Re-writing History
22 September 2008
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
You blame today's financial mess on "a willful and systematic failure by the government to regulate and monitor the activities of bankers, lenders, hedge funds, insurers and other market players" ("Hard Truths About the Bailout," Sept. 19).
Perhaps you should read your own newspaper - such as Steven Holmes's report "Fannie Mae Eases Credit To Aid Mortgage Lending"* (September 30, 1999). Here are telling lines from that report: "Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people....
"Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's."
The problem, it seems, is not too little government oversight but too much government meddling.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1
Abolish Central Banking
22 September 2008
Editor, Washington Times
Dear Editor:
Re the current financial turmoil: suppose Uncle Sam were the monopoly supplier of steel in the same way that he is the monopoly supplier of money. An independent board of Very Smart People meets monthly to determine the nation's steel supply. If this board gets matters correct, the resulting price of steel prompts producers and consumers to use steel wisely. But if the board guesses wrongly and, say, increases the steel supply too much, the market will overuse steel. Products that would have been better made with aluminum or plastic, or not made at all, will instead be made with steel. And production plans made in anticipation of a continuing 'easy steel' policy will be disrupted if the board changes course.
Unless this steel board gets things right with superhuman regularity, the structure of the economy will be become grossly distorted over time. In addition, producers and investors will be forever anxious about upcoming decisions of the Steel Board.
We avoid this fate because steel is supplied by markets, with competitive producers and consumers adjusting daily to new information about changing opportunities and costs of using and manufacturing steel. No one worries about getting the steel supply right, for markets do that job remarkably well.
Unfortunately, the same isn't true for money. Its supply is determined consciously by a board. Unable to know and adjust to changes in people's demand for money - and subject always to political pressures to grease the economy with the snake oil of easy money - the Federal Reserve distorts the economy with its inevitably mistaken decisions on the supply of money. Asset bubbles are part of the price we pay for this primitive way of supplying money.
Markets should supply money just as they supply steel - and experience (for example, Scotland and Canada in the 19th century) shows that they do so when given the opportunity.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
More Trade Silliness
21 September 2008
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
William Hawkins alleges that "The U.S. economy is $1.5 trillion smaller today than it would have been had trade been in balance over the past decade" (Letters, Sept. 21). Nonsense.
This figure likely comes from a recent publication by University of Maryland economist Peter Morici. Trouble is, Mr. Morici's assertion that "Each dollar spent on imports, not matched by a dollar of exports, shifts workers into activities in non-trade competing industries like department stores and restaurants"* is silly. It overlooks the fact that each dollar of the U.S. trade deficit returns as investment to the American economy - either directly (such as when foreigners help to finance new factories in the U.S.) or indirectly (such as when foreigners buy Uncle Sam's debt, thus keeping interest rates here lower than they would be if Americans alone financed this debt). By ignoring the growth in America's capital stock made possible by the trade deficit, Mr. Hawkins and Mr. Morici reveal a complete lack of understanding of trade.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
Enterprise Hall
George Mason University
* http://www.globalpolitician.com/25103-economics
Monopolists RESTRICT Output
20 September 2008
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
Karen Snyder suggests that high oil prices were engineered by U.S. oil companies to pressure Congress into easing drilling restrictions (Letters, September 20). This accusation rings hollow.
Only producers with significant monopoly power can raise market-wide prices at will. But they can do so only by RESTRICTING output. If U.S. oil companies had the monopoly power necessary to manipulate prices in the way that Ms. Snyder suggests, they would not be angling for more drilling capacity given that, in such a case, the high prices (and profits) would be the result of a conscious decision to keep output below existing capacity. Real monopolists are never eager for greater productive capacity and output.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Doh!
19 September 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
Let no one accuse politicians and bureaucrats of lacking Homeric courage. When prices change in ways that disturb the electorate - whether it be gasoline prices rising or corporate share prices falling - the political class springs into action against prices that dare to truthfully reflect less-than-rosy underlying realities.
Like Homer Simpson who routinely deals with problems by closing his eyes and pretending that what he no longer sees no longer exists, government efforts to stop or modify price movements - such as the SEC's unprecedented ban on short-selling - merely blind markets to reality ("SEC Issues Temporary Ban Against Short Selling," September 19). The result is immediate relief from unpleasant sights, followed by uncomprehending and harmful stumbling in the resulting darkness.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
