Steve G.

John Stossel Takes On the Bailouts

In Drug War, Economics, Immigration, Media, Medical Marijuana, Spending, Taxation, US Government on March 17, 2009 at 8:56 pm

This past Friday, 20/20 had a special report titled “Bailouts and Bull,” explaining why stimuli and bailouts will do nothing to jump-start the economy.

More than 300 economists earlier this year signed a petition declaring their view that “more government spending is [not] a way to improve economic performance” and that “[t]o improve the economy, policymakers should focus on reforms that remove impediments to work, savings, investment and production.  Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.”

Eighteen of these economists were interviewed for Stossel’s special report.  Among those interviewed are two of my own professors, Dr. Howard Baetjer (back row, second from the viewers’ left) and Dr. Joe Pomykala (front row, on the viewers’ right), both of whom were lucky enough to get face-time.

I spoke to Prof. Baetjer this past Wednesday.  He explained that Stossel interviewed the eighteen economists both as a group and on a one-on-one basis.  Baetjer said he enjoyed the experience, and would love to do further televised interviews in the future.  In my own experience, I find Baetjer to be a very upbeat guy who is quite gifted at explaining economic concepts.

In watching the special, one can see that not everyone was lucky enough to have her or his interview used.  Baetjer, for example, said that when Walter Williams was interviewed, Williams allegedly said, “I don’t even know why we’re discussing the economics.  These bills are unconstitutional!”

For those that missed the 20/20 special, the Mises Economics Blog has made the entire episode available.

In addition to explaining that bailouts and “stimuli” are not the solution, the special report also (A) explains why privatising roads is an effective means of alleviating road congestion, (B) details how the federal government is oppressing medical marijuana retailers even in states that have legalised the medicine, (C) shows that universal pre-K is not a desirable government programme, (D) explains why building a fence between México and these United States is a huge waste of money, and (E) posits how a destitute person with no college degree can gain wealth in America.

—Alexander S. Peak

  1. I am puzzled by your placement of the (not) in the statement about the viability of the stimulus plan. And of course, my other question is where were these 300 economists and Mr. Stossel before this crisis developed? My bet, they were, just like the AIG bonus babies, saying exactly the same things.

  2. Mr. rhbee,

    (1) The actual text of the petition reads as follows:

    “With all due respect Mr. President, that is not true. Notwithstanding reports that all economists are now Keynesians and that we all support a big increase in the burden of government, we the undersigned do not believe that more government spending is a way to improve economic performance. More government spending by Hoover and Roosevelt did not pull the United States economy out of the Great Depression in the 1930s. More government spending did not solve Japan’s “lost decade” in the 1990s. As such, it is a triumph of hope over experience to believe that more government spending will help the U.S. today. To improve the economy, policymakers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

    As you can see, I have not distorted the views of the economists by placing the bracketed “not” where I did.

    (2) I obviously cannot comment on the views of all 300+ economists, many of whom I know nothing about. But the ones I do know something about—those from the Austrian school of economic thought—were warning about this coming collapse for some time.

    I direct you to two sources. First, a set of articles archived by the Ludwig von Mises Institute. Next, a YouTube video of Peter Schiff, depicting his scepticism over the past few years concerning the state of our economy. Schiff is informed in his analysis by the Austrian school.

    Regards,
    Alex Peak

  3. First, came the bubble bursting. Second,came the finger pointing. Third, came the “my way is the best way” solutions. Economic philosophy by sophists.

    The economic stimulus of the New Deal combined with the wonderful experience of women going to work away from home during WW II combined with the explosion of the war manufacturing machine combined with the fact that we really hadn’t yet developed most of the western part of the US combined with the fact that we weren’t yet basing all of our political decisions on the fear of communism or immigration or drugs got us out of the Great Depression.

    Economic science aside, we are still caught up in the Black Swan of ignoring what has happened. Speculation in the marketplace in a free market reached its inevitable human conclusion. Greed won out over altruism. We, and the world that uses the Us as a model, did it too ourselves by becoming a nation that has to grow more and more in order to just stay even. As much as I believe in the need for independence from government, I still see the need to have it.

    In Sway,the irresistable pull of irrational behavior by Brafman and Brafman, the authors collect evidence to demonstrate how the human brain yeilds to the pull of personal reward over the need to solve for humanity. Deregulate and we lose. Privatize for gain and we lose. Lower taxes on the greedy one percenters and we lose.

  4. Mr. rhbee,

    The New Deal prolonged the depression. The increased production during WWII didn’t help out anyone except for those specific firms producing war materials. If war were really such a good thing for economies, as the Keynesians maintain, then it would be a wise decision for the U.S. government to order the production of hundreds of state-of-the-art war ships, to take these war ships out to the middle of the ocean, and then to have them all sunk. After all, that’s all we achieve in war. But, alas, as anyone can see, although production does rise, this production does nothing to increase the standard of living of the average worker. All this money and man-power used to create the hundreds of state-of-the-art war ships is wasted, man-power that could otherwise have gone toward the production of goods and services consumers actually wanted, goods and services that would improve the living conditions of the American people.

    The idea that war-spending improves any economy is simply an extension of the broken window fallacy. The fallacy, as Bastiat explained over a hundred years ago, goes something as follows: A boy breaks the window of a butcher. The butcher runs after the boy, but the boy is too quick for the man. Now people are crowding around the butcher shop, talking amongst themselves. But they say, “Look on the bright side. Now the butcher will buy a new window from the glazier, and the glazier will have more money to buy some theatre tickets, and the theatre owner will have more money to buy xyz, so this is actually a blessing in disguise.” This is what is seen; but the crowd ignores what is unseen, viz. what the butcher would have done with his money had he not had to divert it toward the purchase of a new window. You see, the butcher was going to buy a new suit from the tailor, and the tailor would have used that at extra money to buy a book, and the bookstore owner would have had more money to buy xyz. So, the mischievous boy hasn’t done anything to increase production, to stimulate the economy. All he has done is diminished the overall economy by one window.

    Destruction is destruction, and war is never, ever good for an economy. In fact, the Great Depression didn’t end until three years after WWII was over. It wasn’t until this point that the standard of living was back to where it ought to be, and the only reason the Depression ended is that, after the war, the government scaled back its operations.

    America doesn’t have a free market. We have a highly regulated market. Our current economic instability is due to a number of factors, but it all leads back to the government. The Federal Reserve, created by an act of Congress back in 1913, is a banking cartel that allows the banking industry to easily inflate the money supply. This lines the pockets of big bankers, but massively devalues the dollar, hurting the poor and middle class and creating the boom and bust cycle as we know it. The banks oppose having a free market in banking because they know that without the federal government’s intervention, they would not be able to keep their cartel going, and they’d actually have to compete freely, making it very difficult to engage in the fraudulent practice of fractional reserve banking—at least on its current scale. This boom was created by Greenspan following the dot-com bubble burst; he made credit far easier to obtain than it would be in a free market, thereby both inflating the dollar and causing the housing bubble. All bubbles must eventually burst, since no bubble is sustainable. Instead of simply letting the last bubble burst, as Greenspan ought to have done, he made matters worse by setting up the conditions that helped lead to this bubble—which is, in a way, the same bubble. There were other things as well, such as Fanny Mae and Freddy Mac, that were able to engage in irresponsible lending as they knew they were underwritten by U.S. tax dollars.

    If we would eliminate regulation, eliminate subsidies to businesses and privatise GSEs, if we would replace our system of centralised banking with free banking, if we would dramatically cut both government spending and taxation, we would have a far sounder economy and we wouldn’t be seeing our middle class disappearing.

    Or we could let the government continue of its current path, the path of Bush/Obama, which will only make matters worse for the average American.

    Respectfully yours,
    Alex Peak

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