Posts Tagged ‘Economy’

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Conservationists..?

February 17, 2009

One would think that the Associated Press could distinguish between conservationist’s and preservationists, much less eco-terrorist’s. What follows is so filled with misinformation that it is difficult finding a place to begin. Gray wolves are endangered? Not where ariel control is being used, not at all. Coyotes? You have got to be kidding, period. Black Bears..? Again, it is simply ridiculous to think that Black bears are endangered. Why can’t these people be honest? They just hate killing animals, even when those animals are a clear and present threat to humans. No doubt they will also make the claim that this is some sort of sport hunting as opposed to culling , or removing human threats.

RENO, Nev. — Conservationists argue in a new report that U.S. taxpayers should stop subsidizing a $100 million program that kills more than 1 million wild animals annually, a program ranchers and farmers have defended for nearly a century as critical to protecting their livestock from predators.

Citing concerns about the economy and the potential for a fresh look at the decades-old controversy in the new Obama administration, 115 environmental groups signed onto a recent letter to Agriculture Secretary Tom Vilsack urging him to abolish the U.S. Agriculture Department’s Wildlife Services.

The American Sheep Industry Association, National Cattlemen’s Beef Association and more than 70 other livestock production and state agriculture offices in 35 states countered with a letter citing more than $125 million in annual losses to the sheep, goat and cattle industry as a result of predation.

Now, as Congress tries to tackle the looming federal budget crisis, a new report by conservationists entitled “War on Wildlife” being made public on Tuesday documents significant increases in recent years in both the number of carnivores killed and the size of the agency’s budget — $117 million in 2007, up 14 percent from the average from 2004-06.

“We ask Mr. Obama to get out his scalpel and protect the public’s hard-earned dollars from this unscrupulous agency,” said Wendy Keefover-Ring, director of carnivore protection for WildEarth Guardians based in Bozeman, Mont.

The vast majority of the 121,524 animals killed in 2007 were coyotes — 90,326. But the trapping, poisoning and aerial gunning of the predators also is taking an increasing, unintended toll on other creatures, including 511 black bears and 340 endangered gray wolves in 2007, according to a copy of the report obtained by The Associated Press.

Authors of the 108-page report being presented to USDA, members of Congress and the White House on Tuesday described it as the first comprehensive, national, independent assessment of the agency in 40 years.

“While most people enjoy observing wildlife, Wildlife Services massacres our nation’s wildlife mainly to benefit agribusiness,” Keefover-Ring said.

“They’re killing more and more predators, and more endangered species and using more tax resources,” she said.

The result is a “sledgehammer approach” to wildlife management that in many cases could be replaced by non-lethal alternatives, the report concluded.

More than 40,000 of the coyotes killed in 2007 were in just four states — Texas (19,123), Wyoming (10,915), California (7,759) and Nevada (7,447).

In addition to concerns about the fiscal and biological impacts, the use of helicopters and small planes to fly low enough for contracted sharp shooters to pick off the coyotes has resulted in plane crashes killing 10 and injuring 28 from 1979-2007, the report said.

Aides to Vilsack referred questions about the program to USDA’s Animal, Plant, Health Inspection Service, which oversees Wildlife Services.

USDA spokeswoman Carol Bannerman said Vilsack intends to review all of USDA’s programs but that it would be weeks before he had any idea about possible changes he wants to make.

Bannerman said the federal agency only kills predators when livestock owners or state officials request their assistance. She said most of the time those private individuals or state agencies provide about half the funding for the effort.

“From our perspective, we certainly feel that we have a responsibility to respond to those requests,” she said from APHIS headquarters in Riverdale, Md.

Bannerman said the agency is required to review each individual project under the regulations of the National Environmental Policy Act “and move ahead only if there would be no long-term negative impact on the environment.”

“With that mandate … we can give people an outlet to deal with a problem that if they took into their own hands could have longer-term negative impacts,” she said.

The agricultural commodities’ groups said in their letter to Vilsack about a month ago that livestock losses to predation cost producers more than $125 million a year.

“Without non-lethal and lethal predator control by Wildlife Services, these numbers could easily double or even triple,” said Skye Krebs, an Oregon rancher and president of the Public Lands Council, which spearheaded the letter along with the National Cattlemen’s Beef Association.

“The agency provides a means for striking a balance in the wildlife-livestock interface, including limiting the spread of disease from wildlife,” Krebs said.

___

On the Net:

WildEarth Guardians: http://www.wildearthguardians.org

USDA Wildlife Services: http://www.aphis.usda.gov/wildlife_damage/

National Cattlemen’s Beef Association: http://www.beef.org

SOURCE

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Posted in Economics, Editorial, Opinion, Education, Hunting Fishing and the Great Outdoors, Law, News, Politics, Wordpress Political Blogs | 2 Comments »

“Never let a serious crisis go to waste.”

February 6, 2009

“It’s the economy stupid.” Remember that? I do, and then I also remember George H.W. Bush’s statement “Read my lips, no new taxes.”

The current mess that the economy is in makes George Bush a handy whipping boy. While at the same time conveniently forgetting that it was the Congress that forced those in the market to grant loans and general credit to people that just plain were not qualified. Now that same Congress is playing what basically is the same hand in a card game called  “The House of Cards.” What follows are two similar, but different approaches for caging the tiger. While at the same time pointing out the fallacies of the Democrat proposal (s) that simply continue to hang onto the tigers tail.

First, from Mike Rosen from the Rocky Mountain News;

Here’s the opening paragraph from a New York Times story by reporter Robert Pear (please note that this is a news story in the oh-so-liberal New York Times): “The stimulus bill working its way through Congress is not just a package of spending increases and tax cuts to jolt the nation out of recession. For Democrats, it is also a tool for rewriting the social contract with the poor, the uninsured and the unemployed, in ways they have long yearned to do.”

Reinforcing that assessment is this quote from White House Chief of Staff Rahm Emanuel: “Never let a serious crisis go to waste. What I mean by that is it’s an opportunity to do things you couldn’t do before.”

It would be bad enough if HR 1, The American Recovery and Reinvestment Act of 2009 – a gargantuan $900 billion so-called economic stimulus bill – were merely an overblown accumulation of largely misdirected, politically motivated or wasteful government spending. Examples in the bill abound, like $50 million for the National Endowment for the Arts, $4 million for ACORN or $75 million to discourage cigarette smoking. But those items are nickels and dimes. Calling it “pork laden” is too kind.

FULL STORY HERE

Then, from CNN we have a Libertarian perspective;

Editor’s note: Jeffrey A. Miron is senior lecturer in economics at Harvard University

CAMBRIDGE, Massachusetts (CNN) — When libertarians question the merit of President Obama’s stimulus package, a frequent rejoinder is, “Well, we have to do something.” This is hardly a persuasive response. If the cure is worse than the disease, it is better to live with the disease.

In any case, libertarians do not argue for doing nothing; rather, they advocate eliminating or adjusting policies that are bad for the economy independent of the recession. Here is a stimulus package that libertarians can endorse:

Repeal the Corporate Income Tax: Repeal would spur investment, improve the transparency of corporate accounting, slash compliance costs, and avoid the distortions caused by the special-interest provisions in the tax code. Repeal can work fast, by raising companies’ share prices, increasing cash flow, and allowing corporations to lessen their need for bank lending.

hus repeal provides short-run stimulus and enhances long-run efficiency. Recent estimates suggest that tax cuts are at least as effective as spending increases in raising GDP. The adverse impact on the deficit is likely to be less than the $300-$350 billion in revenue the corporate tax takes in per year, since repeal spurs growth and therefore the revenue from other taxes.

Increase Carbon Taxes While Lowering Marginal Tax Rates: Reasonable people disagree about how much the U.S. should reduce its use of fossil fuels, but crowded highways, air pollution, and global warming all suggest that some reduction is desirable.

The effective way to accomplish this is higher gasoline or other carbon taxes, not the messy, complicated green spending in the Obama plan that will morph into pork in many cases. If higher carbon taxes are combined with lower marginal tax rates, the private sector faces better incentives on both counts. This approach avoids the higher deficits implied by Obama’s green initiatives.

Moderate the Growth of Entitlements: The elephant in the room amidst the stimulus debate is the impending imbalance in Social Security and Medicare as the baby boom generation moves into retirement. Without reductions in benefits, taxes will have to increase substantially, generating a major drag on the U.S. economy.

FULL STORY HERE

Both people have very defined ideas. Which beats the Democrat idea of tossing good money after bad IMO. What do you think..?

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Has free-market capitalism died?

January 27, 2009

Always, and in  all ways  freedom and individual liberty will forever be the favorite whipping boy of those with a socialist bent. Populist’s, such as the new President are in bed with socialist on a number of issues that are directly related. Be that Gun Control, or taxation. However, the economy is currently at the forefront. Below, is an excellent expose of this better than thou attitude by those that are of the collectivist mind set.

Has free-market capitalism died?

Michael Miller

Who would have imagined 20 years ago — when the Berlin Wall fell and we celebrated the death of socialism — that capitalism would be under heavy fire? The cardinal of Westminster, Cormack Murphy O’Connor, reportedly said 2008 was the year when “capitalism died.”

What are we to make of capitalism in light of all the crises, fraud and government intervention, when even some traditional supporters of markets are supporting bailouts?

Before answering this question, it is important to note that “capitalism” is a Marxist term. It gives the impression that the market is a nebulous force. This impersonal understanding can lead us to blame markets when things go wrong instead of exploring reasons that are harder to diagnose.

Pope John Paul II rejected the term, preferring “market economy,” “business economy” or “free economy.” He did so to illustrate that markets are networks of human relationships. This sheds light on the underlying moral nature of markets.

Markets are the combined activities of millions of individuals. They are not composed merely of some guys on Wall Street; they are made up by us. Like anything else run by humans, markets can fail. If we become overly speculative and convinced that prices can go nowhere but up — as happened in the Tulip Bubble in 1637, the dot.com bubble in 2000 and the recent housing bubble — sooner or later reality will set in.

Despite their failures, however, free markets have lifted more people out of poverty and helped create prosperity and peace better than any system.

In these days of financial turmoil, we often hear critics speaking about deregulation or “unbridled capitalism.” But try to think of one country where there are no regulations. For free markets to succeed, they require a framework built on rule of law, contracts and secure property rights.

The real question is what kind of regulation and what level of intervention we should choose.

Many contributing causes of this crisis were an overly invasive government. Federal regulators required banks to provide mortgages to customers who could not pay back the loans; the Federal Reserve manipulated the money supply, exacerbating the housing boom; and politicians promised bailouts that created incentives for irresponsible behavior.

How many of us, out of greed, gluttony or pride, used credit cards to buy things we did not need or could not afford? What about Wall Street bankers who took imprudent risks with clients’ money? Markets cannot succeed without a strong moral fabric among the citizenry.

Yet we again hear calls for increased regulation and government involvement.

If we regulate too much, we concentrate the power of markets in fewer and fewer hands. This has led to all sorts of evil and corruption. Socialist economies, cartels, oligarchies and union-controlled industries produce stagnation and create incentives for corruption. It is a false hope to believe regulation will make everything right.

It is likewise delusional to believe markets alone are enough. Our Founders taught us that without virtue political liberty could not long be sustained. The same holds true for economic liberty. And yet without economic liberty there can be no political liberty. Like liberty, the market must be moral, or it cannot exist.

Michael Miller is director of programs at the Acton Institute for the Study of Religion and Liberty in Grand Rapids. E-mail letters to letters@detnews.com.

SOURCE

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It’s the economy stupid!

December 9, 2008

It’s the economy stupid! Remember that being   said not all that long ago in a campaign speech? I sure do, and I also remember another politician being blasted because of what he said about the “fixes” that were being talked about back then.

Well, things have not really changed all that much have they? Nope, not that I can see. So, like a phoenix, the wraith returns.

by  Patrick J. Buchanan

In a deepening recession, what does the reasonable man do?

Seeing friends laid off, he will get rid of all but essential credit cards, dine at home more often, terminate unnecessary trips to the mall, put off buying a new car, give up the idea of borrowing on the vanishing equity in his house. He will begin to save and start paying down debt.

A company that has reached the limits of its credit and is staring at Chapter 11 will batten down the hatches, lay off nonessential workers, cut employee hours, put off expansion plans, cancel year-end bonuses and try to ride out the storm.

This is the natural behavior of people responsible for others in an economic storm of the magnitude of the category 4 hurricane heading our way. Yet, to see and hear our government, folks are doing exactly the wrong thing.

For the U.S. government is set to borrow on a colossal scale, unprecedented save in World War II, and to take America trillions of dollars deeper in debt to pick up the slack in the economy caused by the rational decisions of individuals and corporations.

The Fed, whose easy money policy created the housing bubble that has exploded in our faces, is back printing money and shoveling cash into the banks. And, though the Bush deficits are said to have been responsible for our troubles, a new Congress and president have advanced a deficits-be-damned, full-spending-ahead policy.

On top of Bush’s $455 billion deficit and hundreds of billions in bailouts for AIG, Bear Stearns, Fannie, Freddie and CitiGroup, Obama is talking up a new stimulus package of $500 billion to $1 trillion.

Our governors and mayors — who, facing deficits, had been cutting back — have now reversed field and are demanding to follow the federal formula.

When Obama arrived at the National Governors Association Conference in Philadelphia, they pounced. Led by Pennsylvania’s Ed Rendell, they handed Barack a bill: $138 billion. The governors want U.S. taxpayers to relieve them of what U.S. families face: the need to cut spending, pay down debt, make sacrifices, take pain and live within their means.

According to The Wall Street Journal, the mayors have now followed the governors’ lead, declaring they have 4,100 projects “ready to go,” which they want U.S. taxpayers to fund.

What are these projects?

Under the ever-popular rubric “infrastructure,” they include roads, bridges, schools and public buildings. California Gov. Arnold Schwarzenegger says he has $28 billion worth “ready to go,” which he would like folks in the other 49 states to fund.

Now, historically, bridges, highways, roads and public buildings have been regarded as pork. In the campaign, they were “earmarks” — payoffs for powerful constituents, a form of political corruption that reformers like Barack and John McCain were going to end.

Now, it seems, earmarks are our salvation.

Why are governments at every level doing this?

Because government believes that the restoration of economic health requires us to act against our natural instincts in a recession, and start buying and financing new homes and cars, and get back to the malls, lest this Christmas season become a bummer for retailers.

After all, 70 percent of our gross domestic product is now based on consumption, though Americans in recent years have had a savings rate of zero.

The disconnect between the instincts of average citizens and the policies of government could not be greater. Governments want us to act prodigally, while natural instincts and inclinations are telling us to act conservatively.

Conservatism and capitalism are giving conflicting signals.

Average Americans are behaving as though in rehab, trying to kick a bad habit of spending more than they earn and borrowing more than they can pay back, while the U.S. government is suggesting that what we really need is to return to the auto showrooms and malls, and start spending again, only in radically increased dosages.

Beyond the present recession, questions arise as to whether the U.S. model is sustainable. If government spending were the remedy to recession, why, after Bush’s deficits, are we in recession? And if the easy money of Ben Bernanke’s Fed is the cure for what ails us, how did we get sick when Alan Greenspan’s Fed was conducting a never-ending policy of easy money?

How does it stimulate the private economy to pump hundreds of billions of dollars into consumer checking and credit-card accounts, when more and more of what we consume — from computers to cars to clothes — isn’t even produced in America anymore?

What do conservatives, few of whom have opposed the Obama plans and fewer of whom have called for repeal of Bush’s big-spending social programs, believe is the alternative approach to ending the recession and creating a sustainable economy?

For the economy we have seems to be condemned to an ever-deepening and widening cycle of crises, each brought on by the cure for the previous crisis, which is always the same: more government.

SOURCE

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Trying to make sense of bailouts and other such Socialist ideas

December 2, 2008

All over the internet I keep hearing things like, or along the lines of; Obama will save us from ourselves, and other such drivil. I hear on a near constant level that this is what free market economics gets for the people. When, in point of fact, the United States does not operate in a true free market economy, much less in a  laissez faire model. Which is actually what these very same people imply has been being used in recent memory. These are most often self appointed masters of economic thought. Picking and choosing bits and pieces of what they have learned, or just heard along the way. Never mind the basic tenets of Macroeconomics and Microeconomics, after all they have an agenda to pursue. That most often being the destruction of western society in general, and capatilism in particular. They are in fact usualy espousing Social Economics. However they do so based upon emotion, not upon reasoning and most often without any sense of logic.

Hence, I will post a bit about the Natural Laws of Economics. Please follow the link, as there is a wealth of information to be had there.

A natural law is a proposition that is universal to a subject matter. In science, a natural law consists of propositions describing and explaining observed regularities. There are in economics some basic regularities which have been designated as natural laws of economics. These include:

1. The law of demand. When the price of a good falls, the quantity demanded does not fall. Usually, the quantity demanded rises with a fall in price. Strictly, the law of demand applies to the substitution of cheaper goods for more expensive goods due to a relative change in price. The law of demand also applies to the whole economy: when the whole price level falls, with the amount of money remaining constant, a greater amount of goods will be purchased. 2. The law of supply. When the price of a good rises, the quantity produced does not fall. Usually, a higher price for a produced good results in a greater quantity produced.

3. The law of diminishing returns (law of decreasing marginal productivity). Given a fixed amount of some input, when ever more amounts of the variable input are added, eventually, the marginal product (the last unit’s contribution to output) declines.

4. The law of one price. In an efficient market, a financial asset will tend to have one equilibrium price, because of arbitrage.

5. Gresham’s law. Bad money drives out good money when the bad money is legal tender.

6. The law of reflux. In competitive free-market banking, there cannot be a permanent over issue of banknotes, since any issued in excess of the quantity demanded will be redeemed.

7. Law of supply and demand. In a free market, the equilibrium price of a good is that at which the quantity supplied equals the quantity demanded.

8. The law of diminishing marginal utility. As one obtains more and more of a particular good, eventually the marginal utility (value from one more unit) declines.

9. The law of unintended consequences. Human actions, and especially governmental acts, have consequences which were not intended and not anticipated by the actors.

10. The law of iterated expectations. One cannot use the limited information at some previous time in order to predict the forecast error one would make if one had better information later.

11. Engel’s law. The proportion of income spent on food in an economy is inversely proportional to the general welfare of the society in that economy.

12. Wagner’s law. As an economy grows, government spending has increased by a greater proportion.

13. Foldvary’s law of inequality. Inequality equals the concentration of a distribution times the number of units (I=CN).

14. Say’s law of markets. The supply of goods will pay the factors of production such that the payments are equal to the value of the product, and therefore aggregate quantity supplied equals aggregate quantity demanded.

15. Law of time preference. People tend to prefer to obtain goods sooner rather than later, and will pay a premium (i.e. interest) to shift buying from the future to the present.

16. Law of the market. Statements made by market participants are assumed to be truthful, and products are presumed to be safe and effective unless stated otherwise.

17. Pareto’s law of distribution. There is a general tendency for 80 percent of the consequences to result from 20 percent of the causes, which often applies to property, 80 percent of the wealth owned by 20 percent of the population.

18. Law of cost. All costs are opportunity costs, the true cost being what is given up to get something.

19. Law of comparative advantage. Trade takes place because parties specialize in the products which have a lower opportunity cost, rather than merely a lower physical cost.

20. The law of wages. The wage level of an economy, where labor is mobile and competitive, is determined by the marginal productivity of labor at the margin of production, i.e. the least productive land in use.

21. The law of rent. The economic rent of a plot of land equals the difference between its output and the output at the margin of production, i.e. the least productive land in use, using the same quality of labor and capital goods.

22. The law of capital goods. Investment in capital goods and human capital expand until the expected return on investment, adjusted for risk, equals that of the long-term real interest rate.

23. Walras’ law. If there is an excess quantity supplied in one market, there must be a matching excess quantity demanded in another market.

24. The law of economizing. People tend to economize, maximizing gains for a given cost, and minimizing costs for a given gain.

25. The law of economic rationality. Human action is economically rational if one’s preferences are consistent and if one economizes.

26. The Gaffney effect. The public collection of rent equalizes the discount rate for land usage, since otherwise people would have different credit costs for purchasing land.

Fred Foldvary


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Forget Bretton Woods II – we need a gold standard

November 20, 2008

Seems that what I have said over the years, as well as many others have about fiat money is getting some press…

Chagrin Falls, Ohio – Too much credit and easy money. Those were the biggest culprits behind this financial crisis. Yet, apallingly, the government’s rescue attempt is built on more credit and even easier money. That’s like giving a procrastinator a deadline extension. By choosing this course, Washington has steered us on to the “road to Weimar” – the road to runaway inflation.

It didn’t have to come to this. And it still doesn’t. But the proper remedy will take tremendous political courage: Bring back the gold standard. That, more than any byzantine regulations that emerge from the Bretton Woods II conference this weekend, would provide stability and safety for nations and individuals around the world.

Sadly, current policy seems to reflect a desire to weaken the dollar as quickly as possible.

The Federal Reserve’s own data tells the story. The headline is the doubling of Federal Reserve credit, the main component of the US monetary base. Since Labor Day 2008, it’s risen from $894 billion to $2.2 trillion.

That’s the greatest monetary expansion in the Fed’s 95-year history. How the Fed is doing it matters almost as much. It has nearly abandoned its traditional instrument for monetary policy, open-market operations, which involves the purchasing and selling of full-faith-and-credit US Treasury securities. With increasing frequency and amounts, it has relied primarily on “discount window operations” – lending to specific institutions for specific purposes instead of general injections of funds into an open market – since August 2007. This shift may weaken its ability to “tighten” monetary conditions should inflation reach dangerous levels.

A gold standard offers exactly the kind of discipline that’s missing from the Fed. But its impact would be wider: Both in substance and in symbolism, gold provides integrity to the entire global financial system. Governments, however, have historically bridled at the constraint and accountability a gold standard brings. After all, when currency can be exchanged for gold, it’s harder for governments to inflate the money supply, which they’re tempted to do in order to spend beyond their means or cheat on their debts.

~snip~ Full story here

Related story from the Wall Street Journal

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Oh Lord, it’s hard to be humble…

October 22, 2008

Government regulation, not free-market greed, caused this crisis

As the song goes, it’s hard to be humble sometimes, at least when you post about political economic realities. Below is vindication of my earlier ststed position about the current financial crisis.

Canton, N.Y. – Many observers, including most politicians, have blamed the ongoing financial crisis on the “free-market greed” supposedly unleashed by the “reckless deregulation” of the financial system. Such arguments are rhetorically powerful, but they don’t stand up to scrutiny.

If they go unchallenged, however, they could hasten a “solution” that’s worse than the problem. That’s why it’s so important to examine the record. What it shows is that government regulations and other interventions – not greed – are the major cause of our current problems.

Greed, or at least self-interest, is always present to some degree in the economy. Why has greed suddenly produced so much harm, and why only in one sector of the economy?

Firms are profit seekers, but they will seek it where the institutional incentives signal profit is available. In a free market, firms profit by satisfying their customers, investing wisely, and making prudent loans. Regulations, policies, and political rhetoric can change those incentives.

When the law either poorly defines the rules of the game or tries to override them through regulation, the invisible hand that makes self-interested behavior mutually beneficial may become more of a fist.

In such cases, “greed” can lead to problems, not caused by greed but by the institutional context channeling self-interest in socially unproductive ways.

To call the housing and credit crisis a failure of the free market or the product of unregulated greed is to overlook the myriad government regulations, policies, and political pronouncements that have both reduced the freedom of this market and led self-interested actors to produce disastrous consequences, often unintentionally.

Full Story Here

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Two Schools of Thought!

July 28, 2008

There are two ways of studying economic theory. One approach is mathematical, and has been much enhanced by the computing power available to the individual economist. The other is historical and relies on the accumulated understanding of economic theory and practice.

The events of 2007 and 2008 have shown the limitations of the mathematical method. The credit crunch was not foreseen by anyone that I read, but it came as a shock to the number crunchers — it took them completely by surprise.

It did not come as a shock to the economic historians, who happily settled down to discuss the resemblances between this credit crisis and earlier ones, going back to the South Sea Scheme in 1720 or the Wall Street Panic of 1907. The economic historians know that similar events had happened before, and had also learned, often by painful experience, that such events are quite common.

Neither group foresaw the actual events of August 2007, but the historians were quite able to put the credit crisis in a context of other crises. Even though both groups were taken by surprise, it was the mathematicians whose previous forecasts were stood on their heads.

By and large, historical economists, who follow the example of major English economists such as Maynard Keynes or W.S. Jevons, do not regard timing as any more predictable for economic shocks than for earthquakes.

One can say that there is a build up of stress in the system that will eventually have to be released. One cannot say that the release of pressure will occur next Tuesday or next August or even next century.

Some say the big earthquake will happen along the San Andreas Fault in California. It may come tomorrow; it may come before 2050; it may not happen for 500 years. We can usefully predict what and where, but we can very seldom predict when. This makes expectation difficult to quantify, though all markets are based on expectations

What we do know from economic history is that there is a cycle of debt that has to be relieved. In twentieth century history the war debts of the first war played their malign part in the European depression of the 1920s and eventually in the Great Depression of the 1930s. The Austrian School of Economics, and particularly Friedrich von Hayek, developed the Debt-Deflation theory of the business cycles. Hayek indeed foresaw the risk of a deflationary crisis as early as 1927.

Keynesian economics, as expounded in his General Theory, 1936, were criticised at the time for an inadequate appreciation of the negative aspects of excessive debt. Bankers of the Gold Standard era attached great importance to the balance sheet rather than the profit and loss account. I get the impression nowadays that people read the current account much more carefully than they do the capital account — partly because they think that off balance sheet financing has reduced the transparency of the balance sheet itself.

As a result, government balance sheets, bank balance sheets, corporate balance sheets and personal balance sheets have all deteriorated. Finance ultimately depends on the security of capital, and weak balance sheets, at any level, are exposed to risk and to problems of opportunity cost.

An old-fashioned banker would now be calling for strengthening of balance sheets at every level. But the liquidation of debt takes years to accomplish and diverts fund from current consumption. The 2007 credit crunch calls for liquidation of debt, but that is bound to have a deflationary effect.

Regards,
Lord William Rees-Mogg

Economic Schools of Thought

Stolen from

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