Category Archives: The Fed

Lawrence Reed: Great Myths of the Great Depression

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I remember very little from the US history courses I took during my time in public schools. It felt like a relentless flogging of names and dates. I remember covering the major stuff. The Revolutionary War, the Constitutional Convention, the Civil War, the World Wars, and of course, the Great Depression were presented as a mind numbing barrage of details to be dutifully regurgitated in an exam. Beyond my impression that the Smoot-Hawley Tariff was a funny sounding name for a piece of legislation, the most I remember about the Great Depression was that capitalism failed and the government under FDR’s leadership saved the day.  Based on the sentiments expressed by progressives to this day, this impression seems widely shared. 

However, this romantic view doesn’t square with reality.  A great deal of clear eyed research has been conducted to expose the factual record, and Great Myths of the Great Depression is a fantastic primer on the true legacy of the Hoover and Roosevelt administrations. 

Written by Foundation for Economic Education president, Lawrence Reed, the piece is filled with interesting facts and summarizes the best of this research very effectively. Perhaps the most interesting revelation is how the Hoover administration’s economic activism paved the way for of the FDR administration’s highly interventionist policies of the New Deal. Contrary to popular mythology, Hoover was not the hands off, laissez-faire Republican many claim. 

Starting with a highly inflationary monetary policy spurred by the Fed, the 20’s stock market bubble was induced by central bankers. This catastrophe was only compounded by the Fordney-McCumber Tariff of 1922 followed by the infamous Smoot-Hawley Tariff of 1930. These tariffs triggered deep contractions in agriculture and sparked an international trade war. In the wake of a global collapse in commodity and asset prices precipitated by the ’29 market crash, the Fed took a bad situation and made it worse by raising the Fed funds rate and throttling the money supply into a deflationary spiral.  Hoover further compounded the problems by increasing subsidies to businesses and farmers which were doled out through the Reconstruction Finance Corporation and the Federal Farm Board respectively. Just as modern politicians and would-be intellectuals believe that high wage mandates lead to increased purchasing power and higher consumer spending, Hoover’s Department of Commerce bullied businesses into keeping wages high.  This allegedly laissez-faire president threw another wrench into an already sputtering economic engine by passing the Revenue Act of 1932.  Hardly the legacy of a president friendly to free markets. 

Ironically, the candidate who charged the Hoover administration of leading the country to socialism and promised to restore fiscal rectitude by shoring up the gold standard was Franklin Delano Roosevelt. Rather than making good on these promises, FDR escalated every one of Hoover’s policies in ways that prolonged and protracted the misery of the Depression. 

Paving the way for the eventual destruction of sound money, one of FDR’s first major acts as president was to criminalize the ownership of gold through the signing of Executive Order 6102.  When you’ve got a hard money supply and you’ve got designs on an expanded warfare-welfare state, the Fed can inflate the money supply a little more easily if the proles don’t own too much gold. 

FDR’s first big legislative move which had the unfortunate effect of turning business into quasi-fascistic wards of the state was the National Industrial Recovery Act of 1933.  Instead of responding to the natural forces of supply and demand, businesses were forced to comply with a raft of arbitrary mandates imposed from on high. 

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One of the particularly horrific and wasteful mandates of the New Deal was the Agricultural Adjustment Act of 1933; a legislative abomination that seemed more befitting of Stalin than an American president.  Crops were burned, livestock were slaughtered and taxes were levied all in service of eliminating surpluses and increasing the purchasing power of agriculture producers. Despite being initially stricken down as unconstitutional in 1936, the AAA’s destructive consequences weren’t limited to kneecapping the agriculture industry. The seed of the eventual destruction of the gold standard known as the Thomas Amendment was written into the AAA. This amendment paved the way for unlimited credit expansion by the Fed.  FDR would eventually revive the AAA in 1938 and institute a vast array of agriculture price supports, quotas and subsidies through Federal Crop Insurance Corporation and Commodity Credit Corporation. These actions enshrined an era of farm belt crony capitalism and big agribusiness for years to come. 

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By 1935, FDR implemented the Works Progress Administration. This bureaucracy doled out millions to fund domestic infrastructure projects. It also left a seemingly indelible impression of the virtues of federal economic activism in the minds of the public. Though many roads were paved and bridges built, a closer examination of the WPA legacy reveals more than a few arbitrary mandates, squandered resources and crony coffers lined. 

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Things went from bad to worse with the passage of the quasi-Marxist National Labor Relations Act of 1935 aka the Wagner Act.  The Wagner Act took labor grievances out of the courts and into the purview of a new federal bureaucracy, the National Labor Relations Board. Under the cover of legitimacy accorded by the Wagner Act and NRLB, labor unions could threaten and intimidate employers and nonunion workers into compliance and acquiescence.

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As if these actions weren’t damning enough, the origins of the 2008 housing crisis can also be traced to Federal Housing Act of 1934.  The vast complex of government sponsored entities and federal agencies were charged with overseeing home ownership mandates. Instead, they created a set of incentives which provided more than enough legislative helium for a housing bubble when conjoined with an inflationary monetary policy.

The conventional wisdom about the government’s role in alleviating the Great Depression and the private sector’s role in creating it is badly perverted.  Sadly, politicians benefit by peddling promises of prosperity that they can never fulfill.  Each dollar diverted towards a subsidy is a dollar of wealth destroyed which could have been diverted towards private enterprise. Each dollar of subsidy dispensed by a bureaucrat enriches a crony, aggrandizes the bureaucracy and diminishes the sphere of voluntary exchange.  Each minimum wage increase is an increase in production costs and prices low skill labor out of the market.  Each federal agency charged with upholding abstract notions of “public good” creates a license for corruption and moral hazard which only diminishes people’s faith in private enterprise. 

As politicians agitate anew for yet more intervention into an economy to “fix” problems that were legislated into existence with the laws they wrote, the history and legacy of the Great Depression deserves a deeper reexamination.  Mr. Reed’s essay is an essential starting point. 

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The Big Short (2015)

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Despite its own blatant obsession with profits and artifice disguised as substance, Hollywood has been deeply unkind to Wall Street in its films. It’s unsurprising given the fact that liberals have colonized Hollywood and an overwhelming majority of films and television shows have varying quantities of leftist editorial.  You’d assume they’d be nicer given that plenty of Wall Street hedge fund money flows into Hollywood. Perhaps the tone of reproach and recrimination that forms the backdrop of The Big Short can be attributed to Wall Street’s increasing reticence to fund Hollywood ventures. Regardless, The Big Short is filled to the brim with contempt for banking and partisan agitprop.

I went into the cinematic adaptation of The Big Short expecting it to have the same editorial flaws as the book and these expectations were confirmed. Unfortunately, the film exceeds the dishonesty of the book and makes additional errors which alternate between rehashing thinly veiled leftist talking points and acts of blatant deception. And the book is plenty dishonest all by itself.

Why grouse about it?  Because the film, like the book, wants to have its cake and eat it too. It wants to be big Hollywood entertainment while simultaneously convincing you that it’s being honest with you and giving a definitive, fact-based account of the housing crisis. It’s a movie that wants you to believe that it is a Smart, Hollywood Movie made by Smart, Educated People Who Get It and it’s exposing that stuff you always assumed was a bunch of shit, but it’s really here to confirm your bias! See? The New York Times and the Wall Street Journal agree, too!

The film deploys a number of techniques to insinuate its truthfulness. Just like House of Cards, The Big Short makes generous usage of the dramatic aside. The actors deliver little monologues directly to the audience which refer to the actual historical events to let you know that you’re being admitted into a circle of confidence and being given the straight dope.

In the book, Michael Lewis offers little explanatory passages throughout the book to help the reader understand the actual instruments and transactions being discussed. In the film, they use celebrity cameos and snarky text blocks. They’re lifting the veil of secrecy and demystifying all that Wall Street technobabble! Margot Robbie explains CDO tranches while luxuriating in a bubble bath! Anthony Bourdain makes an analogy between CDO’s and fish stew made with aged ingredients!  Selena Gomez breaks down synthetic CDO’s while playing blackjack! How droll!

Bear in mind that the film isn’t without entertainment value. Director Adam McKay has a track record in comedy and he wisely sought to emphasize the book’s bleak humor. As a piece of entertainment, The Big Short is a Wall Street movie that at least has a little fun with an admittedly gloomy topic.  I just wish it was as substantive, informative and morally righteous as its cheerleaders claim. 

The film’s partisan bias surfaces right away.  In a voiceover delivered by Jared Vennett (Deutsche Bank trader Gregg Lippman IRL), Ryan Gosling takes us back to the heady days of Salomon Brothers in the late 70’s and early 80’s where the mortgage-backed security had its humble origins.  We’re introduced to Lewis Ranieri, the presumed father of the MBS as recounted by Michael Lewis in Liar’s Poker.  Before mortgage securitization, Vennett says, banking was a boring profession. It was inhabited by losers. It was devoid of this absurd speculation with Byzantine instruments and impenetrable jargon.  It was boring. You got that, proles? Banking used to be boring.  Let’s make banking boring again, Comrades!  If only there was a politician with those aspirations.

The film also shamelessly deploys some blatantly partisan semantic dogwhistles. In Vennett’s initial pitch to FrontPoint Partners (the hedge fund run by Mark Baum who was played by Steve Carrell), he uses a jenga tower to explain the CDO. In his explanation, he says old fashioned mortgage-backed securities were backed by the government and were safe. But then along comes private market subprime bond securitization which introduces all these risky instruments into the system! Got that, proles? Government = safe and boring. Private market = unregulated, risky, unbridled, rapacious greed

If only it was actually true.  Let’s take a look at what Cameron Cowan of the American Securitization Forum had to say to the House of Representatives Subcommittee about the role of legislation and GSE’s on the expansion of the subprime mortgage securitization market back in 2003:

As part of the Tax Reform Act of 1986, Congress created the Real Estate Mortgage Investment Conduit (REMIC) to facilitate the issuance of CMOs. Today almost all CMOs are issued in the form of REMICs. In addition to varying maturities, REMICs can be issued with different risk characteristics. REMIC investors—in exchange for a higher coupon payment—can choose to take on greater credit risk. Along with a simplified tax treatment, these changes made the REMIC structure an indispensable feature of the MBS market. Fannie Mae and Freddie Mac are the largest issuers of this security.

Add to this home ownership mandates from HUD, the FHA and pieces of legislation like the Community Reinvestment Act, and you’ve got a pretty clear set of government mandates and incentives which provided more than enough fuel for a housing bubble.

The film is playing a very simple game of misdirection. Just because subprime mortgage bonds were underwritten by private institutions does not mean that private institutions created the conditions for the housing bubble.  Both the film and the book make no effort to distinguish between mortgage loan origination and securitization and the moral hazard that accompanies this separation. 

Just like the book, the film turns a completely blind eye to the role that monetary policy played in inflating the bubble. In a particularly revealing scene, a Goldman Sachs employee informs the “garage band hedge fund”, Cornwall Capital that they can buy credit default swaps because “If you give us free money, we’ll take it.” 

Of course, the filmmakers wanted to portray the dirty, evil greedy bankers as unscrupulous thieves.  But if you just reorient that statement and apply it to the relationship between the Federal Reserve and the banks, it’s actually remarkably accurate.  The Fed dispenses “free” money, and the banks take it

The film’s biggest partisan offense is McKay’s decision to swap Cornwall’s visit to the SEC with a visit to the Wall Street Journal. Cornwall wanted to expose the imminent housing collapse and they made their initial pitch to the press. In the film, their pleas are met with indifference by a Wall Street Journal reporter who’s so deep in the tank with the bigwigs, he can’t jeopardize his position to do the right thing.  Of course! Those bootlickers at the Journal aren’t going to have any courage. They’re toadies for the bankers! They were completely oblivious to the possibility of a housing bubble!

In the book [1] however, the WSJ connected them directly with the enforcement division of the SEC. And guess what?  Their case was treated with total indifference. 

They tried to make up for it in a scene involving a female college friend recently departed from the SEC.  In a poolside conversation at an extravagant industry conference in Las Vegas, the former SEC employee is basking in the sun in a sexy bathing suit listening to the impassioned pleas of Jamie Shipley and Charlie Geller. She confides that the SEC wasn’t pursuing enforcement actions because the funding dried up. 

Come on, guys. This is a bald-faced lie. Not only did SEC enforcement actions escalate during the Bush administration with nothing to show for it, but SEC agents were busy watching porn when the economy cratered. The SEC are not exactly the indispensable watchdogs that many politicians would lead you to believe.

They even sneaked in a line of incredulity when their friend flirts with a shirtless hunk from Goldman. “You mean there isn’t a law which prohibits you from seeking employment in the private sector?!”

Yes, we get it, McKay. You’re doing your best to include all the requisite talking points.  

Topping off this turd pile of talking points is the parting speech Mark Baum gives as he’s persuaded into selling FrontPoint’s position in credit default swaps just as the economy grinds to a halt. He anguishes over the decision because he knows that the crisis will be blamed on “immigrants and minorities.”  That’s right, you dirty conservative bastards.  Not only do you sanction unscrupulous Wall Street thievery, but you’re xenophobes and racists and you’ve screwed everything up for people who are just trying to get a modest piece of the American Dream.  Now shut up and get in line. 

The book and the film are remarkably unwilling to assign any real criticism towards the government. Both Lewis and the filmmakers seem intent on having you believe that the government played no role in encouraging mortgage securitization, home ownership, leveraged finance or excessive household debt.

In the last scene, Mike Burry as played by Christian Bale is typing up his final letter to his clients after banking $720 million from credit derivatives. In a voiceover, he inveighs against fraud and following authority.  On the surface, it’s a powerful screed, but like the remainder of the film, it’s shallow and slightly misleading.

Surely, we should repudiate fraud in business dealings, but if you aren’t going to discuss government fraud or how it contributes to a culture of fraud, the moral lesson seems unnecessarily selective and intellectually dishonest.  Unquestioned deference to authority is something that each person should challenge, but if your story about the 2008 financial collapse doesn’t question any government authority and heaps all of the blame at the feet of Wall Street, you might just be a partisan hack. 

[1] p. 166, The Big Short


Michael Lewis: The Big Short

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Michael Lewis is a talented writer. He succeeds in being entertaining and informative while rendering historical events into a compelling story.  I got many chuckles from the detached bemusement he held towards his tenure at Salomon Brothers in Liar’s Poker. All of his storytelling gifts are on full display in his account of the housing crisis, The Big Short. However, make no mistake, Lewis is also a polemicist and the bemused tone of Liar’s Poker has metastasized into a smug preachiness which points the finger of reproach in one direction. 

The Big Short recounts the housing crisis from three different vantage points. Each of these individuals saw the illusion at the center of the exuberance before everyone else and capitalized on it by shorting the housing market when no one really knew how badly the whole thing would fail.  As a narrative, it is very entertaining. As a polemic, it suffers from confirmation bias and an extreme case of intellectual dishonesty.

Lewis isn’t so interested in getting to the real roots of the housing crisis as he is in spinning an entertaining yarn.  In this respect, he’s every bit as deceptive as the bankers and the industry he smugly ridicules.  His account focuses almost exclusively on the quirks and quips of his colorful characters and the sordid details of their improbable journey leading up to the collapse of 2008.  Unfortunately, he devotes little attention to the incentives bred by legislative agendas, GSE’s, regulatory agencies or monetary policy which created an environment of such extreme moral hazard in the first place.

Measured in terms of storytelling appeal, The Big Short is very successful.  Lewis does a great job of fleshing out the details and motivations of his central characters by portraying them as eccentric, scrappy underdogs that you want to cheer.  Mike Burry is the antisocial doctor with Aspergers turned investment savant who made his name running a portfolio of straight up value investments which outperformed spectacularly in a falling market.  Burry spent countless hours scouring mortgage bond prospectuses and saw a grand opportunity for the short of a lifetime.  Steve Eisman is the brusque Oppenheimer analyst who made his bones being a truth speaking contrarian in an industry of sycophants and dittoheads.  Like Burry, he smelled the rot in the subprime mortgage market and set out to get to the bottom of it.  Rounding out the cast are Duetsche Bank trader, Gregg Lippman, and the “garage band hedge fund”, Cornwall Capital. 

As a piece of finance history, The Big Short is fairly successful and reasonably informative. It distinguishes itself by recounting events from its unique point of view. The book is also a decent short study of structured finance and credit derivatives. Lewis does a good job of unraveling and demystifying CDO’s and credit default swaps.  A recent college graduate told me that this was required reading in his finance class. This book has some merit as historical document, but let’s not get carried away, folks.

The book also succeeds in portraying how difficult it is to stand alone and hold on to an investment thesis when the chips are down. When things began to unravel in the subprime market, all of the players apparently faced incredible pressures from every side to stick to their convictions. Lewis apparently took some liberties describing the pressure Joel Greenblatt placed on his most successful disciple, Mike Burry.  Just as any other life endeavor, sticking to your guns when the world is shouting you down is never easy. 

On the other hand, one detects the unmistakable stink of partisanship throughout the book and the reinforcement of leftist caricatures and narratives.  A particularly egregious example is his account of Cornwall Capital’s attendance at a Bear Stearns hosted client conference in Las Vegas.  In their ongoing attempts to get to the bottom of CDO machine and confirm their bearish thesis, they attended a target practice session at a firing range.  The Bear Stearns salesmen were surrounded by “men in tight black t-shirts who appeared to be taking the day off from hunting illegal immigrants with local militia”.  He goes on to describe how the targets were pictures of Osama bin Laden, al Qaeda terrorists, a black kid attacking a “pretty white woman”, and an Asian “hoodlum waving a pistol”.  That’s great, Lewis. Corrupt white investment bankers making piles of money exploiting the working class and indulging their irrational gun nuttery and racist proclivities on a firing range.  Just sprinkle in some stuff about white privilege, white supremacy or gun control and it’s Salon ready.  Stereotypes get created for a reason and there’s usually granules of truth to any stereotype you can name.  Maybe all of the worst assumptions Lewis infers from his description are true, but it’s difficult to view these details serving any other purpose but to reinforce smug, elitist contempt for gun owners and investment bankers alike.

Given the overarching disdain Lewis heaps on the finance industry throughout the book, his remarkable unwillingness to pile a comparable level of contempt on the central banking and regulatory apparatus which shaped it is very revealing. One wonders what, if anything, he ultimately wants to affirm with this book. He speaks of a naïve “hope that the government would intercede to prevent rich corporations from doing bad things to poor people” and unironically calls America a “free market”.  Yet, he reveals the ineptitude and disconnection of the government at various points throughout the book.  Between the scathing critique of banking and, when it occurs, failure of government oversight, what is Lewis promoting here beyond self-righteous disdain and knee-jerk cynicism for American finance? 

Lewis is forthright about both the failure of the SEC to intercede when Cornwall Capital exposed the imminent CDO calamity in their own offices as well as the false triumphalism of Fed propaganda as it was blared from its CNBC megaphone. And yet, he has the audacity to assert that Wall Street uniformly opposes regulation in boom cycles but “insist” on being rescued in a market collapse.  Based on what was revealed in Hank Greenberg’s lawsuit against the government, one can hardly say that the government’s confiscation of the majority of common shares in AIG was a product of pleading from AIG leadership.  It’s not even completely clear that AIG needed a bailout in the first place. The TARP cash that was dispensed in the aftermath of the crash wasn’t exactly as willingly and eagerly taken by banking executives as Lewis would lead you to believe either.  With regard to monetary policy, the ultimate source of all of the loose credit in the first place, he makes only one passing mention of it through the words of Steve Eisman. 

Michael Lewis seems exclusively focused on heaping all of the blame for the crisis at the feet of the industry, and in this respect, The Big Short succeeds wildly. Individuals are responsible for their actions, and investment bankers certainly deserve their share of the blame.  However, by refusing to point any finger of blame at the government power which shaped the industry or the central bank which pumped all the credit into the system in the first place, Lewis seems engaged in a game of self-deception of his own.  He speaks of government “forcing” change on the financial industry as though government is this bastion of moral rectitude and virtue and that passing laws and regulation is some kind of unalloyed good.  He bemoans industry consolidation and its transformation from a collection of private partnerships to publicly traded corporations, but leads you to believe that this too was the byproduct of capitalism’s inexorable march towards Armageddon. 

Lewis also seems to be taking some unnecessary self-satisfaction in portraying Eisman et al as the Prescient Ones while everyone else was asleep at the wheel. This idiotic self-delusion is at its nauseating worst at the beginning of the last chapter where he has the gall to insert a quote from goddamn Pope Benedict XVI.  Positively loathsome. Why doesn’t Ron Paul’s speech from 2001 count?  He seemed more attuned to the situation than Paulson, the Wall Street establishment, the Fed or the SEC.  What about Peter Schiff’s numerous warnings?  What about the warnings of several other libertarian thinkers and economists?  Even if it wasn’t his primary intention, Michael Lewis is affirming American state capitalism with this book. The Big Short is kind of a postmodern Horatio Alger story. Amidst a sea of industry-wide self-deception, several clever and enterprising individuals made a fortune as Rome burned. Murica, motherfuckers!

The banking industry is already nearly universally hated, and yet, Michael Lewis seems solely concerned with throwing gasoline on a fire that’s been stoked for years by politicians and demagogues alike.  Just like the heroes of his own story, he’s having his cake and eating it too. Because even as he shows you all the financial arsonists who set Rome on fire, he’s earning a tidy sum by giving you the requisite dose of cynicism that government officials count on in order to keep the game rigged for themselves. Casino capitalism is great when you’re tacitly betting for the house to win.  The only house which presents itself as too big to fail is the government, and in every hand, the house wins. 

It’s sadly unsurprising that The Big Short has been dramatized for the big screen. It’s not the chronicle of the financial crisis the American public needs, but it’s the one that it gets. If anyone in television or film had any guts, they’d adapt The Great Deformation for the screen. Hollywood loves feelgood pablum, and Lewis is a very capable purveyor of the liberal agitprop that’s Hollywood’s stock in trade. So enjoy this smug moralizing disguised as definitive financial history while you queue up for the ballot box to vote for Hillary or Bernie, proles.  The finance industry is filled with opportunities for skewering and Lewis has proven that he’s more than happy to turn a buck plying his brand of elitist cynicism. 

Henry Hazlitt: Economics in One Lesson

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This book holds a vaunted status amongst libertarians. Not only does it live up to its reputation, it’s a damn shame that this isn’t the go-to text for anyone seeking a rational and clear-headed approach to economics. 

Hazlitt builds his case by taking the central fallacy found throughout mainstream economics. This fallacy was famously revealed in the Frédéric Bastiat parable, That Which is Seen and That Which is Unseen, and he proceeds to apply it to each realm of economic life. By applying this logic, he demonstrates how the various manifestations of government intervention destroy wealth, savings, and positive incentives to work and produce.  

Stated very simply, the lesson is this: the effects of economic policy cannot be evaluated in terms of its effects on one group, but on all groups. 

Not only do these fallacies persist, but they are accumulating strength and being accorded cultish deference. 

Hazlitt covers all the bases in his analysis. He opens with the one-two punch of the fallacy of destruction followed by a withering exposé of the production disincentives resulting from taxes. Hazlitt runs a steamroller of truth over every conceivable government policy initiative and deformation. The effects of automation, subsidies, loan guarantees, tariffs, trade quotas, industrial policy, price fixing, rent control, minimum wage, and inflation are all explored. 

The opening chapter exposes the perverse obsession with destruction as an economic incentive that persists to this day.  One only needs to peruse the pages of Rolling Stone to find this doctrine in the insufferable moronic blathering of Jesse Myerson. He openly praises rioting as some kind of economic boon and mutates the broken windows fallacy into an ugly article of faith.

The chapter pertaining to the rise of automation is particularly fascinating since fantasies of a “post-labor” economy are gaining traction in the media. The widespread belief of the imminent arrival of a world in which robots displace human labor hinges on the assumption that there is a finite amount of work to be done in the first place. Or perhaps the public fails to grasp the role price floors on labor may have played in hastening the creation of the automation in the first place.  Either way, the belief of a Star Trek-like world of plenitude has taken root. 

On the issue of free trade, Hazlitt argues that people are correct to be suspicious of free trade agreements like the TPP and NAFTA, but are mistaken to attribute any benevolence to the very idea of a managed trade agreement in the first place. Especially if it’s cloaked in gauzy rhetoric about workers and the environment.

Just what the government planners mean by free trade in this connection I am not sure, but we can be sure of some of the things they do not mean. They do not mean the freedom of ordinary people to buy and sell, lend and borrow, at whatever prices or rates they like and wherever they find it most profitable to do so. They do not mean the freedom of the plain citizen to raise as much of a given crop as he wishes, to come and go at will, to settle where he pleases, to take his capital and other belongings with him. They mean, I suspect, the freedom of bureaucrats to settle these matters for him. And they tell him that if he docilely obeys the bureaucrats he will be rewarded by a rise in his living standards. But if the planners succeed in tying up the idea of international cooperation with the idea of increased State domination and control over economic life, the international controls of the future seem only too likely to follow the pattern of the past, in which case the plain man’s living standards will decline with his liberties.

His analysis of minimum wage is as elegant a refutation of minimum wage as you’ll ever read.  He argues that the minimum wage is more correctly viewed as a minimum price law.  If the price of labor is artificially raised, the price of production is raised. Populist politicians always attempt to sell minimum wage law as a boon for low skill labor and ignore the adverse effects.  Sadly, the fervor for this boondoggle remains as strong as ever.

The most potent analysis by far is the section dealing with inflation.  As we enter our 10th year of ZIRP administered by our allegedly benevolent overlords at the Fed, the ill gotten gains and economic perversions abound. While politicians beat the drums of hate and envy, they draw more support for further expropriation as a corrective. 

Economics in One Lesson is a timeless classic and the lesson contained in its pages burns with even greater urgency. It’s easy to look at the current state of affairs and despair, but Hazlitt ends with an optimistic note. The principles for which Hazlitt fought are indeed proliferating, but the voices agitating for socialism grow louder as well. The best defense against the lazy and callous recriminations of apparatchiks and statists is this righteous lightsaber of reason left for us by a Jedi master of economics. 

William Grieder: Secrets of the Temple

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William Greider’s 1987 opus, Secrets of the Temple, is a remarkable investigation of the Federal Reserve which covers a lot of ground. It is an essential document of the modern history of the Federal Reserve which takes us inside the Fed under the leadership of Paul Volcker. It is a fairly extensive summary of the events, people and ideas which shaped the creation of the Federal Reserve. It is also an occasionally muddled and partisan analysis of the effects of central banking on the economy. Greider weaves all of these threads together to form a grand narrative which reaches back to the Middle Ages up to the heights of the Reagan administration. Perhaps most importantly, he exposes the policy actions and interventions which drive the boom-bust business cycles largely perceived as “capitalism”.

Greider reveals the impact of an institution which sits squarely at the center of American finance and politics whose power and primacy goes mostly unchallenged. Though Greider is no libertarian, his book validates libertarian arguments by uncovering several absurdities and deceptions in central banking and fiat currency. The deformations of central banking aren’t limited to the perverse incentives it breeds in the economy. Both parties have capitulated to the cult of monetary policy. The effects of regulatory capture within the Fed and its subsequent failure to regulate the banking industry it oversees are additional problems brought to light. He also exposes the illusion of an institution allegedly immune to partisan politics and pressure. Not only does the Fed fail at achieving its stated aims, but it aids and abets the banking cartel which owns it. Rather than mitigating the shocks of the business cycle, it exacerbates moral hazard and amplifies risk. It incentivizes speculation, misallocation and overconsumption. It destroys price discovery and capital formation, fuels the warfare/welfare state which feeds from it and aggrandizes the power of the State at the expense of the average citizen.

The book opens by describing the political and economic climate of 1979 which drove Jimmy Carter to makes his national appeal for sacrifice. The Iran hostage crisis, the OPEC oil embargo and record inflation were white hot political fires for which Carter was ill prepared.  From there, we enter the corridors of power on Capitol Hill travel through the canyons of Wall Street and take a seat inside the inner sanctum of the Eccles building. Using direct accounts from insiders, the negotiations and actions which shaped history are revealed.

This book is a rare feat from a liberal. It’s a polemic that addreses monetary policy and the role it plays in shaping economic outcomes and policy initiatives. Greider’s level of intellectual honesty remains very high while demonstrating the subordinate and deferential role party politics play in relation to Fed actions. There is a lot to praise in this book. Despite his pretensions of espousing radical thought, the conclusions he draws have proven themselves ineffectual.

Far and away, the most significant achievement of the work is the unveiling of the cultish mysticism which surrounds the Fed. He uncovers what I believe is the fundamental deception at the heart of all state power; the intentional conflation of statecraft with divine powers of insight and benevolence to lead the unwashed masses.

Richard Syron, former vice president of the Boston Fed and special assistant to Paul Volcker, likens the Federal Reserve to the Catholic Church:

The System is just like the Church.  That’s probably why I feel so comfortable with it. It’s got a pope, the chairman; and a college of cardinals, the governors and bank presidents; and a curia, the senior staff. The equivalent of the laity is the commercial banks. If you’re a naughty parishioner in the Catholic Church, you come to confession. In this system, if you’re naughty, you come to the discount window for a loan. We even have different orders of religious thought like Jesuits and Franciscans and Dominicans only we call them pragmatists and monetarists and neo-Keynesians.

Greider elaborates further:

But the Federal Reserve did also function in the realm of religion. Its mysterious powers of money creation, inherited from priestly forebears, shielded a complex bundle of social and psychological meanings. With its own form of secret incantation, the Federal Reserve presided over awesome social ritual, transactions so powerful and frightening they seemed to lie beyond common understanding.

He sums it up pretty effectively with one elegant sentence:

The money process, nonetheless still required a deep, unacknowledged act of faith, so mysterious that it could easily be confused with divine powers.

Herein, I contend, is the secret behind the great confidence game called fiat currency to which we so willingly submit.  Money has value because the almighty government say it does, Citizen.

In a subsequent chapter, he unravels the psychological and religious symbolism associated with money fairly convincingly. He traces money’s origins back to the Catholic Church. The observations of Marx, Veblen, and Freud are given an airing. Money’s mythic connections to the devil, including a theory tying it to the excrement of a child, are also considered. Since money was formerly controlled by the church, it was used primarily to instill guilt and control the masses. It’s little surprise that politicians and religious leaders are still keenly attuned to the psychological symbolism of money and exploit the guilt inducing power to their own ends.

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Another one of the great masterstrokes of the book is how he reveals Democratic establishment’s utter fealty to Fed orthodoxy. Central banking has its origins in Progressive Era “reform”, and even if inadvertently, the Fed is exposed as a pretty blatant form of socialism.

The Federal Reserve is very much a product of Democratic policy. It was created by Democrats and has been shepherded by Democrats through the years. The responsibility for the creation of state sanctioned institutions which have polluted and deformed the incentives of the market and enshrined a culture of cronyism lies squarely at the Democrats’ feet. It is more than a little ironic that the party which actively foments antipathy towards capitalism and trades in on populist anger bears responsibility the current state of affairs. In his own words:

The Federal Reserve was, more profoundly, an important prototype for the modern liberal state. For the first time, a governing arrangement would explicitly mix public and private interests in a manner that was elaborated many times later in different ways.  However inadvertently or reluctantly, the creation of the central bank committed the federal government to a direct role in managing the private economy, and, once involved, it could no longer pretend to be aloof. It was, in fact, the beginning of the end of laissez-faire.

The conspicuous silence and knee-jerk defensiveness on all matters of monetary policy explains the ascendancy of a party which panders to the sensibilities of the working class and disaffected. The Democrats are happy to cater to the demands of the banking sector when the campaign coffers are lined.

A big turning point for the Democrats which illustrates this phenomenon was their role in passing the Monetary Control Act of 1980.  This law paved the way for a myriad of deformations. The abolition of Regulation Q disincentivized savings and increased speculation in the market. Regulatory capture of the Fed and moral hazard all increased as a byproduct of the deposit insurance limits for member banks.

The incident that perfectly captures the Democrats’ ignorance, mendacity and manipulativeness around monetary policy is Robert Byrd’s impotent attempt to rally legislative support to rein in the Fed in the wake of the 1981 contraction. The Balanced Monetary Policy Act of 1984  was simultaneously toothless, half-hearted and calculated. Nowadays, Democrats seem content to grill the Fed Chairman in committee simply to get a few sound bites worth of righteous indignation which can be transferred to a propaganda meme.  By conveniently sidestepping monetary policy, the Democrats focus exclusively on the perverse side effects and then shamelessly ply on populist fears and prejudices in order to accumulate more power for themselves. Whether it is actual or willful ignorance, intentional deflection or all three, the Democrats’ refusal to engage with issues of monetary policy reveal a party so craven in its lust for power, it is nothing less than a vile pathology.

He also gives a brief but detailed account of the formerly dueling orthodoxies of Keynesian fiscal stimulus versus Chicago school monetarism.  Two views which once represented two opposing poles in an ideological spectrum have joined forces in a harmonious union to stoke aggregate demand and create a “wealth effect”.

As Nancy Teeters, Jimmy Carter’s “liberal” appointment to the Board of Governors and doctrinaire Keynesian confirms:

I think I’m very much a central banker now. You’re in a position where your views on money, credit and banking are not really a reflection of your political party or your positions on economic issues. It’s not really a political job. I understand the whole milieu of what we’re doing, the continuous decisions, the mystique of central banking.

Bless you, Child.  The Lord will shower you with blessings for your service to His House.

Throughout the book, Greider repeatedly tries to draw a contrast between Volcker’s monetarist “restraint” and Teeters’ “courageous” Kenynesian desire to open the spigots, but it comes across as more partisan propaganda. As the past ten years alone of Fed policy attest, Volcker’s discipline feels like a modest attempt to stave off the parasitic addiction to monetary crack on which the banking sector so hungrily feeds.

Worse still, the bureaucrats are pretty open about the internal pressure to conform to the institutional orthodoxy based on salary increases.

Larry Roos, former president of the St. Louis Fed explains:

These are very real influences on how vociferous a Reserve Bank President is going to be about dissenting. It’s subtle, but it’s real. If one is a young, career oriented president who’s got a family to feed, he tends to be more moderate in his opposition to the governors than an older person like myself who’s more independent.

Excellent!  Pursue a career at the Fed so you can agree with the prevailing opinion of your superiors!

The details of Arthur Burns’ tenure are just as bleak.  By all accounts, Burns was a craven, manipulative autocrat who was intolerant of independent thought and was unafraid to manipulate both numbers and the will of his subordinates in order to get his way.  When the Carter administration was elected, he switched his demeanor and became an obsequious sycophant.

This culture of groupthink also resulted in regulatory capture.  The bank lending to LDC’s in the early 80’s and the subsequent squabbles over leverage and capital ratios eerily mirrors the squabbles over the same phenomena which arose in the wake of the 2008 collapse.

The Federal Reserve, for all its legendary power, behaved in this crucial matter much like other regulatory agencies of the federal government. It yielded to the ambitions of the industry it was supposed to regulate, instead of enforcing the larger public interest. Federal Reserve officials might worry that the largest commercial banks, the Fed’s primary constituency, were pursuing a dangerous course, but the Fed lacked the will to discipline them.

Greider never defines “public interest”, but complete intellectual honesty and philosophical consistency is apparently not his aim.

Despite his hackneyed and pious recriminations, his account of the collapse and bailout of Continental Illinois in 1982 foreshadows the collapse 2008. It further reinforces the perception that the Fed creates moral hazard and has no real ability to prevent reckless leverage or lending activities.  The playbook of events was a microcosm of everything that came to pass in the collapse of 2008 only on a much bigger scale.  Small bank borrows heavily from the Fed to finance some risky wildcat oil and gas deals, sells the loans upstream to some bigger banks resulting in “systemic risk”, FDIC and Fed step in to engineer a bailout in order to forestall additional panic. Debates between bureaucrats ensue with the head of the FDIC arguing for allowing a collapse and Volcker and dittoheads basically insisting that the government must forestall the impending financial contagion.  Sound familiar?

What is equally staggering about this account is the sheer folly of central planning. Chapter after chapter, one is left with the distinct impression that these alleged philosopher kings are simply megalomaniacal ideologues making it up as they go. If they aren’t kowtowing to political pressure, cloaking their actions in obfuscatory smokescreens or in the thrall of groupthink, they often seem to have no fucking clue what they’re doing. It’s as though they’re playing a game of economic whack-a-mole. Tighten here and hope for the best.  Loosen there because the first move didn’t produce the desired outcome. Should the Fed focus on money supply growth or GDP targets? Can the Fed accurately measure money aggregates? If the outcome produced perverse incentives, the administration would impose controls to offset the effects.  Rinse, repeat. His account of the disastrous credit controls and the subsequent erratic attempts to loosen the money supply in the run up to the 1980 election illustrates this phenomenon perfectly.

Despite all that is revealed, Mr. Greider is a liberal and his pro-statist bias surfaces on many occasions.

Greider is certainly not unbiased in his analysis of monetary history. Despite his expert deconstructions of the Fed and the illusory power it wields over the money supply, he takes a pretty standard view on numerous issues. He takes a standard post-Keynesian view that an inelastic hard money base is incompatible with an expanding economy and that deflationary cycles are always bad. He cites Lincoln’s expansion of the money supply with government specie to finance the Civil War as salutary, but describes the subsequent contraction and return to hard money as a catastrophe.

Though he appears to concede that the Fed induces business cycles, he seems totally fine with price controls and other fiscal countermeasures to offset the effects of monetary policy.

The 1981 inflation, for instance, was driven by escalating prices in oil and agriculture, both of which might have been contained temporarily by direct controls and other aggressive government policies. Some people would have been hurt but far fewer people.

His passing mention of the Fed’s role in fueling the run up of asset prices which lead to the crash of 1929 is remarkably casual and blasé:

The surplus money flowed, instead, into financial markets-artificially inflating financial values and fueling the run-up of stock prices that ended abruptly in the autumn of 1929.

My goodness. It’s almost as if history is repeating itself, isn’t it?

So just remember these rules, kids.  Money is illusory, and it’s evil. Proponents of hard money are evil and deflation is bad.  But government driven money supply expansion to finance war helps the middle class. And a Fed fueled frenzy of speculation which leads to a crash?  Nothing that can’t be mitigated by a few government controls or better policy if the Right People are in charge.

He even manages a very subtle, but very insidious inversion of conventional outlooks towards libertarian thought.  He takes the view that the credit boom of 1830 unleashed by the Jackson administration ushered in unprecedented capitalist progress.  At the same time, he cites Bray Hammond’s comments on this these actions as “reckless, booming anarchy” and appears to frame them as the sentiments of regressive, hidebound ideologue.  But it was this so-called “anarchy” which produced “fundamental progress” according to Greider.  While this concession towards the creative energy of capitalism is an admission one rarely hears from liberals these days and hardly an expression of anarchy in any way that modern libertarians advocate, he’s also validating the virtues of the expansion of credit by government fiat.

Another loathsome manifestation of his statist bias surfaces in his lionization of Charles W. Macune and the Texas Populists.  Aside from his laughable and contemptible reference to Keynes’ praise of the latter as “a brave army of heretics”,  he lays his cards on the table by saying that the government was “the ultimate guarantor of the future” which derives its power from the “mutual consent given by all.”

Bravo, William Greider.  Apparently, all heretical, transgressive and radical thinking are the product of seeking solutions from the institution which possesses the power to initiate violence. No, wait. I meant to say THE MUTUAL CONSENT GIVEN BY ALL.

He starts to pour it on thick in recounting the ascension of Marriner Eccles, the Republican Mormon from Utah who ran the Fed during FDR’s years, into the halls of power.

Greider claims that “Eccles had the uncommon courage to articulate this thinking before it became fashionable”.

Apparently, his “courage” amounted to vigorous support for the array of government fueled demand-side spending that was eventually codified in Keynes’ General Theory before Keynes’ famous work was even published.

Greider portrays Eccles as the true architect of the New Deal.  He lays out the entire contemporary progressive economic playbook. Everything from minimum wage to mortgage financing were included in his confirmation hearing and the FDR administration were more than happy to carry it out. The progressive economic playbook hasn’t really changed since then.

His analysis of the origins of so-called “supply side” economics is deeply partisan.  He makes repeat mentions of Andrew Mellon’s advocacy of lowered tax rates for the wealthy, but fails to mention that both JFK and Keynes advocated similar policies. He rationalizes the Reagan deficits and tax cuts and the attendant stimulation of aggregate demand as an inversion of Keynesian theory. However, he also fails to mention that Reagan’s expansion of the warfare state was in and of itself inherently Keynesian. It was simply an application of the theory which didn’t fit the progressive narrative or agenda.

His repeated conflation of hard money advocacy with “conservative” statist economic policy is also particularly odious.  Not only does he insinuate that Reagan’s closet belief in the gold standard was linked to the tax cutting agenda he eventually pursued, his portrayal of Jude Wanninski as a ideological zealot who infected the thinking of the administration reeks of partisanship.

He was a relentless advocate for gold. He was a close adviser to representative Jack Kemp and other conservative reformers. Now, with Ronald Reagan in power, Wanninski kibbitzed his friends in the White House and at the Treasury and and even dined infrequently with the chairman of the Federal Reserve. No one could say whether Wanninski had any influence on government policy, but important people listened to him.

And it doesn’t stop there.

These fetid piles of shite are further surpassed by his revolting attempts to inject gender politics into his argument.  He argues that Volcker’s policy of tough medicine in 1981 was somehow the product of the masculine culture at the Fed. He cites the theories of unnamed feminist critics and refers to some generic tendencies in women to be more attuned to compassion and negotiations.  He caps off this steaming pile of fecal matter by referring to Nancy Teeters’, the sole hardline Keynesian, as the lone voice of dissent in that time whose “bravery” in advocating for looser money would have forestalled economic devastation.

That’s right, proles.  The appointment of Janet Yellen has COMPLETELY changed the nature of the Fed. The policy initiatives are BRAND NEW in contrast to her male predecessor.

By Greider’s logic, she’s ushered in a whole new standard of idiotic pandering dressed up as compassion which we can totally attribute to the fact that she has a uterus.

Where’s Carmen Segarra when we need her? Clearly, we need a True Government Heroine.  Preferably, a strong womyn POC, too.  Because everyone knows that power is totally transformed by genitalia and skin color.

His most nauseating cop out by far is his idiotic and contemptible conflation of religion and free market economics.  Sadly, it’s a belief firmly held amongst progressives to this day, and somehow, the unclouded belief in the State is accorded total deference and escapes this very analysis.

Every important economic theory, one could say, relied upon an unstated subtext drawn from religious convictions. To declare correct principles for the functioning of the economy, one would first have to make certain assumptions about the larger nature of life itself-about God’s purpose and humanity’s obligations and the moral law that derived from the relationship of deity and mortals.

Perhaps it would be useful to examine how this analysis applies to progressives’ relationship to the STATE, Bill.  But no.  He pushes this moronic nonsense even further.

In this context, Keynes and his followers were the heretics. They were secular humanists who claimed men and women could manage human affairs for themselves.

The latter sentence would be a fantastic argument if it didn’t include deference to the doctrine of Keynesian statist economics, but that’s not what Greider is saying. He’s just flattering the smug elitism of modern progressives. He also seems conveniently oblivious to Keynes’ own warnings of the pernicious effects of inflation.

Still, Greider manages to drop many big truth bombs for those whose minds are open.  Not only does he cop to the drag the New Deal created for the economy, he reveals some other historical figures who adopted Keynesian policy to further their own political ambitions.

As it turns out, one the biggest proponents of Keynesian economics was none other than Adolf Hitler!

The pre-Keynes Keynesians included Adolf Hitler.  After 1933, Hitler initiated the Third Reich’s version of government-induced recovery-borrowing vast sums to build superhighways and armaments. He was so successful that by 1936 the Depression was substantially over for Nazi Germany.

Are you listening, Krugman fans?

For the inequality warriors, Greider thankfully points the finger of blame in the right direction.

If one viewed the Federal Reserve’s policy of high interest rates as an implicit government program for redistributing incomes, its magnitude by 1982 was approximately as great as all of the government’s other income-transfer programs combined, the redistribution of income that was explicit and controversial. The vast flow of money distributed to various beneficiaries through Social Security, veterans’ pensions, welfare and the rest came to $374 billion, now about the same as the income distributed to wealth holders through the high interest rates, $366 billion. Interest payments reached a record share of the nation’s personal income in 1982, more than 14 percent, almost doubled from 10 years before.

He spells out the mechanics of the con game in very explicit terms.

To economists, the effect was called “monetizing” the debt-a circular game in which the central bank bailed out the treasury by inflating the currency. The circle went like this: The executive branch borrowed money from the private sector by selling new Treasury notes and bonds.  The Fed then diluted the value of this debt by buying up old Treasury notes and bonds from the private sector and paying for them with newly created money.  The Federal Reserve, in effect, wound up holding more and more of the government’s debt paper in its own cloistered portfolio-and the private economy ended up with a bloated money supply.

He even gives a direct testimony from Stephen H. Axilrod explaining how the Fed, in its allegedly benevolent attempt to keep price inflation in check, artificially suppresses employment.

If you have a lot of demand, you’ve got to keep interest rates to keep the demand from overheating the economy. When you’re trying to wring out inflation, you have to keep the economy below its potential. The nasty way of putting that is you have to keep unemployment high.

Nowadays, all you hear from the intelligentsia and the apparatchiks is a lot of carefully crafted academic blathering about how the drop in the labor force participation rate is a natural phenomenon and can be attributed to generational attrition.  Right.

If one still isn’t convinced of the malevolent nature of the Fed after all these revelations, he explains how the bailout of Mexico resulting from the LDC debt crisis hobbled growth in these countries and disadvantaged American producers simultaneously.  If the dollar strengthened against international currencies, exports suffered. The contraction weakened demand for imports which subsequently thwarted debtor nations struggling to meet the terms of loans and punitive fiscal austerity mandates imposed by the Fed and IMF; a phenomenon that continues to play out on the international stage as Greece and Puerto Rico attest.

The main insight of this book which I hope that anyone who opposes the state war machine gleans from this book is the unholy alliance between central banking and the warfare state.

If anyone had any doubts that the apparatus of the central bank aids and abets the war machine of the state, this book should hopefully settle that score.  He doesn’t make it a centerpiece of his argument, but he lifts the veil enough for you to see it.

Every war, every one of them, was accompanied by a massive expansion of credit.  Generally, the State can’t get it through straight up taxation, so they get it by expanding the money supply.

Ultimately, Secrets of the Temple is rewarding, informative and deeply revealing book which is somewhat undermined by Mr. Greider’s muddled thinking, partisan biases, and deference to the authority of the State.

His prescriptions for higher inflation and a globally coordinated effort to ward off trade imbalances has played itself out to disastrous results on the international stage. In the wake of the Greenspan/Bernanke/Yellen era, those who share his convictions are stoking increasingly louder pleas from the population for ever increasing government involvement in economic life.

We’ve entered an era where the American Left has openly embraced a socialist running for president and policies that are exclusively focused on constraint of economic freedom. Confiscatory taxation and redistribution coupled with the strengthening of government cartels are standard articles of progressive faith. The unlimited expansion of the money supply with no apparent regard for hyperinflation is considered cutting-edge thought. Bill Greider’s book is refreshing because it is perhaps one of the last attempts by an intellectual of the Left to address monetary policy with an analysis which goes beyond smug condescension, avoidance or an open embrace of the printing press.  Perhaps it’s one of the Left’s last grasps at real honesty for a political coalition whose respect for human freedom is, at best, minimal and at worst, nonexistent.

Ron Paul: End the Fed

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Prior to my full conversion to libertarianism, I held two opinions of Ron Paul.  On the one hand, I admired his apparently principled and consistent vision of limited government conservatism. He seemed to walk the walk. Seeing him openly trash the legacy of Saint Reagan in the Republican primary debates lives in my memory as one of the single biggest moments of political audacity I’ve ever witnessed. 

On the other hand, I regarded him with a sort of bemused, smug condescension.  His views seemed painfully simplistic at best and outright delusional bordering on conspiracy theory territory at worst. In other words, the very attitudes to which I’m subjected on a daily basis on social media whenever I assert my point of view! 

His argument against the Federal Reserve seemed tainted with just a bit too much of an InfoWars/John Birch Society stink.  And there was so much establishment opinion deriding it as naïve, I simply couldn’t allow myself to go there.  Marx had delusions of an omnipotent state, so why should I entertain delusions of a limited state whose scope rendered it seemingly irrelevant? 

Needless to say, I eventually came around to a purely libertarian view, and thankfully, I can now fully appreciate the magnitude and elegance of what Mr. Paul has achieved in 210 pages. 

This is the single most potent political argument of our time. 

This book is equal parts history lesson as well as a primer on Austrian business cycle and hard money theory embedded in a minarchist polemic. 

Mr. Paul is a master of brevity and he succeeds in packing a lot of great stuff in a short space.  After a brief overview of personal and American economic history dotted with generous references to his Austrian forebears (Rothbard, Mises, Hazlitt, et al), Paul lays out his case. 

He devotes two chapters to transcripts of his exchanges with Greenspan and Bernanke and exposes them as cagey, prevaricating gasbags.  Mr. Paul revels in needling Greenspan over his abdication of his objectivist convictions around hard money, and his responses are exactly the kind mealy mouthed obfuscating ramblings that define all too many bureaucrats. 

But even if Greenspan suffered from acute bureaucratrititis, Bernanke makes him seem generous and accommodating by comparison. 

After giving a brief tour through the Fed’s historical origins, the connection between the warfare state and central banking, business cycles before and after the Fed, the depreciation of the dollar, and the current state of economic affairs, he lays out the argument in four parts.  The philosophical, the Constitutional, the economic and the libertarian. 

The moral case is certainly compelling on its own. Here, he touches on the secrecy of the Fed and its ability to inflate without restriction. I certainly believe that the roots of the illusion of something for nothing, a free lunch, start here. He exposes the collusion between corporate interests and the state that everyone can see, but few trace down to its roots in the halls of the Eccles building. 

The only thing that undermines this section are his attempts to bolster the case by making reference to the Biblical passages which specify hard money as legitimate currency. Despite the cognitive dissonance inherent in their own fealty to the state, statists denigrate the notion of free markets and libertarianism itself as religious belief.  This strikes me as an appeal to tradition and helps neither the case for libertarianism or hard money. 

Ironically, the Constitutional case, though sound in terms of a strict reading, is actually the weakest. Article 1, Section 10 of the Constitution is explicit.  He proceeds to torpedo this argument a few pages later.

In reality, the Constitution is incapable of achieving what we would like in limiting government power, no matter how well written.

He goes further by showing how the Supreme Court itself has been largely ineffectual in ruling in favor of this reading of the Constitution. Easily the least compelling of the arguments. 

He returns to solid ground with the economic case.  The regime of the floating dollar and interest rate management by technocratic planners has bred an unhealthy incentive to borrow and consume in excess. It has undermined economic growth and enshrined a culture of permanent moral hazard where people continually overlook the source of the malignancy and politicians prey on this ignorance by insisting that another expansion of the regulatory state will deliver the Real Change. 

It is revealing that Keynes and Marx, two of the left’s intellectual leading lights, were explicit about the impact of monetary inflation and the importance of central banking in maintaining authoritarian rule. The former once repudiated it as a malicious invisible tax, but like Greenspan, abandoned his principled stance as his influence grew.  The latter advocated for it openly and without reservation.  The legacy of totalitarianism and suffering that was carried out under the banner of Marxism is explicit and undeniable. 

We are seeing the poisonous outcomes of this arrangement unfold once again as the current catastrophe in Greece attests. 

And what more can be said about Ron Paul that hasn’t already been said?  Without a doubt, he has one of the most interesting stories in American politics. He has certainly earned a place in the history books alongside the likes of Wright Patman as one of the most outspoken critics of the Fed. There’s also no doubt that he did everything he could to stop the encroachment of the state and that his political career was just as much about advancing the ideas of the liberty movement as it was about trying to stop bad legislation.  

Would we be better off as a country if more politicians were as principled as Mr. Paul? 

Perhaps.

But not all politicians are and after 20+ years in politics, all it really got him was a reputation as a gadfly.  Don’t get me wrong. The fact that he got as far as he did is nothing short of remarkable, but the establishment forces have clearly prevailed.

And this is where the minarchist argument runs out of gas for me. Despite what was an apparently earnest attempt to set up a framework which would presumably keep government limited, we have the biggest government in the history of human civilization. There is no “change from within” to be made. His son is proving this point each day as he tries to contort himself into new and increasingly contradictory shapes.  A 15% flat tax and yet somehow the entitlement state can be funded by business taxes? Right.

The cause of liberty must be waged in the battlefield of ideas. Not the ballot box. 

Keynes famously derided opponents of state intervention with the oft quoted line, “In the long run we are all dead”.

This approach has been tried and the verdict is in.  

End the Fed.