Far from an example of a market failure, Enron's saga shows that firms that invest too much in politics can easily become complacent in the face of changing market conditions. In economics, this is called government failure, and we can blame the growing requirement for firms to divert resources to grease palms in Washington as a necessary business investment for its occurrence.
Steve Forbes, the wealthy publisher-presidential hopeful, can be an eloquent defender of free enterprise. But there's another side, too, which was revealed in a recent group discussion on economics that took place on Fox News Channel. Forbes's comments revealed a complete lack of understanding of the basics of a free economy.
Economies do not subside because demand wanes--we could all use a shiny new car, or a beautiful new house pretty much any time. However, in a world where means, unlike wants, are not infinite, we have to be able to offer something in exchange. We do that by first profitably producing things other people require, at a price they are willing to pay, not by stamping our feet and making demands like a petulant 5-year-old.
Making the boom continue at home and abroad has been the prime focus of U.S. monetary policy for quite some time. But among the unintended consequences emerge the broadly based lowering of perceived risk levels in the financial markets and a global spread of careless investment activities.
One day in 1953, an employee of the United States Bureau of Engraving and Printing with a distinguished ten-year employment record and a wife and two young sons, decided to become a thief. And working at the Bureau for the government showed him how he could do it.
It would be the supreme irony if, in Greenspan's eager rush to bail out his constituents at the first whiff of every trouble from Y2k to WTC, all he and his myrmidons on the lower slopes of Olympus have accomplished is to topple the very banks they are there to protect.
Does the Fed play politics? As Gregory Bresiger recalls, it's been a part of the game for a very long time.
Contrary to popular belief, interest rates have nothing to do with money. The attempt to manipulate interest via the money supply can only cause distortions.
Martin Mayer is one of the few financial journalists to seriously question the claims of the Federal Reserve. Sadly, he does not go far enough.
Greenspan has lowered rates again, but he can't know if he has done the right thing. Under the far-superior gold standard, such questions never came up. Lawrence Reed explains.
