In Praise of Bankruptcy

Bankruptcy is a normal part of economic life, covered by laws that guarantee stockholders will be compensated as much as possible. More efficient firms move in to take over what is left of bankrupt firms, buying what can be put to productive use. There is no crime in bankruptcy and, if handled quickly, little economic harm. The present financial problems would disappear quickly if the government let the markets operate and let inefficient firms go bankrupt.

Value and Stock Market Declines

The free fall has financial pundits and politicians wailing about the trillions of dollars lost in the US markets. All this hand wringing over value is a relic of an accepted neo-Keynesian misnomer. Unfortunately, the modern-day idea of value has produced a hallucinogen that causes people to take leave of financial common sense. It is known in economic circles as the “wealth effect.”

Good and Bad Credit

The best policy is for the Fed to do nothing and permit interest rates to reflect reality. By doing nothing, the Fed will enable wealth generators to accumulate real savings. The policy of doing nothing will force various activities that add nothing to the pool of real savings to disappear By impoverishing wealth generators, the current policies of the government and the Fed run the risk of converting a short recession into a prolonged and severe slump.

The Debt We Owe to Trade

It was the year 1600 and coffee had become wildly popular all over Europe, just as it had been popular all over the Muslim world since its discovery 900 years earlier. The sitting pope was Clement VIII. His advisers urged him to do something to stop the coffee mania then spreading across Christendom. He tasted the coffee, reflected on its properties, and then, to the astonishment of his advisors, blessed it as a Christian beverage.

Long live the pope!

Did Joseph Wharton Cause The US Financial Meltdown?

When the economic chips began to fall last winter, legislators on Capitol Hill spared neither time nor words informing us of their priorities: no matter what might happen in the financial markets, we were told, funding for student loans will continue to flow. This is one promise from Washington we can take to the bank. Our government, representing the forces of goodness itself, isn’t about to abandon that holiest of all cash cows, vulgarly known as the education industry. If there were such a thing as academic stock, only an idiot would sell it short.

Think Locally, Act Globally

The idea that we should think globally and act locally has superficial appeal, but careful examination of this proposition reveals that it derives from thinking that is both utopian and mediocre or unimaginative. The idea that we should think locally or selfishly and act globally might seem counterintuitive — in some sense small minded and greedy and in another sense absurd. However, competition in the market system does result in the unintended consequence of promoting general interests through individual actions, whether they appear greedy or altruistic.

A time to praise central banking?

This is truly an awful op ed from today’s WSJ. I am hoping that a bunch of us can write Letters to the Editor, so maybe one of ours will get published. The writer claims that our periodic banking panics are the fault of Thomas Jefferson, because he didn’t understand commerce and hated rich people, and thus killed (through his disciples) a strong central bank that could prevent crises. Oh, the writer also explains Jefferson got these weird views because he grew up on the backs of slaves.

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