machines like tanks and artillery which are sent overseas and promptly blown up.
    "Does blowing up millions of dollars worth of resources sound like a good way to fix the economy? When you look past the temporary fluctuations in economic statistics, it’s clear that these policies can only be destructive. If that weren’t the case, the government could improve the economy by building drones which blow each other up over the ocean! ...
    "The mistake that increased spending in itself causes economic growth is known famously in economics as the broken window fallacy. When we spend money on a war, it’s easy to see the upsides such as income to steel manufacturers who build tanks. What we don’t see is the downsides (the alternative way we could have used the steel rather than blowing it up, for example)."

~ Peter Jacobsen, from his article 'Did FDR Create the Middle Class: What is (and isn’t) the Real Cause of Growth?'

Roosevelt as saviour?

President Franklin Roosevelt's "New Deal" has long been credited with rescuing the US from the Great Depression of the 1930s. While digging up material for tonight’s discussion on the Great Depression, I uncovered this presentation by economics scholar Lee Ohanian, Professor of Economics at UCLA, who challenges the conventional wisdom in a provocative examination of FDR's economic policies.

 

It recalls to mind Steven Kates’s argument “There is no such thing as an independent force that can be described as aggregate demand.”

If you want to get to the essence of Say’s Law you must never think in terms of aggregate demand and aggregate supply. Just drop it from all conceptual discussions of the economy and I think, although I can’t be sure, you will find yourself necessarily thinking about issues in the same way as the classical economists. As I have argued in my Say’s Law and the Keynesian Revolution (Elgar 1998), if you want to defeat Keynesian economics, you need to wage war on the very notion of aggregate demand. Nothing else will do.

The Great Deformation of 2008, and beyond!

Guest review by Llewellyn Rockwell

It didn’t take long for opponents of the market to pounce after the events of 2008. The crash was said to prove how destructive “unregulated capitalism” could be and how dangerous its supporters were—after all, free-marketeers opposed the bailouts, which had allegedly saved Americans from another Great Depression.

In The Great Deformation, David Stockman—former US congressman and budget director under Ronald Reagan—tells the story of the recent crisis, and takes direct aim at the conventional wisdom that credits government policy and US Federal Reserve chairman Ben Bernanke with rescuing Americans from another Great Depression. In this he has made a seminal contribution. But he does much more than this. He offers a sweeping, revisionist account of US economic history from the New Deal to the present. He refutes widely held myths about the Reagan years and the demise of the Soviet Union. He covers the growth and expansion of the warfare state. He shows precisely how the American central bank, the US Federal Reserve, enriches the powerful and shelters them from free markets. He demonstrates the flimsiness of the present so-called recovery. Above all, he shows that attempts to blame our economic problems on “capitalism” are preposterous, and reveal a complete lack of understanding of how the economy has been deformed over the past several decades.

The Great Deformation takes on the stock arguments in favour of the bailouts that we heard in 2008 and which constitute the conventional wisdom even today. A “contagion effect” would spread the financial crisis throughout the economy, well beyond the confines of a few Wall Street firms, we were told. Without bailouts, payroll would not be met. ATMs would go dark. Wise policy decisions by the Treasury and the Federal Reserve prevented these and other nightmare scenarios, and staved off a second Great Depression.

The bailout of insurance company AIG, for example (whose name now appears on All Black chests), was carried out against a backdrop of utter hysteria. AIG was bailed out in order to protect Main Street, the public was told, but virtually none of AIG’s busted CDS insurance was held by Main Street banks. Even on Wall Street the effects were confined to about a dozen firms, every one of which had ample cushion for absorbing the losses. Thanks to the bailout, they did not take one dollar in such losses. “The bailout,” says Stockman, “was all about protecting short-term earnings and current-year executive and trader bonuses.”

Ten years earlier, the “Fed” had sent a clear enough signal of its future policy when it arranged for a bailout of a hedge fund called Long Term Capital Management (LTCM). If this firm was to be bailed out, Wall Street concluded, then there was no limit to the madness the Fed would backstop with easy money.

LTCM, says Stockman, was “an egregious financial train wreck that had amassed leverage ratios of 100 to 1 in order to fund giant speculative bets in currency, equity, bond, and derivatives markets around the globe. The sheer recklessness and scale of LTCM’s speculations had no parallel in American financial history…. LTCM stunk to high heaven, and had absolutely no claim on public authority, resources, or even sympathy.”

When the S&P 500 soared by 50 percent over the next fifteen months, this was not a sign that American companies were seeing their profit outlooks increase by half. It instead indicated a confidence on Wall Street that the Fed would prevent investment errors from receiving the usual free-market punishment. Under this “ersatz capitalism,” stock market averages reflected “expected monetary juice from the central bank, not anticipated growth of profits from free-market enterprises.”

It wasn’t just specific firms that would enjoy Fed largesse under chairmen Alan Greenspan and Ben Bernanke; it was the stock market itself. According to Stockman, Fed policy came to focus on the “wealth effect”: if the Fed pushed stock prices higher, Americans would feel wealthier and would be likely to spend and borrow more, thereby stimulating economic activity.

This policy approach, in turn, practically compelled the bailouts that were one day to come. Anything that might send stock prices lower would frustrate the wealth effect. So the system had to be propped up by whatever means necessary.

What does this policy have to show for itself? Stockman gives the answer:

If the monetary central planners have been trying to create jobs through the roundabout method of “wealth effects,” they ought to be profoundly embarrassed by their incompetence. The only thing that has happened on the job-creation front over the last decade is a massive expansion of the bedpan and diploma mill brigade; that is, employment in nursing homes, hospitals, home health agencies, and for-profit colleges. Indeed, the HES complex accounts for the totality of American job creation since the late 1990s.

Meanwhile, the number of breadwinner jobs did not increase at all between January 2000 and January 2007, remaining at 71.8 million. The booms in housing, the stock market, and household consumption had only this grim statistic to show for themselves. When we consider the entire twelve-year period beginning in the year 2000, there has been a net gain of 18,000 jobs per month—one-eighth of the growth rate in the labour force.

In the wake of the crash, the Fed has continued to gin up the stock market. By September 2012 the S&P had increased by 115 percent over its lows during the bust. Of the 5.6 million breadwinner jobs lost during the correction, only 200,000 had been restored by then. And during the vaunted recovery, American households spent $30 billion less on food and groceries in the fall of 2012 than they did during the same period in 2007.

The sudden emergence of enormous budget deficits in recent years, Stockman explains, simply made manifest what the bubble conditions of the Bush years had concealed. The phony wealth of the housing and consumption booms temporarily lowered the amount of money spent on safety-net programs, and temporarily increased the amount of tax revenue received by the government. With this false prosperity abating, the true deficit, which had simply been suppressed by these temporary factors, began to appear.

All along, the Fed had assured us that the United States was experiencing genuine prosperity. “Flooding Wall Street with easy money,” Stockman writes, the Fed

saw the stock averages soar and pronounced itself pleased with the resulting “wealth effects.” Turning the nation’s homes into debt-dispensing ATMs, it witnessed a household consumption spree and marveled that the “incoming” macroeconomic data was better than expected. That these deformations were mistaken for prosperity and sustainable economic growth gives witness to the everlasting folly of the monetary doctrines now in vogue in the Eccles Building.

Stockman also discusses the fiscal condition of the US government. Part of that history takes him through the Reagan military buildup. Stockman’s isn’t the story you heard at the Republican conventions of the 1980s. The real story is as you suspected: a feeding frenzy of arbitrary and irrelevant programs which, once begun, could be stopped only with great difficulty if at all, given the jobs that depended on them.

But at least this buildup brought about the collapse of the Soviet Union, right? Stockman doesn’t buy it.

The $3.5 trillion (2005$) spent on defence during the Gipper’s term did not cause the Kremlin to raise the white flag of surrender. Virtually none of it was spent on programs which threatened Soviet security or undermined its strategic nuclear deterrent.

At the heart of the Reagan defence buildup … was a great double shuffle. The war drums were sounding a strategic nuclear threat that virtually imperilled American civilization. Yet the money was actually being allocated to tanks, amphibious landing craft, close air support helicopters, and a vast conventional armada of ships and planes.

These weapons were of little use in the existing nuclear standoff, but were well suited to imperialistic missions of invasion and occupation. Ironically, therefore, the Reagan defence buildup was justified by an Evil Empire that was rapidly fading but was eventually used to launch elective wars against an Axis of Evil which didn’t even exist.

What would actually bring the Soviet Union down was its command economy itself—a point, Stockman notes, that “libertarian” economists had been making for some time. Neoconservatives, on the other hand, advanced ludicrous claims about Soviet capabilities and the Soviet economy at a time when its decrepitude should have been obvious to everyone. These inflated claims about the regime’s enemies continued to be standard practice for the neocons long after the Reagan years were over.

To do it justice, The Great Deformation really requires two or three reviews. One could be devoted just to Stockman’s striking analysis of the New Deal. Stockman advances and then defends these and other arguments: the banking system had stabilized well before FDR’s ill-advised “bank holiday”; the economy had already turned the corner before FDR’s accession and worsened again as a result of FDR’s conduct during the interregnum; the New Deal was not a coherent program of Keynesian demand stimulus, so it makes no sense for Keynesians to draw lessons from it; the 1937 “depression within the Depression” was not caused by fiscal retrenchment; and FDR’s primary legacy is not the economic recovery, which would have occurred faster without him, but rather the impetus he gave to crony capitalism in one sector of the economy after another.

You may have gathered that The Great Deformation must be a long book. It is. But its subject matter is so interesting, and its prose style so lively and engaging, that you will hardly notice the pages going by.

The target of Stockman’s book is just about everyone in the political and media establishments. Left-liberal opinion moulders—defenders of the common man, they would have us believe—supported the bailouts in overwhelming numbers. Herman Cain, meanwhile, lectured “free-market purists” for opposing TARP, and virtually the entire slate of GOP candidates in 2012 had supported it. Both sides, in tandem with the official media, repeated the regime’s scare stories without cavil. And both sides could think of nothing but good things to say about how the Fed had managed the economy for the past quarter century.

The free market stands exonerated of the charges hurled by the state and its allies.

Thanks to The Great Deformation, not a shred of the regime’s propaganda is left standing. This is truly the book we have been waiting for, and we owe David Stockman a great debt.

This review first appeared at Rockwell.Com.

3 Great Myths of the Great Depression and Roosevelt’s New Deal

Historian Stephen Davies ably punctures three persistent myths about the Great Depression.

Myth #1: Herbert Hoover was a laissez-faire president, and it was his lack of action that lead to an economic collapse. Davies argues that in fact, Hoover was a very interventionist president, and it was his intervening in the economy that made matters worse.

Myth #2: The New Deal ended the Great Depression. Davies argues that the New Deal actually made matters worse. In other countries, the Great Depression ended much sooner and more quickly than it did in the United States.

Myth #3: World War II ended the Great Depression. Davies explains that military production is not real wealth.; wars destroy wealth, they do not create wealth. In fact, examination of the historical data reveals that the U.S. economy did not really start to recover until after WWII was over.  

Cunliffe fails history again

Labour’s aspiring would-be leader David Cunliffe continues to head around the country pretending he knows what he’s talking about,  disgracing himself in his first speech with his lack of learning and absence of economic nous, an experience he repeated in front of yesterday’s audience of receivership and liquidation lawyers—reciting history that wasn’t so and economics that never could be.

I still maintain his future lies in poetry.

Let’s see however if we can’t correct some of his latest error-ridden diatribe. He begins with cloth-cap boiler plate before settling into his main theme:

Anyone who seriously believes that the economy can somehow heal itself by being left alone, hasn’t read a newspaper for the last 12 months.

And anyone who thinks the economy has been left alone hasn’t read a newspaper—or a history book—for some time. But this is the level of his flawed analysis, in which virtually every sentence is either a lie, or spin, or just frankly mistaken. He either believes it, or he’s even stupider than the cat’s arse he looks like. [Cunliffe’s drivel appears below in italics, followed by my comments.]

No one these days [he says] seriously believes that a totally unregulated economy will work. Just as important, no one seriously believes that a totally regulated economy will work. It’s a question of getting the balance right.

This is three canards in one, isn’t it: Two straw-men coupling with an attempt to posture as a man of balance. (“Look at me, I’m a moderate!”)  But the fact is, while there are any number of ridiculous regulations that helped cause the crash and that still burden the recovery,* despite his posturing Cunliffe doesn’t suggest removing any burden—but only adding more. 

He talks  of “Lessons Learned From the Great Depression”—and it’s clear on reading further he’s learned none. Perhaps because all of what he appears to know about the Great Depression is not true.**

The Great Depression [he says], for those who haven’t studied history, was caused by a lack of government regulation.

Well, it’s clear Cunliffe has never studied history. The Great Depression—America’s  Great Depression (which was where it began and where it took longest to recover) did not persist for lack of any regulation; it was spun out and spun out by an endless series of regulations pouring out of the White House—regulations to keep wages high, to keep prices high, to cartelise industries, to confiscate gold, to confiscate agricultural produce, to pick winners and subsidise losers, to create a business environment of such complete “regime uncertainty” that no-one (not even the President) knew from one day to the next what what would happen the day after tomorrow.

The 1929 stock market crash triggered an economic tsunami that all but flattened America. Just like now, it was the ordinary people that bore the brunt of the crash and the depression that followed it.
    And, as if the crash itself wasn’t bad enough, the government still refused to intervene, so the situation got worse.

The 1929 crash was not the biggest economic crash in history.  It was not even the biggest crash in that decade. In 192o the stock market fell further and faster than in 1929—and the collapse in the monetary base during 1920–1921 was the largest in U.S. history—yet within eighteen months recovery was complete.

Further, and for a variety of reasons (some of them involving a sick and lame-duck president and a Fed still reluctant to destroy their currency) in 1920-21 neither government nor Federal Reserve Bank “intervened”—in fact in every sense they did the very opposite of  what Cunliffe now recommends:  the government slashed its budget, the Fed hiked interest rates, and the Consumer Price Index dropped like a stone. And the situation rapidly got better, mostly because costs came down as prices came down and businesses had the certainty and lower costs within which to redirect production into new and more profitable ventures.

Things got better, and fast.

So that’s what happened when there was no “intervention.”  And like a laboratory experiment we can contrast it with the prescription tried a decade later, because what was tried there was virtually the diametric opposite with results as grim as described by Cunliffe:

Bank after bank collapsed, along with the millions of families who had entrusted those bankers with their life savings.
By 1933, 11,000 of the United States’ 25,000 banks had failed. That’s nearly half.
People had no money…And so it went on, and on, and on, until, by 1933, nearly 13 million Americans were unemployed. That was a quarter of the total workforce.
And what was the government’s response: nothing.

Yes, bank after US bank collapsed. 9,646 in all (Cunliffe’s figure is just made up for effect.) They collapsed because the government was doing something: with regulations on branch banking and gold holding it was getting in the way. When nearly half of US banks were failing, how many banks do you think were failing over the border in Canada, where the same regulations weren’t imposed? Answer: not one. The government’s own banking regulations amplified the problem.

And do you know why 1933 was the nadir for banks? Because the incoming president, Franklin Roosevelt, had put it about for months since his election (it taking months for the new president to be inaugurated) that upon his inauguration he would devalue the dollar and confiscate gold, rumours he put about that caused the biggest run on the banks since the Civil War.

And what was the government’s response? Well, it was far from nothing. From 1929 to 1933 Hoover did the exact opposite of sitting on his hands. He was virtually Keynes-Lite, as he himself boasted in his 1932 presidential campaign:

We might have done nothing [said Hoover]. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic. We put it into action.... No government in Washington has hitherto considered that it held so broad a responsibility for leadership in such times.... For the first time in the history of depression, dividends, profits, and the cost of living, have been reduced before wages have suffered.... They were maintained until the cost of living had decreased and the profits had practically vanished. They are now the highest real wages in the world.
Creating new jobs and giving to the whole system a new breath of life; nothing has ever been devised in our history which has done more for ... "the common run of men and women." Some of the reactionary economists urged that we should allow the liquidation to take its course until we had found bottom.... We determined that we would not follow the advice of the bitter-end liquidationists and see the whole body of debtors of the United States brought to bankruptcy and the savings of our people brought to destruction.

Featured in Hoover's plan were increased taxes, lowered interest rates, huge deficits, public dams, public works, restrictions on immigration and trade, and government regulation of banking, finance, industry and labour markets—even his 1932 opponent Franklin Roosevelt accused him (accurately) of “reckless and extravagant” spending, of thinking “that
we ought to center control of everything in Washington as rapidly as possible,” and of
presiding over “the greatest spending administration in peacetime in all of history.”  It was all of it—all the spending, all the alleged “stimulus”—all an attempt to keep up wages and prices and keep the engine ticking over in the manner to which Cunliffe suggests we do today.

It failed.  It failed spectacularly.

By 1933, nearly 13 million Americans were unemployed. Yet when the Second World War began, after eight years of further intervention by Franklin Roosevelt (whose advisers conceded their New Deal was based on the “Hoover New Deal”) , nearly 12 million were still unemployed (unemployment had never dropped below 20% for the whole of the decade) and Roosevelt was to embrace a world war as a way to get the unemployed out of his hair.

Cunliffe '”quotes” Hoover’s Treasury Secretary Andrew Mellon (“by curious coincidence, one of the wealthiest men in America” sneers Cunliffe) who was supposed to have advised Hoover to “liquidate labour, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system.” Fact is, it would have. But the “quote” was actually Hoover’s, and it was him contrasting the “liquidationist” programme of the type followed in 1920 with the “interventionist programme” followed by Hoover and Roosevelt from 1929 to 1933, and 1933 to 1945 respectively.

Cunliffe neither knows nor cares about the truth. He says

the voters threw out Herbert Hoover and voted in Franklin D. Roosevelt. Roosevelt heavily intervened in the economy, regulated the banks and the stockbrokers, and set America on the path of its longest period of economic growth in history.

But as Roosevelt’s own Treasury Secretary Henry Morgenthau summarised for a 1939 Treasury meeting the results of this heavy intervention and regulation

“No, gentlemen, we have tried spending money. We are spending more than we have ever spent before and it does not work. ...I say after eight years of this Administration we have just as much unemployment as when we started…Mr. Doughton: And an enormous debt to boot!
HMJr.: And an enormous debt to boot! We are just sitting here and fiddling and I am just wearing myself out and getting sick. Because why? I can’t see any daylight. I want it for my people, for my children, and your children. I want to see some daylight and I don’t see it…”

From Cunliffe neither do we see daylight, only dishonesty. For it is from shibboleths and myths like this he hopes to assemble around himself a braindead mob of zealots eager to accept him and his word as sufficient unto itself to lead him to Prime Ministerial glory—for make no mistake, that is his ambition.

There is more, much more in his speech that challenges both the historical record and the patience of his audience. But since he is going to continue going around the country stirring up ignorance, might I suggest just four questions you might ask from him if you have the misfortune to find yourself in a room with him and a microphone up front.  Ask him,

• Why did the US economy recover so quickly in 1920-21 by following the opposite of his prescription?
• How was it that England. Australia, Canada and New Zealand followed more conventional, less interventionist policies than the US and were out of Depression by 1934/45?
• Why was it that no Canadian banks failed in 1929-33, while US banks were falling over like so many houses of cards?
• Why was it that when US government sending plummeted in 146 and deficit spending ended, and 10 million US servicemen came home from the war, why was it that instead of the economic disaster predicted by Keynesians at the time this was instead the beginning of real prosperity?

Because the answer to every single one of those simple questions undermines the whole premise on which Cunliffe’s Five Year Plan rests.

* * * * *

* Indeed, the three most regulated parts of the US economy were housing, mortgages and banking; no surprise then that the crash happened at the intersection of all three.
The question is not regulation or not. It’s about what governments can and must do to protect individual rights, property rights and contracts—to protect actions chosen voluntary and production about the separation of state and economics , and after a century of ever-increasing government regulations and spending, do Americans think the obvious solution is to increase government regulations and spending? Why, when companies in the least regulated industries prosper and those in the most heavily regulated industries struggle and fail, do people blame failures on capitalism and free markets?a large number of quite smart people understand it is not a matter of regulation per se

** The best, most concise debunking of what many people think they know about the Great Depression can be gleaned from Larry Reed’s short ‘Great Myths of the Great Depression,’ online in a 28-page PDF.

The New Bad Deal: Is Obama Repeating the Errors That Led to the Great Depression?

Yaron Brook discusses ways in which government economic policy today mirrors the policy that preceded the Great Depression. [Hat tip Ayn Rand Center for Individual Rights]

The New Bad Deal: Is Obama Repeating the Errors That Led to the Great Depression?

Was the New Deal a Raw Deal? Debate [updated]

Franklin Roosevelt’s New Deal is a popular touchstone in these Depressionary days. It’s evoked by everyone from Barack Obama (“Green New Deal!”) to Robert Higgs (“No New Deal!”), from Paul Krugman to Peter Schiff.

Roosevelt’s New Deal rescued America from the Great Depression OR Roosevelt’s New Deal prolonged America’s Depression, and caused even further economic woes. Both these propositions can’t be true. Whichever side of this historic debate you’re on, however, it’s agreed by all sides that the economic predicament of today can find lessons in that Great Disaster of yesteryear:

• Do we spend dramatically to stimulate ever bigger bubbles?
• And if so, how much?
• Or do we cut our coats according to our rapidly-shrinking cloth, and learn to do more with less?
• And to save more of what we have left over?

Different lessons based largely on different readings of the success or otherwise of FDR’s New Deal – so a debate on the effectiveness or otherwise of the New Deal could not be timelier.

Head therefore to Public Square, where Jeff Madrick (author of The Case for Big Government) and Robert Murphy (author of The Politically Incorrect Guide to the Great Depression and the New Deal) go head to head to answer the question Was the New Deal a Raw Deal?

(You can see an index for each salvo in the debate on each page. And you can see some perceptive comments on the debate over at the Mises Blog, and you can join it at the Public Square Forum.)

RELATED READING:

• 'Great Myths of the Great Depression' - Lawrence Reed [sixteen-pages in PDF]
• 'Saving the Depression: A New Look at World War II' - Mark Skousen [online article]
• –                             

Balance the budget, Bill

Bernard Hickey reports that Bill English wants bureaucrats to accept a pay freeze during a time of recession, saying that with debt already up from $30 billion to $45 billion, any rises will endanger NZ's credit rating. 

That's a good reason, but it's nowhere near reason enough: In the absence of plans to sack most of the 38,000 or so bureaucrats who infest Wellington and drain our wealth, prudence dictates that at a time of economic stress they at least accept pay cuts, and that English moves urgently to cut that $45 billion debt, not just wring his hands over it.

And no fear saying such a thing couldn't happen. There are excellent historical precedents.

During the Great Depression, NZ's Forbes Government cut bureaucrats' salaries by ten percent, and moved to balance the budget rather than just minimise debt.  So too, as Steven Kates points out, did Australia's Scullin Labor Government -- "adopting the 'Premiers’ Plan' which sought a cut in public spending, a return to budget surplus and cuts to wages" -- and so too did the United Kingdom, where as Kates reports the Chamberlain Government adopted "a full-scale 'classical' approach.

A policy of balancing the budget and the containment of expenditure was adopted. By 1933, the budget had been balanced and it was from 1933 onwards that Britain emerged from the downturn of the previous four years.

So too did New Zealand and Australia. 

Under the profligate policy settings of the 'Great Engineer' Hoover and then the Great Phoney Roosevelt however, who both encouraged wages and price rises and treated balanced budgets like a Catholic treats contraception, America's depression continued for at least another decade.

The reason the 'classical' approach worked was simple: cutting costs when prices are low allows producers to do more with less.  Cutting government spending cuts taxes, and cutting debt leaves credit markets unmolested by government -- doing both means that, instead of the government hoovering up cash and credit, those twin pilllars of recovery are available instead for producers.

Roosevelt began his presidency saying that the only thing America had to fear "was fear itself."  Not true.  Not even poetically. What it needed to fear was the anti-recovery policies of him and and his predecessor.  As Neville Chamberlain said in one of the few fine moments of his career,

At any rate we [in the UK] are free from that fear which besets so many less fortunately placed, the fear that things are going to get worse. We owe our freedom from that fear largely to the fact that we have balanced our budget.

To that same fact they owed their recovery from the Depression.  Would that the historical lessons were learned by our present generation.

LIBERTARIAN SUS: Talking ourselves into depression? [updated]

She’s back! Susan Ryder addresses a frequently asked question: aren’t we doing this to ourselves?  (Originally published in the Franklin E-Local.)

When Wall Street crashed in October 1929, my maternal grandmother was 16 years old. Like many of her generation in New Zealand, she had been working since she was 13, having left school after completing Standard 6, (Year 8).

By 1932 she was 19, the misery of the Great Depression was well underway, and Nana was working as a nurse/housekeeper for the local doctor in a small Taranaki town. In order to be able to keep her job, her weekly wage was slashed by 25% from 10 shillings to ‘7 and 6d’ and stayed that way until she finished work to marry my grandfather in 1938.

I blanched at the drastic cut. “How did you manage?” I asked. “Well, it wasn’t easy”, she replied, “but you learned to make do. You learned to live within your means. The easy part was making the decision to accept it. It was either accept it, or no job. And 75% of something was a damn site better than 100% of nothing.”

There is a lot of wisdom in those few sentences. It has been only a few months since the global credit crunch started to bite and much has been written by economists, politicians and journalists of all persuasion, all largely quoting each other and all largely saying the same. In reality, though, there is little wisdom to be found in much of it.

What happened? One day, the developed world seemed to be chugging along quite nicely and then we awoke to find the fiscal sky starting to fall, just as Chicken Little said it would. It started in the US with major financial corporations exhibiting various stages of collapse, which spread quickly to major corporations within all industries -- of note the parlous American auto industry. Treasury Secretary Henry Paulson and Federal Reserve Chairman Bernard Bernanke leapt into action throwing money – and lots of it – at everything that looked like it might have stopped moving. It wasn’t even their money, but the US taxpayers’.

Well, it would have been, had it existed, but it didn’t. It was created out of thin air via the Federal Reserve’s printing presses -- which have been running red hot ever since. The US taxpayer has now been landed with the additional debt – on top of the mountain of debt that already existed – which has further served to diminish the dollar in the process - while the US economy remains as critical as ever.

So will all this intervention help? Well, it hasn’t to date in spite of all the cash. Personally, I think it is only going to make matters worse, to ultimately extend the life of the upcoming hardship. For proof, we should look back to the last recession on this scale, known as the Great Depression of the 1930s.

There is an old saying that warns of those ignoring the lessons of history being doomed to repeat them. Talk of doom could be frighteningly prophetic in that the prescriptions recommended for the current crisis are looking alarmingly like those adopted 75 years ago. US President Franklin Roosevelt (popularly known as FDR) followed his predecessor Herbert Hoover’s policy of increased government intervention in the marketplace and increased public expenditure, all of which served to stretch out the misery of the Great Depression for a long, dark decade.

There are some things that cannot be denied.  One is that what goes up must come down – especially if the ‘up’ is created artificially.  Drug takers know this stuff, and the ‘users’ of Alan Greenspan’s easy credit now know it too.  Economic cycles fuelled by easy credit ensure a bust will always follow a boom, particularly if that boom has been artificially fuelled by a ‘bubble’ such as the “Tulip Mania” of the 17^th century or the Dot-com bubble of the 1990s . . .  or the housing bubble of the 2000s.

The housing bubble blew up all over the developed world. (In New Zealand and elsewhere, it was exacerbated by restrictions to the residential land supply and ever-increasing local council compliance costs, which helped to inflate the bubble.) Credit was cheap and easy to get, attracting both market speculators and buyers. Tradesmen were kept busy with the demand, as were their suppliers and so on.

But what goes up artificially, must come down in reality.  When prices become too high for the market, the latter will adjust, resulting in a drop in prices.

If only it were that simple.

What goes up too highly would come down, if only politicians didn’t interfere so. The truth is that there is a better chance of winning Lotto than of politicians keeping their hands to themselves. US Congressman Ron Paul tells the story of FDR’s meddling with the market.  FDR was determined he would not run the risk of losing the large agricultural vote by letting prices fall naturally to the levels that market conditions demanded, a fall which would have helped the recovery but reduced farmers’ returns. So instead he propped prices up.  Unfortunately, the poor people struggling financially could not afford the artificially high prices and went hungry, even as the growers were ploughing their unsold produce back into the land.

Welcome to the Law of Unintended Consequences.

Everybody is always screaming for affordable housing and houses certainly would be affordable if only prices were allowed to meet the existing market. The same applies for all commodities. But there are also other factors at work. If the market was left to sort itself out, a fall in prices would go hand in hand with a fall in costs. However, trade unions will almost certainly resist all efforts to see government interference such as the minimum wage laws that keep wages at inflated levels, abolished. And it is a safe bet that they will strenuously oppose any general reduction in wages, no matter how necessary it is, all of which means that both prices and wages are kept artificially high.

US businessman Peter Schiff has been an outspoken advocate of letting the market work instead of chaining it up and burdening it with regulation, and then screaming when it goes wrong. He predicted the current crisis more than two years ago and was roundly ridiculed. His many detractors are not laughing now. He is the author of several books including Crash Proof: How to Profit from the Coming Economic Collapse. Schiff opposes the concept of a ‘government-led’ recovery, believing that the problem with recovery lies chiefly in what governments are doing to hinder it. He points for example to the brokerage/banking industry being one of the most highly regulated -- and bankrupt as a result. Like his ideological twin in academia George Reisman, Professor Emeritus of Economics from Pepperdine University, Schiff refutes the concept of increased consumer spending being the solution to the crisis, in that spending per se does not create economic growth. The truth is the converse: it is real economic growth via increased productivity that makes spending possible.

To that end, Schiff, Reisman and Ron Paul all believe that a recession is the natural adjustment by which to prune the poor performers, re-establish real values (ie., let prices fall) and then start again as quickly as possible.

A recession is not pleasant and only a fool would suggest otherwise. No decent person likes to see anyone go out of business or lose a job. But the sooner a recession is allowed to evolve, the sooner it can pass – and the fewer bankruptcies and job losses we will have.

The alternative is to continue to interfere and to subsidise what doesn’t deserve to be propped up. Subsidisation creates too much of what is not wanted. Anytime that government subsidises industry, for any reason, it gets expensive. The longer the recession, the more likely it will bleed into an outright depression.

In this global age it is too much to hope that a small economy like New Zealand will dodge the coming crisis, but with the application of sound economic principles we can prepare ourselves to face what comes and to could emerge from it as quickly as we can.

Living within one’s means is common sense, surely. It means the application of that dirty word ‘discipline’ in both the home and the Beehive.  It means letting wages and prices to fall, instead of propping them up.

In plain speech, I guess it also comes back to my grandmother’s viewpoint of 75% of something being preferable to 100% of nothing.

* * Read Susan Ryder every Tuesday here at NOT PC * *

UPDATE:  Read ‘How Government Prolonged the US Depression,’ summarised at Anti Dismal.

On Stimularithmetic, and Team Obama's 'Old Left' Stimulunacy

It's not just Robert Barro who's questioning the proposed economic effect of Team Obama's "stimulus" package, which promises to shower Americans with new doles, new bridges to nowhere, "green jobs," "renewable energy" projects, and failing car companies producing even shittier cars that even fewer people will want (and remember the working definition of "renewable energy.")

Team Obama, remember, reckons their "stimulus" package will have a "multiplier effect" on the US economy of 1.5; Barro reckons they've got their sums wrong. ("A much more plausible starting point is a multiplier of zero. In this case, the GDP is given, and a rise in government purchases requires an equal fall in the total of other parts of GDP -- consumption, investment and net exports. In other words, the social cost of one unit of additional government purchases is one.")

And, naturally, other economists are joining the fray, and Arnold Kling has summarised the differences between two proponents on either side of the debate, one who predicts that with every $100 of government spending we'll see $87 worth of benefits, and another who predicts we'll lose $80 (see Paul Walker's summary here), suggesting nothing so much, perhaps, as that there is nothing so pointless as expecting results from economists doing algrebra.

Fact is, a pump primed is a recovery delayed.

So it's more instructive not just to notice that there are Republicans who are now growing spines that were nowhere in evidence over the last eight years -- and certainly not over the last eight months while their own bosses set about nationalising the banking industry -- but to appreciate the analysis of those like Robert Tracinski who leave their algebra in their brief case, and engage instead in pure logic.

Obama, says Tracinski bluntly, has no idea what he's doing.

Obama begins his administration by declaring that he will run the government
while rejecting any overarching ideas and principles regarding the proper role
and scope of government action. He starts by telling us, in effect, that he has
no idea what he is doing.

As we've noted here before. And wasn't there another US president of similar mien? Oh yes, there was:

Decades ago, we had another president who came into power during an economic
crisis, who also had no idea what he was doing and engaged instead in "bold,
persistent experimentation"--with his only absolute being that he would not let
the free market work. That was FDR. The result? The economic crisis lasted
another decade and actually deepened under his leadership. If Obama's speech is
what a cipher sounds like, the Great Depression is the kind of result that is
produced when an ambitious cipher attempts to offer vigorous leadership.

The "stimulus" package is just further evidence that Obama really doesn't know what he's doing any more than Roosevelt ever did, and that the results of what he does try to do will be as destructive as his most natural historical predecessor. Evidence too that it's when politicians are most ignorant of what the hell they're doing that they reach most vigorously for the interventionist levers -- since to them that most represents "vigorous leadership."

As Tracinski points out in his TIA Daily newsletter, it's entirely logical then that Team Obama's first moves represents a systematic "leftist onslaught" against automobiles, power plants, banks, trade, guns, and the war on terrorism, since his reign offers nothing so much as the chance for the resurgence of the Old Left. Thus:

He is pushing for global warming regulations and for heavy new regulatory restriction on the financial industry—and he is now considering outright nationalization of the banks. He's threatening to reverse the trend toward free international trade, openly inviting Congress to impose new gun bans, and removing the US government from a war footing in its fight against terrorism.
He's also doing a few things to reverse the agenda of the religious right—but on a small scale compared to his assault on the values held dear by those of us on the secular right: free markets and vigorous national defense.

Let's take the main points of this onslaught in turn:

Let's start with environmentalism. Despite speculation that the new president would shelve global warming regulations because of the economic crisis, he has put up on his new White House website a promise to "implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050."
Since "renewable energy" will not be able to replace fossil fuels [remember the definition], that means roughly an 80% reduction in our energy use over the next four decades, which in turns means roughly an 80% reduction in our standard of living. It is a plan to make economic depression a permanent fact of life.

Consistent with this is his attack on automobiles, "ordering the EPA to allow California and a cabal of other states to impose new fuel-efficiency regulations on automakers, in the name of stopping global warming. The irony, of course, is that this is another devastating blow to the very same Detroit automakers that the Obama Administration has insisted on bailing out." (Be still: This won't be the only irony of this Administration.)

It continues. As Tracinski points out, Team Obama is consistent: they're against both the internal combustion engine and coal-fired power plants -- the two power sources of America's industrial power -- firing the first shot in this battle against coal and real energy in its sponsoring of the EPA's spiking of the 580 MWe Big Stone II coal power plant in South Dakota. (See here and here and here.)

And meanwhile, in the midst of financial disaster, he's looking to throttle the banking industry, and showing signs he wants to complete the nationalisation of banks begun under his immediate predecessor, back when Republican spines had atrophied from under-use.

And he's already fired the first shots against trade -- something every New Zealander needs to be concerned about. Says Tracinski:

The resurgence of the Old Left brings the revival of bad ideas by the dozen. So not only do we get a resurrection of nationalization and central planning; we also get a resurrection of protectionism.
Thus, President Obama's incoming Treasury secretary has indicated the new administration's willingness to start a trade war with China. That's just what we need to complete the current replay of the Great Depression: a new Smoot-Hawley tariff to shut down global trade.
This is what the resurgence of the left means: an attempt to make us forget all of the lessons that we learned, at great cost, during the economic disasters and cataclysmic wars of the 20th century.

And on top of all this, he's moved against the Supreme Court's 2008 decision recognizing a constitutional right to own guns (despite his campaign statement approving of the ruling and pledging his loyalty to the Second Amendment), and with the closing down of the terrorist prisoner-of-war camp at Guantanamo Bay and the appointment of appeaser George Mitchell as Middle Eastern envoy, indicating that the US War Against Terrorists is effectively over.

So, yes, the Obamessiah is moving fast, but not quite so benevolently as some commentators might have been hoping for.

More myths from the Great Depression [updated]

You can never have too many articles pointing out the many myths of the Great Depression:

• that President Herbert Hoover was a laissez-faire Republican who clung to the idea that markets were basically self-correcting (he wasn't; he was a meddler).
• that the stock market crash in October 1929 precipitated the Great Depression (it didn't, the problems occurred much earlier.
• that where the market had failed, the government stepped in to protect ordinary people (it didn't, it made things worse).
• that greed caused the stock market to overshoot and then crash (it wasn't greed that caused the boom, it was inflation of the money supply).
• that Franklin Rooselvelt's "enlightened government" pulled the nation out of the worst downturn in its history (it didn't: FDR's over-taxing, over-regulation and the regime uncertainty created just made things worse).

Paul Walker at Anti Dismal hosts the latest timely rejoinder to the myth Big Government Rescue. I loved the excerpt of Franklin Roosevelt's Treasury Secretary in May 1939, recognising failure after ten years of big-government failure:

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong ... somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises ... I say after eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"

Roosevelt tried everything in the big-government handbook, everything that's being talked about today including stimulus spending, welfare increases and massive public works, and it all failed -- everything except taking his hands off.  By November 1937, when other economies were recovering and the American economy was entering a 'depression within the depression,'  FDR was tearing his hair out, complaining to his cabinet, "I'm sick and tired of being told by Henry [Morgenthau] and everybody else what's the matter with the country while nobody suggests what I should do." 

"This," says historian John Flynn,

"settles for history the fact that after seven years in the White House Roosevelt had made no impression on the depression, that he had merely proved the unemployed with doles -- a poor and meagre substitute for jobs -- and now in the presence of the seemingly ineradicable shadow of depression, he blamed his advisors."

But still the myths survive.

UPDATE: Putting a human face on the American Depression is blog reader and movie-maker Frank Thomas (website here), who's just sent me this YouTube presentation of his brother's song 'Pennyland.'

In Thomas's words, "This is not meant as a political statement, but rather as an attempt to put a face on something that so often appears academic."

Another naked emperor with gobs of cash

Ignorance abounds about both the cause of the present economic turmoil, and the way out of it.  (I won't repeat my own comments on both, just check the archives.)

But perhaps the dumbest comments come from those who simply place their faith (and by that I do mean "belief without proof") totally in the expertise of Fed Governor Ben bloody Bernanke.  Mike Moore for example in this morning's Herald, says:

Why will this not be like the Great Depression? The biggest difference is what policy-makers have learned. The President of the US Federal Reserve Bank, Ben Bernanke, did his economic thesis on the Great Depression.

But what have the policy-makers learned?  And so what if Bernanke did his thesis on the Great Depression if he learned all the wrong lessons by it. How many academics do you know who are on the right side of any argument?

As an example of the former problem, Moore himself appears to have learned next to nothing. He seems to think that throwing gobs of government cash around pulled the world out of depression -- it didn't.  He claims it's all about "confidence" and seems completely unaware of the real capital and real savings that those gobs of malinvested cash have been and will be consuming.  And he appears to think that at "at the time of the Great Depression, there were few effective Government-owned central banks," when in fact the US Federal Reserve System, largely responsible for the crisis, was kicked off in 1913!  (Moore compounds the error by claiming 'The Fed' was created in the thirties by Franklin Roosevelt, and that along with Fannie and Freddie and gazillions of dollars of phony "liquidity" it effected the recovery.)

Let's face it, the policymakers in power (or on the hustings looking for it) are no better than Moore, who no longer has any.  As their answers on the economy indicate all too clearly, they really don't have a clue so they too place their faith in Bloody Bernanke.

But Bernanke has nary a clue either.  He too seems to have formed the view that gobs of government cash are the answer -- and it's him who has control of the printing press.  He has one tool, a printing press, and all he knows is he's going to use it, and you're going to pay for it.

The problem with putting all your faith in Bernanke and his friends is not  that he's not smart -- he is -- it's that he's been blinded by a flawed economic philosophy.

If he's had his eyes open he would have seen some years ago how the product of his printing press were already causing wobbles -- just as they did in the twenties, with those wobbles eventually becoming a crash -- but the blinkers of his flawed economic philosophy blinded him to the facts then just as they do now, even when the likes of Ron Paul throws them in his face.

If he'd done his research without his Keynesian blinkers on, he would have seen that the 1929 crash wasn't caused by the Fed's deflation, it was made inevitable by the earlier monetary inflation that helped create the phony boom; and he would have noticed the recovery wasn't helped by the gobs of counterfeit credit being thrown around (in fact, that helped create a "depression within the depression" in 1937), but by the pool of real savings that canny workers kept and invested from their own earnings.

He might be smart, but his flawed economic theory just makes him another man without a clue about to lead us all into destruction.

In the latest of his seven-part series on the economic crisis, writer Jeff Perren continues his examination of The Naked Emperors with a closer look at the man to whom the faithful are now praying.  But is there anything at all behind Bernanke's curtain?

'The Profits and Loss,' By Berton Braley

A poem from the Great Depression, and tragically topical today, fom New Deal Ditties: or, Running in the Red with Roosevelt, 1936 (hat tip Noodle Food)

When "planned economy" first began
It looked like a swell "idea" –
Until we learned it had no plan
And wasn't economee.

For the taxes rise and the budget's shot
And the New Deal costs are met
By spending money we haven't got
For things that we never get.

The Billions roll in mighty stream,
A regular tidal flood,
With the net result that each spending scheme
Bogs down in a sea of mud.

When plans and programs go all to pot
Do the New Deal planners fret?
Why no, they think up a brand new lot
Of schemes to spend what we haven't got
For things we will never get!

What if?

ONE OF THE FASCINATING things to do when studying history is to speculate about "What if?" questions.

Studying history with Scott Powell offers ample opportunity to speculate.  Scott's current course on the Middle East alone (which you can still join in) offers ample opportunity for speculation.

• What if Britain hadn't nearly bankrupted itself in two centuries of Middle Eastern military adventures in a bid to protect its Indian colony?  What shape would the Middle East's maps be in today if Britain's flawed mercantilist thinking hadn't entangled it in so many misadventures in which it had no need to participate?
• What if Harry Truman hadn't entangled America in the Middle East in a flawed bid to restrain communism?  What use would the bankrupt Soviet Union have been able to make of the Mid-East even if Truman had left the sphere alone? (And what threat would it have been if Franklin Roosevelt and Klaus Fuchs hadn't both in their own way helped to arm the Soviets?)
• What if Dwight Eisenhower hadn't pulled the pin on Britain, France and Israel's recovery of the Suez Canal after Nasser's nationalisation of it?  Would Eisenhower's support for the already successful recovery have helped to nip the incipient Mid-Eastern nationalism in the bud?
• What if Britain and the US hadn't stood back when the oil fields and refineries owned, established and built up by British and American investors were nationalised by tribal leaders and would be nationalist heroes?  Would this have sent a signal to all potential plundererers of American and British property that property rights would always be upheld by American and British governments, and given a valuable lesson in the importance of property rights?

Perhaps the greatest tragedy thrown up by these 'what-ifs' is a real failure of ideas. I've already mentioned the flawed mercantilist thinking that empowered Britain's military misadventures -- an entanglement that cost Britain in both wealth and manpower, without any real gain. 

Perhaps the most important thing demonstrated by the whole tragedy of the Middle East  -- and the Mid-East's failure to ever really lift off is certainly a tragedy -- is the failure to properly communicate the ideas that underpin the freedom and prosperity of the west.   This is the real failure of the west with respect to the non-west.

YOU SEE, ALL THE countries of the Middle East at one time or another were confronted with the need to to shake off their superstitious pasts and to modernise their bad selves (to use the words of educator Maria Montessori, they developed a 'sensitive period' for learning about what made the west great); when confronted with the obvious military and economic superiority of the west all of them looked westward for inspiration  -- but what countries like Turkey and Egypt and eventually even Afghanistan saw when they realised their own backwardness and looked westward for inspiration was not the ideas of the likes of John Locke or Thomas Jefferson or Adam Smith -- the ideas that had underpinned the west's freedom and prosperity -- but instead the intellectual pygmies who then crawled across the intellectual wastelands of the late-nineteenth century who were then doing all they could to undercut freedom and prosperity altogether.

Instead of Carl Menger, Turkey's Kemal Atatutk picked up Karl Marx.  Instead of Frederic Bastiat, Egypt's Gamal Abdel Nasser picked up Frederick Engels.   It's a powerful example of the necessity for good intellectual hygiene and of the power of even bad ideas -- that ideas can as easily destroy as make prosperous, depending on the particular ideas one picks up.  

Each Middle Eastern country modernised at a different time, each picking up the intellectual current of that time -- and unfortunately by the latter half of the nineteenth century when most were modernising, the intellectual current of the west was already fast dwindling to become a cesspool*.  The results in large part can still be seen today, with the secular shibboleths of collectivism and nationalism fighting the secular battle against the superstitious backwardness of Islam, and losing.

You see, the game of 'Historical What-If?'  is endlessly fascinating, and what I've said here has only just scratched the surface: I've only posed questions arising from the first few lectures of Scott Powell's Islamist Entanglement course. 

It's fascinating to speculate for example about what the whole Middle East would be like, hell, what  the whole world be like, if it had never been infected with the stinking collectivism of Marx and the nasty nationalism of the likes of Hegel and the German 'ethnic nationalists': if all the many millions slaughtered by the dictators of the twentieth century had been allowed to live, and if all the billions enslaved by totalitarian ideology had been allowed to live free.

JUST IMAGINE IF THE world hadn't been intellectually empowered to give power to those killers, "those depraved individuals who would rather kill than live, who would rather inflict pain and death than experience pleasure, whose pleasure comes from the infliction of pain and death. Unfortunately," observes George Reisman in his book Capitalism, "there is no lack of such individuals...

[and no shortage of] philosophical justification for [their] murders, such as the security of the State, the will of God, the achievement of Lebensraum,or the establishment of communism and a future classless society. Each of these alleged values supposedly justified the murder of living human beings. As the Communists were so fond of saying, “The end justifies the means.”

And with enablers like Hegel and Marx to  state the ends -- which amount to making one neck for one noose -- the killers were given power and the means by which to carry out their atrocities.  But "just imagine," as Reisman invites ...

In eras that are philosophically and culturally better than our own, [these killers] might even pass their entire lives quietly, in modest obscurity, causing harm to no one. In such a better era, Hitler might have passed his days as an obscure paperhanger, Himmler as a chicken farmer, and Eichmann as a factory worker or office clerk. Lenin would probably have been just a disgruntled intellectual,and Stalin perhaps an obscure cleric. But in the conditions of a collapse of rationality, frustrations and feelings of hatred and hostility rapidly multiply, while cool judgment, rational standards, and civilized behavior vanish. Monstrous ideologies appear and monsters in human form emerge alongside them, ready to put them into practice.

In short, the real lesson from even these few 'what-ifs' is the life-saving necessity for good intellectual hygiene.

How's yours? 
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* Thank goodness New Zealand was settled in 1840, when John Locke and Adam Smith were at least remembered, if not still admired.  The Treaty of Waitangi at least pays homage to the shadow of John Locke, which is really its chief and perhaps only boon. (And thank goodness that when Asian tigers like Hong Kong and Taiwan began to take off in the latter half of last century, they chose to ignore the then-fashionable intellectual fads of the west, and go for prosperity instead)