The Free Market

There are few things that reduce the price of a good like an increase in its supply. But the very people who decry the lack of "affordable" housing in New York and other places are often the ones who are most agitated about "overdevelopment." While the idea of "a lack of affordable housing" is itself suspicious, it is clear that one effect of many government programs is to make housing less affordable than it otherwise might be.

How well I recall the debates about the WTO and Nafta, both of which the Mises Institute editorialized against on grounds that they constituted managed trade, not free trade. In the case of Nafta, it was outright regional protectionism. But for dissenting from both sides of the phony DC debate, we were called secret protectionists.

It happens in every bear market and in every crash. Investors get it wrong. Then regulators get it wrong. They look for scapegoats and find the wrong ones.

Central banks are a recent development in the history of civilization—the culmination of years of consolidation—but the tendency of governments to inflate the currency is not.

With more money in their pockets, the president believes Americans will be able to spend more and this will speed up economic recovery. According to President Bush, "By ensuring that Americans have more to spend, to save and to invest, this legislation is adding fuel to an economic recovery. We have taken aggressive action to strengthen the foundation of our economy so that every American who wants to work will be able to find a job."

If you stuck a dollar in a savings jar in 1913 and tried to spend it today, you would find your purchasing power had been sapped. Your dollar would be worth about a nickel. What happened? Well, the government had created an institution called a central bank that was endowed with the power to create money. And create it did: so much so that it diminished the value of all existing currency.

To most, the strong housing market has "saved" the economy by providing consumers with fresh purchasing power and housing gains have helped cushion many from the withering blows of the stock market’s decline.

But the housing boom is not an unmitigated good.

It has finally come down to this: Martha Stewart must go to prison, or at the very least be forced to step down from her position as CEO of Martha Stewart Living Omnimedia.

How powerful is economic law, that mysterious aspect of the structure of reality that causes prices to rise and fall and thereby give direction concerning the use of resources? More powerful than the US government, even more powerful than all the governments in the world combined. In Iraq, the US demonstrated that it can overthrow a despotic government but it can't finally control economic forces, particularly as they affect money.

The extent to which we are secure in our homes, property, and the places we shop is due in large part to the commercial marketplace. It is the free market that makes available alarm systems, locks, fences, cameras, security services, and in purchasing these items we are free to make a choice among competitive products. If they don't work, we can try something new. If there is fraud, we can hold the producer liable.

While one hopes that this current sorry situation does not metastasize into a full-blown calamity reminiscent of the Great Depression, there are some not-so-obvious but important issues that need to be raised if we are to climb out of this economic mess.

Be it bilateral or multilateral, dispensed directly from a government or through an international lending agency, foreign aid embodies all the failures and tragedies that have come to typify our government-run domestic poverty schemes.

Last week the Peach State continued to buck the national trend. By a vote of 127 to 47, the Georgia House of Representatives defeated Governor Sonny Perdue's proposal to raise the state's tax on cigarettes from 12¢ per pack to 58¢ per pack.

War gaming may be the newest term for the static trial runs that government officials use as proxies for a real world that always surprises them. If we want to call war planning a "social science"—that's how the Pentagon thinks of it—what we have here is a classic error: the belief that government policy and its effects can be modeled in the same way as the physical sciences.

We should not expect new hedge fund regulation to correct the flaws of existing regulation. If the feds get their way, we might wind up with a kind of derivatives cartel. Hedge funds and their clients may face additional restrictions, justified as measures to prevent market manipulation. The coming rules should be seen for what they really are: government supports for the share prices of shaky companies.

In recent newspaper columns, Paul Krugman of Princeton University and Lawrence Kudlow have sounded deflation alarms. The solution to combat falling prices, they argue, is for the Federal Reserve System to increase the money supply.

Three years into one of the most severe bear markets in history, the most striking feature of the typical economic discussion is the persistent state of denial about how perilous our situation truly is. Also notable is the unthinking promulgation of a species of economic fallacies which, though long since discredited, keep springing up like weeds to choke our reasoning about where we might go from here and, therefore, of how we should be preparing to act. Let us take a look at a few of the more important reasons.

After several years of scant media coverage, the Democratic People's Republic of Korea (DPRK) is back in the public spotlight. Its admission late last year that it had revived its nuclear program has caused a flurry of Washington war planning.

In the great debates of the period, it was said that Hayek had lost to the New Economics of Keynes and his followers. It was more precisely true that the Keynesians had won not by having better argument but force of government policy. The Misesians and Hayekians of the time decided that they would fight the battle of ideas and thus sprang up a host of institutions that would continue the work of liberty, despite all political impediments.

The Free Market 21, no. 4 (April 2003)