When in dealing with market phenomena we apply the term “power,” we must be fully aware of the fact that we are employing it with a connotation that is entirely different from the traditional connotation attached to it in dealing with issues of government and affairs of state.
To understand the principle that has been called Say’s Law, it is useful to start by thinking about what unhampered exchange is: the mutual offering of goods and services between people. Seeing exchange as a mutual offering shows demand-and-supply is not an unsolvable chicken-or-egg problem. People produce what in their best judgment they think others want, in the expectation that others are producing or will produce what they want. Production, in other words, is always speculative.
On Yellen’s Humphrey-Hawkins testimony, the Reuter’s headline says it best: ”Fed on course to raise interest rates at an upcoming meeting.” Translation: Fed continues on path to do something someday.
After nine years of outrageous, unwarranted and irrational monetary policy, some people are taking the current monetary regime as normal and natural — the new normal. You can see this on corporate ballot sheets, bank leverage, and the low personal savings rate.
Nowadays, references to the New Orleans flooding of 2005 often speak of the disaster as if Hurricane Katrina was the only reason the city flooded. Rarely mentioned is the failure of the levees built by the Army Corps of Engineers. In fact, incompetently built and poorly maintained government infrastructure was a major contributing factor in the severity and ultimate cost of the disaster.
For many, it has now become settled wisdom that the massive monetary pumping by the US central bank during and after the 2008 financial crisis saved the US and the world from another Great Depression. Hence Federal Reserve Chairman at the time – Ben Bernanke (AKA “Helicopter Ben”) – is considered the man that saved the world. Bernanke in turn attributes his actions to the writings of Professor Milton Friedman who blamed the Federal Reserve for causing the Great Depression of the 1930’s by allowing the money supply to plunge by over 30%.
Largely overlooked last week in the wake of President Donald Trump’s court battle was another controversial judicial ruling. On Thursday the US Court of Claims rewarding Moda Health, an Oregon-based health insurer, $214 million for losses it took participating in the high risk insurance pools established under the Affordable Care Act. The dispute came after Republicans eliminated funding for tax payer subsidies to those firms that lost money writing insurance for high risk individuals.
Tocqueville’s Conclusions and Insights
In Part I of Democracy in America, Tocqueville had glimpsed the potential for modern tyranny in several different directions. If despotism came, it might be in the form of an all-powerful legislature, or control of an omnipresent majority, or even a military dictator, He had also mentioned the possibility of centralization of power in the state-apparatus itself, the bureaucracy. In Part II, this becomes his overriding fear.
Publication and Its Aftermath
The response of reviewers and public to Part II of Democracy in America was much less enthusiastic than it had been to Part I. They seemed to find Tocqueville’s use of “ideal types” and his depictions of the future too speculative and confusing. Tocqueville was hurt by the general reaction, and led to moments of self-doubt: If he really had any merit as a thinker, how could he have spent four years of his life writing a book of such little merit? But his friends reassured him, and John Stuart Mill’s enthusiastic review filled him with joy.
On most fronts, the Trump era is off with a bang — both upsetting the status quo, but also offending numerous Austro-libertarian free market principles. Particularly, there is growing tension within the spheres of monetary and regulatory policy. Those who made themselves comfortable in the Obama administration are swiftly being uprooted by a new narrative in the Eccles Building.
