LewRockwell.com - Weekend Edition, January 1-2, 2011

Weekend Edition, January 1-2, 2011

I'm Thankful for Shopping Malls Gary North also appreciates strip malls, chain restaurants, Wal-Mart, and other glories of capitalist civilization. The Drug War Is a Beast So are prosecutors, judges, and the Justice Department. Article by Bill Anderson. Prohibition and the New Deal Albert Jay Nock on the American appetite for self-punishment. The Deep Politics of Drugs and Oil Peter Dale Scott on Afghanistan, Columbia, and Vietnam. Is a Bond Crisis Inevitable? Yes, says Pat Buchanan. Gold in 2011 The short- and long-term analysis by Morris Hubbartt. How Will You Communicate in an Emergency? Consider these survival radio options. UFOs and NASA The meme goes on, says the Daily Bell. Police State USA 14 examples of how the state criminalizes everything. Corruption, Appeasement, Smoke and Mirrors David DeGraw on mainstream journalism's disgraceful sham. What WikiLeaks Taught Us in 2010 And why the US State is so bitter. Article by Glenn Greenwald. Forget New Year's Resolutions First, take stock of how far you've come in the last year, says Mark Sisson.

Mises Daily December 31, 2010

December 31, 2010 Mises Daily Frank Chodorov, Educator by Jeff Riggenbach About Socialism and Socialists by Frank Chodorov Will There Be QE3, QE4, QE5...? by Philipp Bagus on December 31, 2010 Recently, Ben Bernanke indicated that Quantitative Easing II (QE2) might be followed by QE3, etc. In an interview at the beginning of December, Bernanke was asked, "Do you anticipate a scenario in which you would commit to more than $600 billion?" Bernanke's answer was startling. "Oh, it's certainly possible," he said. "And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks." The answer is interesting because it not only indicates the possibility that the Federal Reserve (Fed) will purchase more government bonds but also implies that Bernanke thinks that inflation and QE are different concepts, because otherwise his claim would be a meaningless tautology: more inflation depends on inflation. To make sense of Bernanke's technical talk, let us go back to the beginning of the infamous QE, to the darkest months of the financial crisis. During the boom fired by artificially low interest rates, financial institutions had financed malinvestments, especially in the housing sector. When the bubble burst and housing prices started to fall, these investments lost value rapidly. Bank losses mounted, bank equity fell, and solvency problems arose. Liquidity dried up as financial institutions started to doubt each other's solvency given the problematic loans on their books. When credit markets dried up in September 2008, after the collapse of Lehman Brothers, loans that financed malinvestments did not serve as collateral for interbank lending anymore. The Fed stepped into the breach and accepted these bad assets as collateral for loans. In March 2009, the Fed started to buy these assets outright in what was dubbed QE1. As a consequence of this qualitative and quantitative easing, the Fed's balance sheet almost tripled within a few months.[1] How long would these extraordinary emergency measures be maintained? In March 2009, Ben Bernanke stated that the Fed had an exit strategy from its emergency credit policies. It could simply undo its credit policies and asset purchases, thereby reducing the size of its balance sheet to its precrisis level. I have argued that such an easy exit option does not exist. The Fed's purchase of problematic assets did not solve the underlying real problems in the economy: injecting new money does not cause malinvestments to go away. By propping up financial institutions, necessary liquidations and readjustments of the structure of production are only delayed. QE1 could even cause more malinvestments and thereby aggravate the problem. The consequence could be a Japanization of the banking system, with insolvent banks held afloat by the central bank. If the Fed would exit the emergency situation, reduce its balance sheet, and stop accepting problematic assets as collateral for loans, financial institutions would be back to the initial situation of September 2008. If housing prices do not return to their bubble level, many of the problematic assets will continue to be bad and not serve as good collateral. If valued at the market price, these assets might eat up banks' equity. If the Fed ended its emergency measures, we would effectively be back to the initial situation of frozen interbank markets and general illiquidity. In October 2009, I concluded that the Fed could not go back to its initial balance sheet without causing the collapse of the financial system. One possible way out would be to reinflate the bubble. Rising asset prices — and especially housing prices — would make many problematic bank assets valuable again. The Fed could increase the quality of its assets by inflating the housing bubble. In the winter of 2010, no one is talking about reducing the Fed's balance sheet or about exit strategies anymore. On the contrary, the Fed has chosen the path of more inflation and dubbed this strategy "QE2." QE2 has a slightly different purpose than QE1. QE1 directly supported struggling banks by buying their problematic assets. QE2 supports the government. The inflationary policies of the Fed have been coupled with the Keynesian fiscal policies of the US government. The US government engaged in deficit spending to bail out financial institutions and automakers, disrupting a fast liquidation of malinvestments and a smooth adaption of the structure of production to consumer wants. QE2 is a direct response to this deficit spending, which obliges the government to issue more bonds. With QE2, the Fed supports the government by buying these bonds. The Fed thereby actively helps the government in its Keynesian policies, which disrupt recovery. While QE1 supported the financial system, QE2 supports the government. Granted, this difference is not substantial given that the fates of the financial system and the government are interwoven. The banking system finances the government that in turn grants the privilege of fractional-reserve banking and implicitly gives guarantees for banks' losses. Of course, Ben Bernanke does not say that he wants to help finance the government's deficit via money creation. The official excuse for QE2 is, yet again, the scapegoat "deflation."[2] Price inflation is too low. James Bullard, president of the St. Louis Federal Reserve Bank, states that "it's important to defend inflation from the low side as we would on the high side." In other words, if prices rise too slowly, we must print money so that things get more expensive faster. Bernanke even denies that QE2 would be inflationary: "One myth that's out there is that what we're doing is printing money. … The money supply is not changing in any significant way." Bernanke plays a semantic trick in this statement. Of course, the Fed does not create the bulk of its new money by literally "printing." Rather, the Fed creates money by manipulating digits in its computer. When the Fed buys a $1,000 government bond from a bank, it transfers 1,000 new dollars as a payment to the bank. It is true that the Fed does not print the money and ship it over to the bank physically. Rather, it increases the account that the bank holds at the Fed by $1,000. It is more convenient to just create the new money in a computer. However, the fact that the new money is created electronically does not mean that QE2 is not inflationary. QE2 is inflationary in several ways: "In other words, if prices rise too slowly, we must print money so that things get more expensive faster." First, base money (bank reserves) increases. When the Fed buys a government bond, it creates money that it transfers to the bank selling the bond. At the end of the operation, the bank has more bank reserves and the Fed owns the government bond. Second, the quality of money tends to decrease.[3] The average quality of assets that the Fed holds decreases when it buys government bonds. The percentage of gold of total assets that could be used in a monetary reform decreases, while the percentage of government bonds increases. Moreover, these bonds are for a government that is ever increasing its debts. Third, prices will be higher than they would have been otherwise. Prices would probably have fallen substantially without QE1 and QE2. The injection of new bank reserves inhibited a credit contraction and falling prices. In fact, one aim of QE2 is to bid up asset prices. Money flows into the stock market, bidding up stock prices. In March 2009, when QE1 started, the Dow Jones was below 7,000 and rose to 10,800 until QE1 expired. When the Dow fell below 10,000 again, markets began to speculate about the possibility of QE2, and a new rally started. While the newly created money flows to asset-price markets, consumer prices might not surge strongly. But sooner or later, these investments will flow out of asset-price markets and start to bid up consumer goods' prices. Fourth, the exchange rate will be lower than it would have been otherwise. Market participants will value the dollar lower, given that the base-money supply increases and the dollar's quality decreases. This devaluation is another aim of QE2. It is a way to give exporters an advantage. The devaluation is not as crude an instrument as a tariff but has similar effects. It makes consumers poorer. They have to pay higher prices for imported goods. Consequently, QE2 is, despite Bernanke's words, inflationary. In fact, it is a euphemism to call the policy QE2. The term quantitative easing conceals the true inflationary nature of the instrument. Furthermore, it sounds technical. The added number "2" makes it even more so. People who know little about economics might ignore news on QE2. Why bother to understand something so technical — let the experts deal with it. The term also has a positive connotation. Who does not want "ease"? As Walter Block has repeatedly pointed out, we should carefully watch our language. Language is crucial to clear communication. The use of the term quantitative easing generates a smog to hide the production of new money. Words, as Block states, can be mightier than pens or swords. They guide our thoughts and writings. The invention of the term quantitative easing prevents people from thinking about the consequences of inflation. The term distorts thinking. Why not name QE for what it is? Why not name it after the effects it has? "The term quantitative easing conceals the true inflationary nature of the instrument." Money printing cannot make society richer; it does not produce more real goods. It has a redistributive effect in favor of those who receive the new money first and to the detriment of those who receive it last. The money injection in a specific part of the economy distorts production. Thus, QE does not bring ease to the economy. To the contrary, QE makes the recession longer and harsher. The injection of new money into the economy reinflates old bubbles and generates new ones. Most importantly, QE facilitates government deficit spending — additional distortions and rigidities in the economy. Malinvestments can endure. Factors of production are not shifted to places where the consumer wants them to be most urgently. $15 $12 Thus, QE2 would be better called, "Quantitative Straining," "Quantitative Destruction II," or "Crisis Prolongation III." Or we might name it after the intentions behind it: "Currency Debasement I," "Bank Bailout I," "Government Bailout II," or simply "Consumer Impoverishment." Finally, we might also name it after its essence: "Money Printing I and II." Or, if we follow Bernanke, who pointed out that most of the new money is created in a computer, we can call it "Money Creation I and II." This might be the most neutral term. The rhetorical tricks should not distract us from the fact that QE is simple money creation. The aim of Money Creation II is to finance government spending, debasing the dollar. We should dismiss the term QE and instead call money creation what it is: inflation. Philipp Bagus is an associate professor at Universidad Rey Juan Carlos. He is the author of The Tragedy of the Euro. See his website. Send him mail. See Philipp Bagus's article archives. Comment on the blog. You can subscribe to future articles by Philipp Bagus via this RSS feed. Notes [1] See Philipp Bagus and David Howden, "The Federal Reserve and the Eurosystem's Balance Sheet Policies During the Financial Crisis: A Comparative Analysis" in Romanian Economic and Business Review 4, no. 3: pp. 165–85. Qualitative easing may be defined as a deterioration of the average quality of assets the Fed holds, while quantitative easing can be defined as an increase in the quantity of its assets. [2] See Philipp Bagus, "Deflation: When Austrians Become Interventionists" in Quarterly Journal of Austrian Economics 6, no.4: pp. 19–35. [3] See Philipp Bagus, "The Quality of Money," in Quarterly Journal of Austrian Economics 12, no. 4: pp. 22–45.

LewRockwell.com - December 31, 2010

Friday, December 31, 2010

Please Help Lew Rockwell on LRC's past, and future. Before the Last Republican 'Revolution' Murray Rothbard warned us. Capitalism and Charity Jeff Tucker on the web's new culture of giving. The Power-Elite Hack Who Invented Global Warming A peek into how the establishment actually works. Article by James Delingpole. Nullification! Why Alan Curaba is looking forward to 2011. Vanishing in a Digital Age It can be done, if you don't make these mistakes, says Bill Rounds. The Economic Flop That Was 2010 Except for gold, it was flat and lifeless from the get-go. Obituary by Bill Bonner. Cholesterol-Free, Nutrient-Rich, Delicious Almonds may help prevent diabetes and heart disease. Karl Rove, Dirty Trickster The man who attacked Ron Paul has his fingerprints all over Sweden's assault on Julian Assange, says Roger Shuler. America's Corporate State Media Glenn Greenwald on why MSM journalists are shills for the regime. Want To Be a Better Man in the New Year? Don't over-analyze: just decide and do it, say Brett and Kate McKay. 6 Ways To Fix a Foggy Memory Joseph Mercola on keeping your brain sharp as a tack.

Mises Daily December 30, 2010

December 30, 2010 Mises Daily With or Without a God: Natural Law and Property Rights by Murray N. Rothbard Is Big Government a Myth? by Robert P. Murphy The Top Ten Books of 2010 by Jeffrey A. Tucker on December 30, 2010 This is the biggest year in publishing by the Mises Institute in our entire history. Our open-source model has inspired authors and the staff to do some wonderful things. Donors to the Mises Institute have also enjoyed helping to make our program possible. We never imagined that we would become a full-fledged publishing house and never planned it that way, but this seems to have happened in any case. But when you look at the list, you have to be struck by how many older books appear in here — the wisdom of the ages! This is a key advantage that the Austrian School has over others. It seeks to present fixed principles that apply in all times and all places, logical structures that explain how the world works regardless of the circumstances of time and place. This is a major difference the Austrians had with the German Historical School - probably even the defining characteristic of the Austrians- and it continues to be a reason for the School's appeal. Keep in mind that these sales represent numbers sold, not the dollar figures. This is also hard copy, not PDF or ePub. There is still a demand for paper, no question about that. 1. Economics in One Lesson We are so honored to be the publisher of the only hardback of this book that Hazlitt wrote in 1946. He did it in about 10 days, and you can tell that the text has a sense of urgency. Simply put, he was fed up with the widespread ignorance of basic economic forces operating in the world, tired of politicians and editors imagining that they can favor or oppose any kind of scheme without predictable results. Here he explains the core of the fallacies that people tend toward — and he blows them up! It remains an outstanding tutorial, and probably the bestselling economics book of all time! 2. Human Action: The Scholar's Edition Mises's friends had to cobble together a real entourage to persuade Yale University to go along with this book in 1949. The publisher didn't think it would sell, didn't think anyone was interested in what this old man had to say in the age of Keynes. Then, to everyone's shock, it became a bestseller, and it has been steady ever since. This year we found a way to drop the price to make the hardback affordable for everyone. 3. Human Action: Pocket Edition This was a surprise innovation of the Mises Institute this year. We repackaged the Scholar's Edition into a $10 pocket paperback that you can carry anywhere. Doing these projects is always a bit scary, because we are working entirely in the digital world until you see the finished product. I can tell you that there was leaping for joy the day that the first box of these arrived. We knew we had a success on our hands. It will be the first of many more, if all goes well. So far, things look good. 4. The Law There are many editions of this great classic by Frédéric Bastiat available today, but when we put this edition out, we were the only ones publishing it. Then it became rather famous due to the Tea Party movement, which somehow turned this 19th-century defense of freedom and rights into a manifesto of sorts. Of course it is a fantastic book. Leonard Read probably deserves more credit than anyone for having made it famous in the United States. In France, we are told, most people have never heard of the author. 5. Lessons for the Young Economist Robert Murphy is the economist who keeps accomplishing the seemingly impossible. He did the study guides for two gigantic treatises, and then he wrote the first complete high-school text with an Austrian bent. This book is a grand success as a tutorial and classroom book, one that will last through the ages. I can promise you that there is no reader — no matter the age or level of education — who will not gain from this work. Murphy's pedagogy is masterful. 6. Man, Economy, and State with Power and Market (Scholar's Edition) This huge book began as a study guide to Human Action and then turned into its own treatise with its own contributions in many areas. It's often said that if you read this book cover to cover, you will carry economic theory in your head for the rest of your life. This edition is special because it rights a wrong: the first publisher refused the last quarter of the book because it was too radical. We brought it all together just the way Rothbard wrote it. 7. Human Action Study Guide Our library is filled with attempts to write a study guide on the great book. Most writers give up at the fifth chapter or so. It is just too much to take on. Only Robert Murphy succeeded. It is the first, and it is so good that it will probably be the last. For my part, I travel with this book because it permits me to give well-organized, impromptu lectures on any aspect of economics, wherever I have to be. I know many economics professors do the same. 8. The Road to Serfdom Notice how it is all the old books that are the bestsellers? This says something good about Austrian book buyers, that they understand that truth is truth and economic logic applies in all times and all places. Hayek's most famous work is another case in point. It was given a big boost by being featured on Glenn Beck's show, and it suddenly shot up the bestsellers list. For a few days there, Mises.org was the only source for it, because it sold out everywhere else. 9. Bourbon for Breakfast The success of my own book surprised me, I must say. It is not exactly systematic but rather an attempt to bring an Austrolibertarian perspective to everyday-life issues. I'm most happy with the chapters on law enforcement, but I have other favorites, too — like the movie reviews or the tips on getting by in an age of statism. I certainly didn't expect it to sell as well as it has. There are too many outrageous things in here for everyone to agree with all of it, but the point is to inspire thought, and it certainly seems to have done that. 10. The Case Against the Fed I can well recall the day that Lew Rockwell commissioned Murray Rothbard to write this book. In those days, hardly anyone cared about the Fed either way. It was just some gigantic institution out there doing its thing without controversy. Lew pressed Murray for a short primer on the topic, and Murray delivered only a few weeks later. If you haven't read it, you are in for a treat, because it does all that it is supposed to do. Murray explains the origins, functions, effects, and politics of the Federal Reserve in a wonderful way. Lew was extremely prescient in seeing a need here. It is enormously popular today. Jeffrey Tucker is the editor of Mises.org and author of Bourbon for Breakfast: Living Outside the Statist Quo. Send him mail. See Jeffrey A. Tucker's article archives. Comment on the blog. You can subscribe to future articles by Jeffrey A. Tucker via this RSS feed.

LewRockwell.com - December 30, 2010

Thursday, December 30, 2010

The Unthinking Right Lew Rockwell on why National Review just can't appreciate Ron Paul. America Has Gone Away And awry. Article by Paul Craig Roberts. Budding Totalitarians Bill Anderson on the Progressives. For Freedom Motorists Only Eric Peters has some goals for libertarian drivers. Stumbling and Bumbling Towards the Truth Wilt Alston on how he became a libertarian. Dear State, You Cur A letter from the church. Article by the Rev. P.R. Curtis. That Grass Sometimes it actually is greener, says Simon Black. What Is Anarchy? Mere freedom, which the power elite fears and smears. Invest in Gold Ahead of the Chinese Who are investing in it ahead of the Fed, says Richard Daughty, the Mogambo Guru. Your Beautiful Eyes The astonishing photographs of Suren Manvelyn. 15 Ways To Fight Stress Mark Sisson offers primal strategies. The Principles of LRC And who hates them. Article by Lew Rockwell.

Ron Paul: " Social Security Is Not 'Insurance'"

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Perhaps the biggest media story of 2010 was the influence of Tea Party voters on the congressional landscape. The new congress comes to Capitol Hill with a mandate to end profligate spending and restore fiscal sanity, we are told. But when the House and Senate convene in January, the newly elected members will face tremendous pressure to maintain spending levels for entitlement programs. Even the most modest proposals to trim Social Security or Medicare spending will be met with howls of indignation and threats of voter revolt. Legislators who propose any kind of means testing or increased retirement ages can expect angry visits from senior citizen lobbyists ready to fund a candidate back home who supports the status quo.

But millions of Americans now realize that the status quo is an illusion that will not last even another 10 or 20 years. The federal government cannot continue to spend a trillion dollars more than it collects in revenue each year, because we are running out of creditors. Fiscal reality is setting in, and the consequences may be grim even if Congress finds the courage to take decisive action now.

Courage begins with a commitment to see things as they are, rather than how we wish they were. When it comes to Social Security, we must understand that the system does not represent an old age pension, an “insurance” program, or even a forced savings program. It simply represents an enormous transfer payment, with younger workers paying taxes to fund benefits. There is no Social Security trust fund, and you don’t have an “account.” Whether you win or lose the Social Security lottery is a function of when you happened to be born and how long you live to collect benefits. Of course young people today have every reason to believe they will never collect those benefits.

Notice that neither political party proposes letting people opt out of Social Security, which exposes the lie that your contributions are set aside and saved. After all, if your contributions really are put aside for your retirement, the money is there earning interest, right? If your money is in your “account,” what difference would it make if your neighbor chooses not to participate in the program? The truth, of course, is that your contributions are not put aside. Social Security is simply a tax. Like all taxes, the money collected is spent immediately as general revenue to fund the federal government. But no administration will admit that Social Security is nothing more than an accounting ledger with no money. You will collect benefits only if future tax revenues materialize as hoped; the money you paid into the system is long gone.

My hope is that at least some members of the new Congress will cut through the distortions and see Social Security as it really is. The best way to fix the impending Social Security crisis is also the simplest: allow younger individuals to opt out of the program and use their tax savings to invest privately as they see fit. This is the true private solution. Your money has never been safe in the government’s hands, and it never will be.

_{Reposted from LewRockwell.com}

Mises Daily December 29, 2010

December 29, 2010 Mises Daily Economic Nationalism Is a Philosophy of War by Ludwig von Mises Can Culture Generate Spontaneous Order? by Bruce Edward Walker The Snow Chaos at Heathrow Airport by Rod Rojas on December 29, 2010 It has been interesting and sad to see in the last week that hundreds of thousands of travelers have been stranded all over the world due to heavy snow, mainly at Heathrow Airport in London. Because of its importance as an international connection hub, Heathrow's troubles have become a worldwide air-travel catastrophe. The unhappy crowd was often made up of people on their way to and from warmer climates, not prepared to remain in a cold location for days. Some have seen their medications run out, and of course, many holiday plans have been shattered. BAA Ltd. is the international firm in charge of running six of the major UK airports. It also runs operations in Naples, Italy. The Mirror News wrote that "The mess at Heathrow is a symbol of a global corporate culture in which the pursuit of hard profit drives all else." It is interesting that consumer greed or government greed are never mentioned, in spite of the relentless bargain shopping on the part of travelers and the heavy taxation and regulation on the part of governments. Of course, the state has already attacked BAA's monopoly in the past, by forcing the company to sell parts of their business to competing firms. More recently, there have been threats from the EU to further regulate airports in connection to severe weather events. What escapes this analysis is the understanding that the only monopolies that are truly possible are the ones caused by the state, and that they are often deliberately sponsored by it. The airport industry is one of the most regulated and intervened-in sectors worldwide, and it is not uncommon for governments to own the airports outright, leasing or licensing the facilities out to favored operators. This is a blatant form of corruption under the guise of consumer protection and travel-safety advocacy. The state hurdles associated with airport construction, fee pricing, and runway usage are almost insurmountable. The political and regulatory obstacles to airport construction are cash cows for campaign contributions, and they are a source of votes from NIMBY and environmentalist activists. These obstacles completely stop the market from providing sufficient service and leave consumers without choices. The entry barriers affect both large and small new projects, to the benefit of the incumbents, who see air traffic practically funneled into their facilities. But the blessings are mixed. A megacity like London would greatly benefit from an even-larger array of different options for every wallet and taste, and from the much-needed competition that would weed out inept management teams. A failure to promptly solve an emergency situation such as the recent heavy snowfall would instantly stain the reputation of the airport and punish management with a loss of business. In spite of the obvious detrimental effects of the above-mentioned restrictions on competition, calls for moratoria on airport expansion are not uncommon. And the rarity of the construction of major new airports in Western, developed countries is commonly seen as a good thing. Other regulatory hurdles relate to the pricing of the use of existing facilities. Governments typically restrict the fees airports charge air carriers to amounts they deem "fair and reasonable." But the public must learn that the level of pricing as dictated by the market plays a vital role in the rationing of a good or service. For instance, when drinking water becomes extremely scarce because of a natural disaster, the price of bottled water at the local store increases to unthinkable levels. The government, the media, and the population view this as price gouging, but in fact the high price makes it impossible for the first shopper who comes along to buy and hoard all the water; the price rations the amount of available water. These high prices also encourage all the store owners to bring in more supply precisely where the water is needed. Eventually, the new supply of water restores balance and prices can come down again. In contrast to the natural market mechanism, a controlled low price means that no entrepreneur has any incentive to help remediate the emergency, leaving us in the hands of the likes of FEMA. In the same way, if higher prices for terminal or runway use were allowed, they would prevent the airlines from parking too long in the terminal, for example, or from using the airport for smaller-capacity airplanes; the prices would thereby ration the available services and put them to their most efficient use. Simultaneously, these higher prices at the busier hubs would divert less-profitable business toward cheaper airports, the ones with less traffic. Eventually, if the shortage persisted and the government stayed out of the way, additional airport infrastructure would be built. Lastly, increases in runway use are instantly interpreted by the press and public as evidence of corporate greed. So, in spite of the stellar safety record that the entire air-travel industry enjoys, governments have piled on more hurdles, limiting airport access to a certain number of takeoffs and landings per hour — thus making an increase in supply, the other tool that could have alleviated the strong demand, impossible. $10 $18 With limitations such as these, the only reasonable outlet for a manager who wants to remain in business is to decrease the quality of service; so a diminished preparedness for severe weather events should surprise nobody. Contrary to the common belief that deregulation results in widespread abuses on the part of industry, the 1978 partial deregulation of the airline industry in the United States victoriously reasserted consumer supremacy by increasing competition, brutally slashing rates, and making it very hard for inefficient carriers to survive. Deregulating the airport industry would be no different. Rod Rojas is a holder of the Canadian Securities Course designation and performs as a financial adviser in personal, corporate, and public-policy matters. He is a proud member of the Ontario Libertarian Party. Send him mail. See Rod Rojas's article archives. Comment on the blog. You can subscribe to future articles by Rod Rojas via this RSS feed.

Mises Daily December 28, 2010

December 28, 2010 Mises Daily Rethinking Charity by Stephen Mauzy Saving the State from Itself by Murray N. Rothbard The New Deal and Prohibition by Albert Jay Nock on December 28, 2010 [This article originally appeared in the American Mercury in March 1936. An MP3 audio file of this article, read by Donna Orlando, is available for download.] I believe that when the historian looks back on the last 20 years of American life, the thing that will puzzle him most is the amount of self-inflicted punishment that Americans seem able to stand. They take it squarely on the chin at the slightest provocation and do not even wait for the count before they are back for more. True, they have always been good at it. For instance, once on a time they were comparatively a free people, regulating a large portion of their lives to suit themselves. They had a great deal of freedom as compared with other peoples of the world. But apparently they could not rest until they threw their freedom away. They made a present of it to their own politicians, who have made them sweat for their gullibility ever since. They put their liberties in the hands of a praetorian guard made up exactly on the old Roman model, and not only never got them back, but as long as that praetorian guard of professional politicians lives and thrives — which will be quite a while if its numbers keep on increasing at the present rate — they never will. But though Americans have always known how to make the old-time Flagellants look like amateurs at the business of scourging themselves, it is only in the last 20 years that they have really shown what they can do. The plagues of Egypt, the flies, frogs, hail, locusts, murrain, boils, and blains are as nothing by comparison with the curses they have brought down on themselves in that time, all of their own free will and accord. They diddled themselves into a war to make the world safe for democracy — and look at democracy now! They took on the war debts and financed the "reconstruction" of Europe — and now they are holding the bag. They fell for the "new economics" of blessed memory and took a handsome fling at jazz-and-paper in the 1920s. They went in strong for Prohibition; and then, even before they came out from under that nightmare, they threw themselves body and soul into the fantastic imbecilities of the New Deal. What a spectacle! There is no use, none in the world, of pretending that the praetorian guard dragooned, cajoled, or humbugged the people of this country into taking up with all this appalling nonsense, and at the same time pretending that the country is a republic in which the people are sovereign. You cannot have it both ways. If the professional politicians, who are known of all men to be pliant mountebanks when they are not time-serving scoundrels, and are usually both — if these have power to herd the people headlong into such bizarre rascalities and follies against their will and judgment, then the country is not a republic but an oligarchy built on an imperial model, and its people are not citizens, but subjects. If, on the other hand, it is a republic and the people are sovereign, then the misfeasances of the professional politicians run straight back to the people who elected them. When Golden Rule Jones was mayor of Toledo, a man wrote him for help, saying that whisky had been his ruin. Jones answered his letter, saying, "I do not believe whisky has been your ruin. I believe it was the whisky that you drank." The reader may take his choice between these alternatives. No matter which of the two is right, the fact remains that the individual citizen, or subject, has lost the best that was in him. Whether he surrendered it or whether he let it be confiscated is not what I am so much concerned with at the moment — although the question is important enough and ought to be ventilated — as I am with the fact that it is gone. Not only his liberty is gone but something much more valuable: his belief in liberty and his love of it, his power of quick and effective resentment against any tampering with the principle of liberty by anybody. This is as much as to say that his self-respect, dignity, his sense of what is due to him as a human being, has gone, and that is exactly what I mean to say. It has gone into the keeping of persons most notoriously unworthy of such a trust, or of any trust; persons capable of deliberately conniving — and who do connive — at the temporary ruin of their country for political purposes. I say this with respect to no particular party or faction, for however many nominally there may be of these, there are never actually more than two. As Mr. Jefferson said, The nest of office being too small for them all to cuddle into at once, the contest is eternal which shall crowd the other out. For this purpose they are divided into two parties, the Ins and the Outs. In the last conversation I had with the late Brand Whitlock, a few months before his death, we spoke of the remarkably rapid dwindling of the sense of self-respect in America, and he asked me if I remembered how thoroughly the country was worked up by a little incident that took place only 25 years before. I remembered it well, because we had happened to be together at the time, and we had commented on the wholesome general resentment that the outrage provoked. State prohibition was in force then, and somewhere down south a posse of state officials boarded a train and slashed open the suitcase of a through passenger who had stood on his rights and refused to unlock it. That incident went the length and breadth of the land, and was talked about in good plain language, not by a few doctrinaires, but by Tom, Dick, and Harry on the streets. Yet, as Mr. Whitlock said, in the America of 25 years later, such a thing would not even be news, and nowhere would there be a breath of indignation against it. Mr. Whitlock died, as an honorable man would wish to do, before he could see the upshot of most of the policies that the people of Prohibitionist and post-Prohibitionist America have inflicted on themselves in the name of good government. Many of us, indeed, appear or pretend not to see it even now. I think, for instance, that no one has adequately remarked the ease and naturalness of the transition from Prohibition to the New Deal. Someone may have done it, but if so it has escaped me. There is a complete parallel between them. They are alike in their inception. They are alike in their professed intention. As for their fundamental principle, they are so far alike that the one is a mere expansion of the other. They are alike in respect of the quality of the people who support them, alike in respect of the kind of apologists they attract to their service, and, finally, they are alike in their effect upon the spirit and character of the nation. Alike in their origin, both were brought about by a coup d'état, the work of a determined minority at a time when the country was writhing in one of its recurrent spasms of discreditable and senseless funk — or, I should rather say, when it had passed beyond its norm of imbecile apathy and gone into the stage of vociferous idiocy. Not long ago I had a letter from a French friend who remarked that "quand les Américains se mettent à être nerveux, ils dépassent tout commentaire,"[1] which is indeed true, so I imagine that what I have just said is perhaps the best one can do by way of describing the country's state of mind. Prohibition came when we were "making a business of being nervous" about the great cause of righteousness that we were defending against the furious Goth and fiery Hun. The New Deal came when we were making a business of being nervous about the depression; that is, nervous about having to pay collectively the due and just penalty of our collective ignorance, carelessness, and culpable greed. Prohibition and the New Deal are alike in their professed intention, if one may put it so, to "do us for our own good." Both assumed the guise of disinterested benevolence towards the body politic. In the one case we were adjudged incapable of setting up an adequate social defense against the seductions of vicious rum-sellers; in the other, of defending ourselves against injuries wrought by malefactors of great wealth; therefore the State would obligingly come forward and take the job off our hands. "Both were brought about by a coup d'état, the work of a determined minority at a time when the country was writhing in one of its recurrent spasms of discreditable and senseless funk." In the case of Prohibition we can now see what those professions amounted to, and we are beginning to see what they amount to in the case of the New Deal; and in either case we see nothing but what we might have seen at the outset — and what some of us did see — by a brief glance at the kind of people engaged in promoting both these nostrums, and a briefer glance at their record. We see now that the promotion of Prohibition was purely professional, and there is nothing to prevent our seeing that so was the promotion of the New Deal. In 1932, the local politicians and the political hangers-on who together make up the "machine" — and of whom there are more in America than there were lice in Egypt in Moses's day — saw a great starving time ahead of them, and when the New Deal was broached, they fell upon it with yells of joy, as one who comes upon an oasis of date palms in a trackless desert. Their dearth was miraculously turned into plenty. Faced with a dead stoppage of their machine from lack of money to keep it going, they suddenly found themselves with more money in their hands than they had ever imagined there was in the world. Prohibition and the New Deal are alike in their fundamental principle, which is the principle of coercion. Prohibition proposed to make the nation sober by force majeure, and incidentally to charge a thundering brokerage for doing the job. It said to us, "This is all for your own good, and you ought to fall in line cheerfully, but if you do not fall in, we will make you." The New Deal proposes a redistribution of wealth and is charging a brokerage that makes the Janissaries of the Anti-Saloon League look like pickpockets at a county fair. The national headquarters of the New Deal has a slush fund of something over $4 billion to blow in between now and next November [1937], and about 700,000 devoted heelers on the job of seeing that it is spent where it will bring the best results. All this, we are told, is for our own good, and we ought to appreciate it, but whether we appreciate it or not, we must take it. The two enterprises are alike also in respect of the quality of the people who support it. There are some statistics available on this. About four years ago — in November 1931, to be exact — Mr. Henry L. Mencken published in this magazine the results of an elaborate statistical study that he had been making, in collaboration with Mr. Charles Angoff, in order to determine the relative cultural standing of the 48 states. He tabulated his findings in the form of a list of the states, arranged in the order of their approach to civilization, and he has stated publicly that his table has never been successfully challenged. In 1932 Mr. Mencken compared his table with the returns of the Literary Digest's poll on Prohibition, and found that they fitted precisely. Nearly all the states that turned in heavy majorities against Prohibition stood high on his table, and nearly all that supported it stood low. In the Baltimore Evening Sun of January 13, 1936, he made a similar comparison with the Digest's poll on the New Deal, and got a similar result. The more nearly civilized states are against it, and the more uncivilized states are for it. He says, In the five most civilized of American states, according to the Angoff-Mencken table, the percentage of voters voting for the New Deal is but 32.32; in the five least civilized states it is 67.68, or more than double… Of the states giving the New Deal less than 30% of their votes (seven in number) all are among the first twenty-two; of those giving it more than 70% (two in number) both are among the last three. Of those giving it less than 35% (thirteen in number) all are among the first twenty-eight; of those giving it more than 65% (four in number) all are clumped together at the bottom. Finally, of those giving it less than 40% (twenty-two in number) all are among the first thirty-three; and of those giving it more than 60% (eight in number) all are among the last eleven. From this it may be seen that, precisely like Prohibition, the New Deal, as Mr. Mencken concludes, makes its most powerful appeal, not to the intelligent and enlightened moiety of the American people, but to the ignorant and credulous. It is, in truth, demagogy pure and simple, quackery undiluted. … The states that show a majority for it, including the anomalous Utah, are exactly the states that inflicted the Eighteenth Amendment on us, and most of them are still dry. Also they are the states whose people still believe by large majorities that William Jennings Bryan was a profounder scientist than Darwin, that any man who pays his debts is an enemy to society, and that a horsehair put into a bottle of water will turn into a snake. As for its moral effect upon the nation, the New Deal simply carries on Prohibition's work of making corruption and hypocrisy respectable. Both enterprises are bureaucratic, both are coercive, and, as Mr. Jefferson said, the moral effect of coercion is "to make one-half the world fools, and the other half hypocrites; to support roguery and error all over the earth." $12 And what has Prohibition had to show by way of offset? Simply nothing. What has the New Deal to show, so far? Can anybody point to a single one of its policies that has really worked? I know of none. No recovery in business is due to it. It has as many unemployed on its hands as it ever had and as many derelicts. Its agricultural policy is said to have worked, but, as the Supreme Court observed, that simply amounted to the expropriation of money from one group for the benefit of another. In other words, it amounted to larceny, and official larceny always works. The unofficial practitioners of that art who are now in Sing Sing were simply at a disadvantage. Prohibition and the New Deal, in short, breed straight back to the incredible appetite of the American people for self-inflicted punishment. One wonders how long they can take it and how hard; and above all, one wonders, when the New Deal has gone the way of Prohibition, what more dismal and depraving form of self-torture they will turn to next. Albert Jay Nock (October 13, 1870 – August 19, 1945) was an influential American libertarian author, educational theorist, and social critic of the early and middle 20th century. Murray Rothbard was deeply influenced by him, and so was the whole generation of free-market thinkers of the 1950s. See Albert Jay Nock's article archives. This article was orginally published in 1936 in Nock's column "State of the Union" in the American Mercury 37, no. 147. Comment on the blog. You can subscribe to future articles by Albert Jay Nock via this RSS feed. Notes [1] "When Americans start getting nervous, they are beyond words."

By way of disclosure...

by: Tom Knapp

I have lots of friends and associates; in this I consider myself much blessed.

I also consider it a basic obligation of disclosure to point out that by being my friend or associate, one may well be at risk of prosecution under US Code, Title 18, Chapter 115, §2384.

That risk exists because I would likely be convicted of -- if ever charged with -- violations of the same title, same chapter, §2383 and/or §2385 and/or §2387.

No, I am not herein "admitting guilt" to violations of said portions of the US Code.

For one thing, I don't recognize the US Code or said portions thereof as binding upon anyone who hasn't explicitly agreed to be bound by it.

For another, the things are so broadly written that anyone who votes, runs for public office, solicits votes (especially the votes of military personnel) or joins a political party is arguably in violation of all of them (if you don't think an election is a "means of force or violence," you're not living in the real world). So it's not like I'm uniquely in legal jeopardy here.

And finally, anyone who's observed the operation of what passes for a "court" in the United States in recent years knows that these institutions are, for the most part, mere extensions of the prosecution teams with only pro forma claims to just or even nominally impartial proceedings (although rare cases of jury nullification do sometimes act as a corrective). I hold such institutions in far too much contempt to "plead" if charged, let alone preemptively/prospectively admit the "guilt" which they assume from the start.

All things considered, maybe being my friend or associate isn't really any more dangerous than being anyone else's. In the declining 21st century United States, legal entanglements seem to be pretty much the equivalent of a straight-up roulette bet, at least if one lacks the "get out of jail free card" issued to members of the political class. But I still thought it worth apprising you of the risks.

_{Reposted from Kn@ppster}

LewRockwell.com - December 28, 2010

Tuesday, December 28, 2010

Take That! Lew Rockwell on paying back the anti-freedom plutocrats and banksters. The State's Indecencies Will the Tea Party be one of them? Article by Butler Shaffer. Theft By Mercantilists Old and new. Article by Gary North. Our Establishment Church Charles Burris on its rules and credo. The Evil of Fairness Walter Williams on mercantilists and other advocates of tyranny. 'We're Fightin' a War' Civilian disarmament and the martial-law mindset. Article by Will Grigg. After the Christmas Feasting Try a 100-hour detox to get back in shape by New Year's, says Alice Hart-Davis. Get This Through Your Noggin Social Security is not insurance. Article by Ron Paul. The Father of Celestial Mechanics Johannes Kepler's laws of material attraction and planetary motion. Article by Rebecca Terrell. Return of the Bear Toby Connor on the market, the collapse of the dollar, and more hard times in 2011. Nationalism Is Evil Including the authoritarian left's “new nationalism.” Article by Justin Raimondo. Attention, Low-Carb Fruit Lovers Mark Sisson's guide to the best and worst for sugar content and nutritional value.

2010 Year In Review

It's time to once again look back at a year gone by.

Near the beginning of the year, Haiti experienced a massive earthquake which saw a great outpouring of private charity, there were also less publicized massive earthquakes throughout the year in Chile, China & Indonesia. Also in the spring, airline travel into and out of Europe came to a halt after a volcano erupted in Iceland. Less than one week later one of the worst unnatural disasters of all-time occurred when the Deepwater Horizon oil platform exploded in the Gulf of Mexico, killing eleven workers, it took several months before the blown pipe was capped and oil was no longer pouring into the Gulf.

2010 was also a very active year politically. Massachusetts elected a new Senator to finish the term of Edward Kennedy. The hotly contested race saw Republican Scott Brown win the special election. Some claimed this was a "victory for liberty" and somehow the election of a big government Republican will send a message to the Democrats in Washington. During the mid-term election Republicans regained control of the House, while the Democrats retained control of the Senate. Though, don't expect anything positive to come from the split Congress.

The Southern Poverty Law Center continued to put out propaganda, claiming "The Intelligence Project identified 512 'Patriot' groups that were active in 2009. Of these groups, 127 were militias, 'common-law' courts, publishers, ministries and citizens' groups. Generally, Patriot groups define themselves as opposed to the 'New World Order,' engage in groundless conspiracy theorizing, or advocate or adhere to extreme antigovernment doctrines. Listing here does not imply that the groups themselves advocate or engage in violence or other criminal activities, or are racist. The list was compiled from field reports, Patriot publications, the Internet, law enforcement sources and news reports." However, in a hidden camera interview Heidi Beirich, SPLC Director of Research, stated that members of these “patriot groups” are in fact violent. It was later reveled that the SPLC has very close ties to the Department of Homeland Security. So there is no doubt DHS is keeping close tabs on political activists; as was seen after TSA implemented a more widespread use of porno-scanners at airports around the country. The Canada Free Press broke a story on an internal DHS memo that officially addresses those who are opposed to, or engaged in the disruption of the implementation of the enhanced airport screening procedures (naked porno-scanners and/or pat-downs that border on sexual assault) as “domestic extremists.” Governments at nearly all levels are finding ways to spy on the public, not only via wire-taps but with red light cameras, less publicized mobile versions of the backscatter X-ray machines & license plat readers. Many States are now also considering “papers please” legislation in the wake of Arizona's SB 1070 which allows Police to request “proof of citizenship” almost upon request.

There were also several false-flag events, the first major false-flag involved a supposed bomb in a car in Times Square. The next false-flag event involved the FBI foiling their own attack over Thanksgiving weekend. Since the Thanksgiving false-flag, the FBI has foiled at least one more of their own attacks.

The “war” in Afghanistan has officially become the longest military action with no end in sight. American troops remain in Iraq, though no longer in a “combat” role. And it appears “war” with either Pakistan, Iran or North Korea is on the horizon.

Much like years past, 2010 has seen it's share of ups and downs, natural and unnatural disasters, more freedoms were taken away than gained & governments at all levels expanded their authority. Here's to a more freedom in 2011 & beyond!

Mises Daily December 27, 2010

December 27, 2010 Mises Daily Burns Diary Exposes the Myth of Fed Independence by Doug French Job Creation and Other Economic Myths by Fred Buzzeo Have Events Vindicated Keynesian Models? by Robert P. Murphy on December 27, 2010 In last Monday's article I discussed Jim Manzi's debate with economist Karl Smith. I pointed out that Smith's evidence in favor of mainstream macroeconomic models was actually consistent with the view that fiscal and monetary "stimulus" policies only stoke economic crises. In the present article, I'll show a different example of this same pattern. Specifically, Paul Krugman took a macro forecast from Mark Zandi, and then after the fact compared it to the actual trajectory of GDP. Krugman concluded that Keynesian theory was vindicated, when in fact the results are more in line with what the critics predicted would happen. Krugman's Victory Lap Last August, in a post sarcastically titled, "Nobody Could Have Predicted," Krugman writes, One point I haven't seen made about the troubles of the US economy is that the timing of [this summer's] growth tells you a lot about what was — and what wasn't — wrong with economic policy. After all, we had more or less a consensus view about when the stimulus would kick in, and how much effect it would have. Here, for example, was Mark Zandi's estimate: If you follow Krugman's link, you'll see that Mark Zandi — the chief economist for Moody's Analytics — generated the above chart in June, 2009, based on simulations his team performed on the impact of the Obama fiscal stimulus package (which, remember, had gone into effect in January of that year). Because of the timing of the specific tax cuts and spending hikes in the stimulus package, the chart above shows that (according to Zandi's team) its maximum contribution to economic growth would kick in by the third quarter of 2009, after which it would fade away. So what does a forecast made in June, 2009 have to do with the validity of Keynesian models? Don't worry, Krugman is only too happy to tell us: And how did things actually turn out? Like this: It's not a perfect correspondence, nor would you expect one — other factors, especially inventory swings, were bound to make the timing of actual growth different from that of stimulus. Still, the two pictures support the view that stimulus worked as long as it lasted, boosting the economy. … Fiscal policy works when it is tried. Ironically, even at first glance it seems that the actual path of the economy offers a stunning rejection of Zandi's forecast. After all, the economy shrank early on, when the stimulus was most intense, and then began growing as the stimulus faded. So someone who held the theory, "When politicians spend money they don't have, it drags on economic growth," could look at the above two charts and say, "I told you so!" "But c'mon," the perplexed reader might object, "surely Krugman isn't that crazy! Why does he think those charts vindicate Zandi's Keynesian forecast?" The explanation is that Krugman is looking at the change in the growth rate of the economy (i.e., the second derivative of GDP), rather than the change in GDP itself. Because Krugman "knows," deep in his bones, that additional government spending boosted GDP relative to what it otherwise would have been, he looks at the above charts and "sees" the vindication of his theory. Specifically, the economy shrank at a horrible clip in the first quarter of 2009, but things had improved markedly by the next quarter. Things got even better by the third quarter of 2009, when the economy actually started expanding again. Krugman credits this sharp turnaround to the massive stimulus that kicked in precisely during these quarters, as Zandi's original chart predicted. Now it's true, even on Krugman's own terms, his story doesn't quite work because the economy improved even more by the 4th quarter of 2009, even if we are looking at the "increase in the increase." In other words, if we look at the second chart, we can see that the rate of actual GDP growth in the 3rd quarter was about 2.5 percentage points higher than the rate in the 2nd quarter, yet the rate of growth in the 4th quarter was about 3.5 percentage points higher than it was in the 3rd quarter. This is a problem for Krugman, because Zandi's model had predicted that the stimulus package's boost to GDP growth should have fallen by more than 1.5 percentage points, going from 3rd quarter to 4th quarter (as the first chart shows). It would have been far better for Krugman if the chart of actual GDP growth showed a huge bump in the 3rd quarter, rather than the 4th. But hey, Krugman says, we've got inventory adjustments that can mess up the precise timing, and of course economies are very complex. The basic pattern still holds up, he thinks, because we saw economic growth pick up generally in the period when the stimulus really kicked in, and we saw economic growth taper off generally in the period when the stimulus began to fade. To sum up: Even if we restrict ourselves to the evidence Krugman himself provides in their defense, it's not clear that we should acquit the Keynesian models of murdering the economy. If we had reason to suppose that the economy's awful performance in the first quarter of 2009 was an indication of how it would have proceeded in the absence of stimulus, then Krugman's story broadly makes sense. On the other hand, what if the critics of stimulus are right? Then their story too fits the very facts that Krugman offers. Specifically, when news of the stimulus first hit, the economy fell horribly, and then only really recovered as the stimulus faded away. If Krugman's two charts were the only information we had available, it would be hard to judge between the two rival interpretations. Yet there is one more thing we can do to test the validity of Zandi's Keynesian forecasting model. Rather than simply looking at how much Zandi thought the stimulus would boost GDP growth in each quarter, let's also take into account what Zandi forecasted as the original level of GDP, without the stimulus. Once we incorporate this crucial element, we see that the claimed success of Zandi's forecasting falls away completely, and the critics of Keynesianism emerge victorious. Looking at Levels, Not Just Changes If we want to figure out what Zandi's model projected for 2009 in the absence of stimulus, we can simply go to his November 3, 2008 paper on the financial crisis, presumably written as a recommendation for the newly elected Obama administration. Near the end of paper, Zandi discusses his team's simulation of two different scenarios. First, they project what real GDP and unemployment will be if the government does nothing. Then, they project these economic statistics in the case where the government implements a $300 billion stimulus, coming in bursts in January and then May. Here's the takeaway warning from Zandi: The $300 billion stimulus plan adds nearly 2 percentage points to annualized read GDP growth in 2009. Even with the stimulus, real GDP is expected to fall by 0.3% next year [i.e., in 2009], but without the stimulus GDP plunges a stunning 2.2%. … Some 4 million jobs will be lost peak to trough without government stimulus, pushing the unemployment rate above 9%. Even with the stimulus, some 1.8 million jobs will be lost, with unemployment peaking near 8%. (Zandi p. 21) If we want the specific predictions on unemployment, we can look at Table 2 (page 21) to see that with no stimulus, unemployment would top out at 8.94 percent in October 2009.[1] But with the stimulus, unemployment would top out at 7.71 percent in the same month. So how did Zandi's projections hold up? In fairness, we should point out that the actual Obama stimulus package was not as potent (in Keynesian terms) as the hypothetical $300 billion package that Zandi simulated for his November 2008 paper. However, the CBO analysis (see page 3 of this pdf) of the actual Obama stimulus scored it as having about a $250 billion increase in the federal budget deficit in calendar year 2009, which isn't as much as Zandi's hypothetical $300 billion stimulus but is nonetheless fairly sizable.[2] If the actual numbers fell in between the two extremes of Zandi's projections — one set of numbers for the no-stimulus case, and the other for his hypothetical $300-billion-stimulus case — then we could give Zandi the benefit of the doubt, because the actual Obama stimulus was not as good from a Keynesian perspective. Fortunately, we don't have to make such a judgment call. In reality, the actual unemployment rate hit 10.1 percent in October 2009, which was not only higher than Zandi's prediction in the stimulus case, but was more than a full point higher than Zandi's do-nothing scenario. Turning to GDP performance, it's even worse. Zandi had forecast a slight 0.3 percent drop in real GDP, if the government wisely implemented his suggested stimulus. Zandi had warned that if the government did nothing, then 2009 GDP might fall a "stunning" 2.2 percent in a single year — the horrors! Well, with the actual Obama stimulus that passed early in the year, real GDP in 2009 fell 2.6 percent compared to the previous year, i.e., a worse decline than Zandi's projection for a no-stimulus scenario. We are not picking on Zandi here; his projections were in line with what other forecasters (themselves relying on Keynesian models) projected at the time. Indeed, the incoming Obama team famously made the same mistake, by predicting that unemployment without the stimulus would peak at a lower level than what the actual unemployment rate hit with the stimulus. (To his credit, Krugman's analysis at the time was much better than his peers'.) Tweaking the Swimming-Pool Analogy When the stimulus was a hot topic, conservative and libertarian opponents often invoked a swimming-pool analogy. They would point out that every dollar the government spent, it had to first get from the private sector through taxing or borrowing (we'll ignore inflation). With this insight, the critics said that trying to boost the economy with stimulus spending was like trying to raise the water level in a swimming pool by taking buckets of water from the deep end and dumping them in the shallow end. Now it's true, things are a bit more complicated than this. An extra dollar spent by the government doesn't necessarily translate into a dollar less spent by the private sector, because of issues of expectations and how a private household or firm adjusts its present spending in light of permanently higher future taxes. (That's why Brad DeLong expressed disagreement — in his usual way — with what he viewed as an improper oversimplification by Steve Horwitz.) Even so, let's take the swimming-pool analogy as a good proxy for the free-market view, but with a tweak: because the people carrying the buckets will inevitably let some of the water spill out onto the patio, in practice the plan of redistributing water from the deep to the shallow end will actually lower the level of the pool. In this context, what would be the analog of Paul Krugman's defense of Keynesian stimulus policies, when he relied on the two charts above? It would look something like this: Krugman would look at the level of the pool right before someone dumped in a bucket. He would exclaim, "Aha! When someone empties a bucket into the pool, the level goes up, just as I predicted. And what's more, when they empty a big bucket, the water level rises more than when they empty a little bucket." The critics of course come back with this retort: "Hold on a second, Dr. Krugman. After implementing your bucket plan all afternoon, the water level is lower than when we started — just like we predicted!" To this, Krugman could only reply, "Nonsense! You Neanderthals need to study your fluid dynamics; I can write some differential equations if you want. Obviously what is happening is that there is a leak somewhere in the pool. If it hadn't been for my bucket plan, the water would be three feet lower right now than it is. If only we had had the willpower to go find bigger buckets this morning, like I suggested …" Conclusion As Jim Manzi has been repeatedly arguing — echoing the writings of Mises — it is impossible to conduct a truly controlled experiment in the social sciences. Often without realizing it, economists interpret the data as confirming their preferred theories, even when those same data give stronger support to their ideological opponents. As I have said repeatedly myself, the basic intuition of Keynesianism is crazy: You don't help a depressed economy by giving control of its resources to politicians. An open-minded look at the raw facts confirms this commonsense critique. Robert Murphy is an adjunct scholar of the Mises Institute, where he will be teaching Anatomy of the Fed at the Mises Academy this winter. He runs the blog Free Advice and is the author of The Politically Incorrect Guide to Capitalism, the Study Guide to Man, Economy, and State with Power and Market, the Human Action Study Guide, The Politically Incorrect Guide to the Great Depression and the New Deal, and his newest book, Lessons for the Young Economist. Send him mail. See Robert P. Murphy's article archives. Comment on the blog. You can subscribe to future articles by Robert P. Murphy via this RSS feed. Notes [1] It's true, in the text Zandi said unemployment without stimulus would be pushed "above 9%," but according to Table 2, its highest value is 8.94 percent. Presumably Zandi rounded up to 9 percent, and then wrote a bit inaccurately when all he meant to say was "it breaks 9 percent." [2] The CBO analysis is broken down by fiscal year, not calendar year. To arrive at the $250 billion figure, I took the actual FY 2009 score of $169.5 billion, added one-fourth of the FY 2010 score of $356 billion, and rounded down to $250 billion. (Fiscal Year 2010 runs from October 1, 2009 through September 30, 2010.) Also note that from a Keynesian perspective, the actual Obama stimulus package was less effective because it didn't kick in as early as Zandi's hypothetical $300 billion package.