Thursday, July 19, 2012

Another bubble, another crash on the way?

Walter Russell Mead talks about the crises in higher education and the ridiculous level of indebtedness of graduates who financed their four years of schooling and more with student loans.  Once again we see the invidious hand of government intervention in the marketplace at work here..  In a mirror image of the housing market debacle, which led to the ugly recession we are now living through, the education bubble was fueled by government backed easy credit loans which encouraged students to take on levels of debt that many of them are still paying off twenty and more years out of college.  Can we never learn that when the government involves itself in markets that it inevitably creates booms and busts and sooner or later destructive inflation as they inflate away the unmanageable debt levels?  Intervention in the economy by the government is much like allowing a child to eat all the candy it wants in one sitting.  The child is momentarily happy but inevitably sick.  Excessive credit and debt in the system leads to an unhappy hangover and a promise to never do that again -- until the next time.  Best way to stop this foolishness:  Disable the government's ability to print money and create credit.  The Austrian School of Economics would have us eliminate the FSR, eliminate fractional reserve banking and return to the gold standard. There doesn't appear to be any better solutions as we have passed the 15 trillion federal debt level and with four more years of Obama are looking at 20 trillion by 2020.

Letter to a Doctor friend


Ken,

Thanks for sending me the really interesting Journal article(s).  This is  a longer response than a busy doctor has time to read, but it is what it is, as Clinton would say, or something like that.  We'll have to talk about this more next time we get together.

Like Dr. Foy author of "Understanding the Healthcare bubble, Why it was inflated and why it must burst",  I am a student and very firm believer in the Austrian School of economics.  The business cycle theory of the Austrians is, as Dr. Foy points out, the only theory in economics that explains and predicts the booms and busts in the capitalist system.  The Austrian's theory is also the antitheses of Keynes's theory, the favored model of interventionist politicians since Hoover and Roosevelt wreaked havoc with it on the American and world economies in the 1930's.  In my opinion, all democrat politicians and probably somewhat over half the Republican politicians are Keynsians.  Therein lies much of our problem with out-of-control government spending.  If we followed the advise of the Austrians, we would eliminate government deficit spending and debt, restore the concept of sound money by eliminating fractional reserve banking and the FRS (Federal Reserve System), and shrink the size of government --the welfare and regulatory state -- by at least 50%, all of which would effectively empower the doers and producers, stimulate and energize the market economy.  Failure to do just this, we can expect continuing booms and busts, inflation, deficit spending, shrinking middle class, growing dependency class and overall decline.  Ludwig von Mises argued that this very economic scenario is exactly what destroyed the great Roman Empire and that the invading barbarians merely took over by force once the rot had done its job.  

Dr. Foy did a brilliant job of relating the Austrian Economics School's theories to the healthcare industry. According to the Austrians theories Dr Foy's exactly right that the inflation induced costs of healthcare will eventually result in a bust.  This will happen when the Federal government no longer can get away with printing money to sustain and grow the existing bubble.  That time is obviously close at hand.   Because of limited space and subject focus,  Dr. Foy did not spend much time on the role of central bankers in creating this looming disaster, so here is a very truncated "Austrian" explanation of that role. 

 It was after the "gift" of the Federal Reserve System to America by the Europeans in 1913 that our destructive experience with booms and busts began in earnest.  Prior to the FSR there were infrequent and mild expansions and contractions in the economy.  They were routinely self correcting and of short duration, typically a year or less.  The Austrian economist Murray N. Rothbard in "America's Great Depression",  pointed out the role the FSR played in creating the credit bubble of the 1920's and how that action led to the stock market bubble, inevitable crash of '29,  and the subsequent 11 year depression of the 1930's.   This Great Depression of the '30's marked  a major turning point in the American economy.  For 11 years, from '29 until 1940, interventionist politicians tried every nostrum in Keynes's epic work  "General Theory of Employment,  Interest and Money" to end the depression, including protectionist tariffs (Smoot-Hawley), currency manipulation (FDR went off the gold standard),  the creation of labor and industrial cartels (to keep wages and prices up), massive deficit spending make-work projects ala the Hoover Dam, TVA, WPA (make work for the vast unemployed). None of these "experiments" of interventionism in the previously private sector of the economy had any significant impact.  In 1939, 11 years after the '29 crash, the unemployment rate in the US economy was only marginally better than it was in 1931, the worst year of the depression (over 25% unemployment).   Now fast forward to Obama and TARP (Bush's contribution and probably necessary to avoid a total collapse of the financial industry),  the 800 billion stimulus fiasco,  QEs I, II, III, and ever more Keynsian stimulus and no real change in the unemployment rate in almost 4 years.  Now at this point, looking back to the Great Depression of the '30's, and our experience of the last 4 - 5 years,  one might logically think twice about efficacy of these Keynsian solutions to unemployment and economic contraction.  It might just be time to give another set of solutions a chance.  However, Obama wants to double down on the previous 4 years of policy failures with more of the same. At this point I'm beginning to find  Wayne Allyn Root's theory compelling.  You may remember  Root  as Obama's classmate at Columbia in 1983 who went on to become a successful entrepreneur but never forgot Obama and his classmates:  " I was President Obama’s college classmate at Columbia University, Class of '83. Almost every one of my classmates were openly socialist or Marxist, with many of these leftist radicals calling for an end to capitalism and “bringing down the system” by destroying the U.S. economy with entitlements, debt, and crisis."   
To me this sounds a lot like the Cloward-Piven strategy of orchestrated crises: bring down the capitalism by overloading the system with debt, entitlements, etc., and then when all crashes rebuild the economy using the socialism model.   I have scrupulously avoided so-called conspiracy theories in the past, however couple Obama's past associations with Frank Davis in Hawaii, Bill Ayers and wife, parents who are committed socialist, when I see Obama refusing to compromise on Obamacare after the loss of the House in 2010,  refusing to compromise with Boehner on the tax/spending cut confrontation last year, submitting  a WH budget proposal that would increase the budget deficit to 21 trillion over the next 4 years,  rhetoric to double down on the spending programs that have not worked,  the latest EO to eliminate work requirements for welfare recipients,  I begin to see a commitment to this Cloward-Piven strategy to destroy our economy from within.  

Oh, and by the way Ken, there was another article in that same journal  that was equally interesting and really quite prescient, "A letter to Mississippi Physicians", authored in 1966 by Curtis W. Caine, M.D.   Dr. Caine asked his fellow physicians  in Mississippi if they really wanted to go down the path of socialized medicine by signing on to the PL 89-97 , the amendments to Social Security that created Medicare and socialized healthcare for individuals 65 years of age and older. This open letter to "Esteemed colleagues" was essentially a very well thought out and argued polemic on the evils inherent in socialized medicine in general.  Dr. Caine was entreating fellow physicians to not sign on to the program to take effect in 1966 and thereby cause the scheme to fail maintaining the status quo in medicine.  Clearly Dr. Caine's arguments did not prevail and here we are, nearly 50 years into socialized medicine for seniors about to socialize medicine for everyone else in the country even though medicare has largely been the cause of almost all the medical cost problems highlighted in in Dr Foy's article.  We are back to the wisdom of one of our founding fathers, Benjamin Franklin: "The definition of insanity is doing the same thing over and over expecting different results."  Some people just never learn.  Watch out for inflation down the road.

Finally, Ken, here's my platform suggestions for Romney:

 No more FSR, dump fractional reserve banking, bring back the gold standard for the dollar, cut all government agencies in half, shut down K Street, put Congress on a part-time basis with half pay put them in the social security retirement program, make all Supreme Court Judges (and all other judges)  pledge to uphold the US Constitution in public once a year, throw out AA, ban ethnic or gender coalitions in Congress (no CBC),  eliminate Medicaid and Medicare, return Social Security to its original pay as you go insurance roots only, term limits for Congress, no government employee unions (that includes teachers unions), flat income tax, no corporate income tax, send Obama to Kenya, and, for comic relief, send Mayor Bloomberg to either Cuba, Russia, or North Korea as Ambassador in residence (must live in one of those countries full time for four years and must send a written report to the American people once a month on the joys of living there).

Sunday, July 15, 2012

Shrinking Protestant denominations

Congregants have been abandoning the old line Protestant churches for the last half century, and the reasons are pretty obvious.  The clerical leadership in these mainline denominations has embraced and taken on the mantle of all the political tenants of secular liberalism, to wit: political correctness in all its iterations including acceptance and normalization of the gay and lesbian lifestyle, promoting the concept of "social justice" and the indiscriminate largess of the welfare state to even the economic playing field, and other pathologies associated with cultural and moral relativism, such as: the cult of victimology, feminism, racism, affirmative action, and multiculturalism.  So if you are one who believes in personal lifestyle responsibility as well as a personal relationship with God that includes private charitable good works in lieu of dependency on the state, you are out of step with the clergy at many churches these days.  Since these denominations have all been losing congregants since the 1960's, when the really big cultural and political changes occurred in American society, and Europe's as well, there's a serious disconnect here that appears to be a permanent condition.  Those abandoning these faiths seem to be telling the clergy to keep the pulpit out of politics and out of my church life all the while the clergy is busily adding it to their Sunday message.  Ross Douthat in this NYTimes op-ed takes on this subject in a reasonable piece here.

ADDED: A bit more on the history of the demise of the EC and how it devolved into a politicized advocacy secular institution with our much of any theological grounding:

More seriously, the long slow decline of the Episcopal Church into the bottomless abyss of willful political correctness is a case study in the long march of leftism through any institution that leaves its door open even a tiny crack.  The late Paul Seabury of UC Berkeley (a descendant of Thomas Seabury, the first Episcopal bishop in the U.S. when the Episcopal Church formed by breaking off from the Anglican Church during the American Revolution–and yes, Berkeley once had a conservative–several actually–on its faculty) explained it in his famous 1978 Harper’smagazine article “Trendier than Thou”:
Observers who read or reported about the schism within the Episcopal Church in 1977 believed it had been provoked by a single issue: the ordination of women as priests, narrowly approved in September, 1976, by Episcopalian bishops, priests, and lay delegates meeting in General Convention in Minneapolis. The dispute was perceived as only another skirmish in the struggle of equal rights for women – a skirmish that just happened to break a traditionally conservative church in two. But on the contrary, the schism manifested much deeper, and cumulative, impulses within the church that were stimulated by the political turbulence of the 1960s. The issues resolved into a question that the Berkeley scholar Charles Glock had summarized in the title of his 1967 sociological study of the Episcopal Church: “To Comfort or to Challenge?” Was the mission of the church to act within the world as an agent of change or to withdraw from the world and purge itself of quotidian concerns? At the time, the answer to this question seemed obvious to Episcopal leaders, if not to their flock: the institutional church had indeed abdicated its social and political responsibilities. Its redemption – even its survival – depended upon its emergence into the light of secular day, where, as the Church Militant, it would join other political forces to transform society.