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How to protect yourself from misinformation about the economic crisis

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Deane R. Mathewson Posted: Sat, Oct 25 2008 2:11 PM

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As the member of my circle of friends and family with the most interest in economics, I occasionally use current events as a teaching opportunity. Often an election provides the backdrop, but this time it's the economic crisis. I have done my fact-checking (using more than just Wikipedia), but if a list of popular fibs about the causes of the current crisis has interest for you, I'd appreciate suggestions, or a heads-up regarding any inaccuracies in my application of theory or data. My sincere thanks, here is the essay:

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Friends -

I typically send out an email detailing my thoughts a week or so before each election.

Not this time. There is a shift of power happening right now which has far more significant consequences than anything on this ballot.

What just happened? What caused the markets to crash? Why did the government just nationalize large segments of insurance, banking, and the mortgage loan industry, and why are they buying hundreds of billions of debt in GM and other corporations? And what the heck should be done to get us out of this mess?

As you may already suspect, citizens across the country are presently being ruthlessly inundated with a torrent of Orwellian misinformation. Here's a handy reference tool for determining whether any given news source is lying to you about the causes of and solutions for the economic crisis:

Lie #1) Laissez-faire caused this meltdown, or, The problem is too much freedom and too little regulation.

The one kernel of truth here is that laissez-faire really is the opposite of regulation and interventionism. Here is the definition of laissez-faire:

"A politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual's rights against the initiation of physical force."

But any claims that financial markets in the United States are free is a complete bald-faced lie. To say laissez faire caused this meltdown is like saying Britney Spears has lived a long and happy life of ascetic anonymity. It is precisely the opposite of the truth. The Federal Reserve was created in 1913 specifically to cartelize the banking industry, just as the Interstate Commerce Commission did for the railroads, and the Agricultural Adjustment Act did for farming. Monopoly is sustainable only when backed up by the guns of government, which is why, if government power exists, seizure of that power is always the frantic objective of every slimeball around. Today, there are more than 100 federal agencies pandering to these plutocrats.

Other, sneakier forms of this lie are little asides like the following in an AP article from October 23rd, "The financial crisis even prompted the Republican Greenspan, a staunch believer in free markets, to propose that government consider tougher regulations..." (I added the emphasis.) That sentence is like saying, "The antelope shortage even prompted the lion Simba, a staunch believer in vegetarianism, to propose that the pride consider increased hunting..."

Lie #2) Good businesses can't get credit.

Think about this for two seconds. No matter what the economic climate, any business that needs to borrow money just to make payroll is in trouble! To habitually run a business like that is crazy! The truth is there is absolutely no shortage of credit. As long as government allows the financial markets to function at all, credit will always be available, at a price which reflects the risks of providing it. Let's say you run a drycleaner. You ask a banker for money to buy another machine to expand your operations. The banker will look at your income statement to verify that your service is valuable to the community, then look at your balance sheet to make sure your business doesn't own any toxic mortgage-backed securities. Then the banker will hand over the money! If all the banks have failed and closed, just ask some rich guy in the neighborhood. Companies rated AA credit or above have had no problems obtaining credit during this crisis.

And after all, wasn't this crisis caused by the Fed-induced over-availability of cheap credit for borrowers that didn't deserve it? Well isn't the solution for that to make credit more expensive or harder to obtain? Well then why are the government's cheerleaders decrying this healthy process? Why is the Fed striving to prevent this from happening? And why is Paulson forcing even the conservative big banks to accept huge handouts from taxpayers that those more sensible bankers don't even want? Those prudent bankers took on less risk (and profit) during the inflationary boom because they saw the danger looming and were hoping to pick up valuable assets cheaply when their recklessly decadent competitors blew through their cheap credit. But now the government is eliminating the rewards for prudence by bailing out the worst offenders and punishing the rest of us!

Valuable businesses that can afford to pay borrowed money back will have absolutely no problem getting credit. Individuals with good credit history and steady income can easily get mortgages. If left alone, the market makes credit unavailable only to those who don't deserve it anyway.

Lie #3) "We can either be like Hoover or like Roosevelt."

The implication is that FDR's New Deal ended the Great Depression, which is another blatant lie. Any comment of this form is sheer nonsense. Hoover and Roosevelt are like Tweedle-Dum and Tweedle-Dee. There's no difference! According to Rexford Tugwell (leading advisor to FDR), "The ideas embodied in the New Deal legislation were a compilation of those which had come to maturity under Hoover's aegis... We all of us owed much to Hoover." In Hoover's own words, "We might have done nothing. That would have been utter ruin. Instead we met the situation with proposals to private business and to Congress of the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic." The last true laissez-faire president of the United States was Warren Harding. Harding's administration faced a terrible post-WWI recession in 1920, and Harding did nothing about it at all. The recession was over in less than a year.

Lie #4) Deflation would be disaster! We can't let prices fall!

I personally would like to pay less for food and gasoline. I'd like to pay lower property taxes. Actually, I'd like to pay less for everything--in fact there are some things I buy only if they're on sale. If the value of my stocks, bonds and real estate drops, well that just means I could buy more of them for lower prices. Plus, as prices fall, earnings and dividend yields increase. Also, if I were 20 years old and looking forward to buying a house of my own someday, I'd want to be able to find a low-priced house in a nice neighborhood.

Deflation in the electronics industry is pervasive. Is that industry suffering or in decline? John D. Rockefeller drove the price of kerosene from 50 cents per gallon to 5 cents over about 30 years. Was that bad for Rockefeller? Or anyone else for that matter? Perhaps for Rockefeller's competitors, but massively beneficial for every American who benefited from having a light source at night. Plus it saved the whales since whale oil could not be produced profitably for less than 40 cents per gallon. Widespread deflation was the one saving grace of the Great Depression. Everything was on sale! Prudent individuals who saved their money and kept their consumption in check during the 1920's could buy everything at a superb discount.

Lie #5) The market crashed because the bailout was voted down.

When the S&P 500 dropped almost 8% on Sep 29th, the talking heads claimed it was because the bailout vote failed. Well, let's see here... After the bailout was rejected, the market gained back more than 4% in the next 2 days. But then the Senate unconstitutionally initiated and passed its own (even more expensive) bailout bill on Oct 3rd, and the market dropped around 24% over the next week in the longest and steepest succession of down days in US history. But, but..the bailout passed! Why did that make everything worse? More to the point, why didn't the talking heads then blame the bailout for causing the crash?

Angry phone calls, emails, faxes and letters from constituents to their senators and representatives were running as high as 300 to 1 against the bailout. Every seat in the House of Representatives is up for grabs Nov 4th, just one month after the second bailout vote, so there was no conceivable time when they could place their chances for reelection at greater risk by wilfully ignoring their constituents. Yet ignore them they did. Translation: The public doesn't matter! Elections are irrelevant! The government will do whatever it pleases, whenever it pleases. Of the people, by the people, and for the people is nothing but a bygone historical curiosity. The truth is the government is now all-powerful and totally unanswerable to anyone or any force short of outright popular revolt. The definition of authoritarian is, "of, relating to, or favoring a concentration of power in a leader or an elite not constitutionally responsible to the people." That means huge uncertainty about the scope and thrust of future government actions. That's why the market crashed.

Lie #6) Yes, mistakes were made which got us here, but now that we are here, we need the government to help make it better.

This is the biggest lie of all, and is both the compilation and objective of all the other lies. Another version of this lie is "It's not a bailout for Wall Street, it's a bailout for Main Street." Or even more sensationalistic, "The government is taking your money, but only to save your job." How much sense does that make? So...I still get to go to work every day, but you'll be taking the proceeds from my labors?

The truth is that the cheap credit created by government intervention forced interest rates so low that capital-intensive lines of business seemed like they'd make tons of money. But nobody wanted the production! The market hadn't asked for any of that stuff, the entrepreneurs who made it were just tricked by the Federal Reserve! So all the real goods like wood, steel, and food which went into those products were just wasted, and the people employed to build the stuff were employed uselessly. Well enough is enough. The sooner all the people building skyscrapers in the Nevada desert are shifted over to producing goods and services that people actually want like shampoo, diapers, or quality healthcare, the better off everyone will be. But no entrepreneur is willing to make those changes right now, because nobody knows what the heck the government is going to pull next. The only way to allow the economy to recover is for government to get the heck out of the way and stay there. The government is currently behaving like a 14th-century doctor whose only tool for treating black plague victims is to bleed them. For the love of God, lance the boils!

If you want to understand how to protect your freedoms during and after this authoritarian coup d'etat, you should first strive to avoid being sucked into the web of deceit. Learn to recognize the lies listed above so you can identify any news sources that disseminate them. Some such sources I've found are TV, Associated Press articles, press releases from or interviews with bureaucrats (especially Greenspan, Bernanke, and Paulson), and articles by incompetent economists such as Paul Krugman, Arthur Laffer, and similar socialists. Once you've identified a particular source as bogus, you could choose to ignore it completely, or perhaps listen as though it's "opposite day," and whatever they say is exactly the inverse of the truth. Kind of like most campaign promises.

But if you really do want uncorrupted truth, thanks to the internet there are still hundreds of sources of accurate economic reporting, including George Reisman in an article from 10/23/2008:

http://mises.org/story/3165

Here's a list of other economists who are absolutely right-on and trustworthy. All of them predicted this crisis:

- Frank Shostak

- Robert Murphy

- Mark Thornton

- Jorg Guido Hulsmann

- Joseph Salerno

- Walter Block

- Jesus Huerta de Soto

- Llewellyn Rockwell

- David Gordon

- Hans Sennholz

Peter Schiff is also spot on with his theory, but he enjoys making specific predictions, and when dealing with capricious humans it's pretty tough to be right every time. Still, his book Crash Proof was highly accurate, and his youtube videos are big fun!http://www.youtube.com/watch?v=LfascZSTU4o

Our beloved nation is now quite far along the path to totalitarianism. As demonstrated repeatedly by a variety of nations in the 20th century, totalitarianism leads to mass slaughter and starvation. Throughout the 20th century, the century of war and civilian massacre, the United States was the final refuge for oppressed peoples and champions of freedom. Not because the United States had lived up to the promise of its founding libertarian principles, but because the strength of those principles still echoed faintly through the centuries with enough residual power to hold the United States back from the abyss.

That is still true. Even with our spiraling descent into madness, people in the United States still enjoy more freedom than people virtually anywhere else. In addition, the United States is one of a very few countries large enough to maintain its independence from any aggressor, for as long as the unparalleled productivity of free enterprise is allowed to persist.

It is for those reasons that I believe freedom must make it's final stand here. Please, live with your eyes open.

Thank you,

Deane

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How to protect yourself from misinformation about the economic crisis

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