Central Economic Planning Doesn’t Work
Here is Ron Paul’s opening statement at the House Financial Services Committee hearing on January 13, 2009 dealing with the TARP funds.
Ron Paul: “This continued debate that has gone on about our rescue programs that we have been devising is confirmation, I believe, that there’s very little understanding as to how we got into this mess. As long as we continue to do the wrong things I don’t see any solution.
But if we got here by spending too much money, borrowing too much money, inflating too much money, the Federal Reserve too involved in central economic planning through manipulation of interest rates, and the Congress passing too many regulations, as long as we think that’s benign and has nothing to do with it, then I guess it seems very logical that we come up by spending more money, borrowing more money, printing more money, and writing more regulations, and think that we’re going to get different results, but we don’t.
It seems to be today that the big argument is who the central economic planner is. Is it the treasury, is it the Congress, is it the FDIC, is it the Federal Reserve? Believe me, central economic planning doesn’t work, that’s why we’re in this mess. And that’s why we have all the malinvestment, all the bad debt.
If we’re looking for a solution we have to have liquidation of debt, we don’t want to prop up the bad debt. The problem was created by bad policy, but long as you delay the liquidation of debt and the malinvestment, the longer the agony will be.
But to now devise a system where we’re going to buy up these bad assets, these worthless assets and dump them on the American taxpayer is absurd. It makes no sense whatsoever. What we need is a little bit of confidence that a market economy works and get away from this central economic planning and quit arguing over who’s going to be the central economic planner.
Believe me, it doesn’t work. It’s been tried. The 20th century was supposed to have proven that it doesn’t work.
But here we are, we’ve given up on it. More government, more spending and more debt.”
At the same hearing, Ron Paul questioned Donald L. Kohn, Vice Chair of the Federal Reserve Board of Governors, about Ben Bernanke’s attendance of a secret meeting in Basel, Switzerland, and about the unaccountability of the Federal Reserve.
The next day, Ron Paul released the following video update:
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[...] talk free-market radicalism like Ron Paul — who denounces the entire proposal as an exercise in “central economic planning” — but even if they endorse the interventionist impulse to Do Something, Republicans still have [...]
Y’all are all delusional. “[T]he Free Market System will survive”???? How, pray tell, do you assume that might ever happen?
The landmass now known as the united States of America has not seen the likes of a “Free Market Economy” since about 1492CE by the christian calendar.
Within at most a couple of hundred years after that, the Europeans, with their silly class-structured-society mentality (like a dog pack) and their bizzarre fallus-envy of the other dogs’ bone, had begun their “Manifest Destiny” of laying waste (”fill the Earth and subdue it”) to their own newly-stolen nest. Instability, subdivisions, sprawl and the insane “everyone is entitled to a home mortgage” policy implemented by the “ruling class” — are all merely modern Manifestations of that same Destiny.
We are all hurting now because we deserve it. We the People of the you-knighted States have done this to ourselves, and there is no “higher power” about to step in and “fix things”. No, not even His Holiness, Loyal Patriotic Komrade Mr. O’bama.
A “Free Market” would not be tolerated by anyone who maintains a class-oriented “higher authority” mentality based on envy, jealousy (”I am a jealous God”…?), sloth and greed.
First, we all have to agree to stop hating others who are different from us. We then have to stop allowing the more-motivated among us to tell us how to live our lives. (Just say “NO” to hypocrisy.) Accept that self-interest is the only legitimate motivator of any living being and learn to live with that fact (and adapt our behavior appropriately). Then (and this may be impossible) we all have to understand that “money” or “cash” or “bones” or any other token representing value — is NOT THE VALUE IT REPRESENTS. (IOW, hoarding dollar bills is functionally no different than taking the numbers from the baseball scoreboard — no matter how you try, you can’t win the game that way)
Even then, how many generations will have to fight the “old ways” before the “really old ways” are accepted?
Until then, Darwin still rules. Those of us unwilling or unable to successfully adapt to the Market or the Environment or the Socialist States of Amerika or whatever, will inevitably fall behind and drop out of the gene pool.
Cherokee Philosopher, me.
Goverment Intervention is a Recipe for Disaster
Look,I buy products based on their quality,price and reputation. That is it. That’s how I make my decision when puchasing everything from socks to automobiles. The goverment comes along and starts using goverment money to bail out bad assets, bad investments and even companies that manufacture bad products. Should I invest money into a bad investment just because the goverment has delayed it’s eventual downfall? No. It’s still a bad investment.That’s why it’s losing money. Should I purchase an over priced,unreliable automobile to save American jobs? Just because the goverment is propping up the company with taxpayers money? No, it’s still a bad product. When and if American Auto Companies starts producing an automobile that can beat the foreign competition,offer a better price and better reliabiliy then I’ll purchase one. And so will many other people. The company will flourish. The competition will fall. Hence: no need for a bail out.That’s how the free market system works. But no matter how much money is used to prop up a Hotdog Stand,if the hotdogs don’t taste good no one is going to by any.IT WILL NEVER SUCCEED. It’s the same with mortgage companies and banks. You cannot force success through cascades of unlimited money. Try going into a Casino with a blank check and turning a profit. You may win a little,you may win a lot,but you will not profit.
So explain to me, how and why having the goverment prop up bad banks,auto companies and assets is going to change or improve anything?
In Mother Nature,it’s survival of the fittest. If you interfere and try to “save the sick buffalo” because you are compassionate, the sickness will spread and endanger the entire herd. Why not let the sick buffalo die? Cold but practical. And let the herd survive and grow stronger. Let the bad banks,companies and assets fall.Let them all fall.The good investments, the sound companies and succesful manufacturers will thrive and the Free Market System will survive.
I believe the billionaire’s should all pay higher taxes on their wages. The more you make the higher the percent you pay..Like a person that makes 50 million a year can’t live on 25 million. This country has been better to these people. The rest of us are the slaves that make it happen for them. At lease till the national debt is payed off. People that make under say 1/2 a millions should pay nothing. It is going to the come down to the very rich against the rest of us. When a small percent of the people own a very large percent of the wealth of this country. The law are made for the wealth and that is were we are at. I hope we get are head’s out of are butt’s soon
ok howard, I’ll go easy and say that what you are suggesting is unconstitutional, although, it isn’t far from what we already have today. Taking at the most extreme portions of this post, you are arguing the validity of a scaled taxation, like described in Mein Kampf (http://en.wikipedia.org/wiki/Mein_Kampf), basically. A lot of men died trying to stop this and worse from happening. Although I don’t agree in any way with what your strategy, I do agree if we don’t change things soon, it will be in vein.
The dynasty of the rich in this country that have lobbyist and politicians that make the law to make them richer, is what got us in to this mess. The inside trading the government contacts and I can go on. I all this I bet there butts are covered. In am not saying put the S.O.B. out on the street. Borrow more money to get out of debt. How stupid is that. They talk about GM Ford and Chrysler showing up in Learjet’s. Did you know we have two airforce one’s and people that spend all day long waxing them. Did you say soon. Also make a example of the crooks by starting out by putting George Jr. on trial. Hey it can be fixed. The crook’s that did it that riped off all the gold should be made accountable. O let’s just barrow more. SURE
Sean, you’re honestly not making any sense and cluttering up the discussion.
The whole reason that we are in this mess is because of oil. I’m pretty sure the government knows that and doesn’t want to address this because they want to justify everything they do. It’s just like they don’t want to address the baby boom because they don’t want to believe that their own spending can get out of control.
Oil has almost nothing to do with this situation. Oil taxes are causing oil prices to go up yes. But the price of oil did not start the housing bubble. The private investment and buying up of oil shares and reserves caused the price to go up. When they hit peak, they were all flooded into the market which is why the price went down. The price of oil was a simple supply/demand created bubble (minus the effects of heavy/bad taxes on oil companies).
Yes the oil prices did start the housing bubble. In 2005-2006 the federal reserve raised interest rates like 15 times because of oil. It’s well known that the interest rates caused the price of houses to go up. It was subprime lending that made the housing market artificially improve, so when ben benarke took over the fed, they kept interest rates high bc the housing market was appearing to do well.
and you cannot devalue the price of homes, because mortgage companies would lose a ton of money and fail. We would have to bail them out again and again…
You just proved my point Sean. The price of Oil did not cause the housing market bubble. The federal reserve, by regulating interest rates caused the bubble. And trust me, the bubble was started long before 2005-06. It just escalated a lot with the fed’s intervention.
And you also seemed to ignore one important possibility. Let the companies fail. New companies will rise up, take their place, prices will be cheaper, and the market will be balanced, instead of artifically regulated by some outside source who has no idea what the true value is.
If the fed didn’t raise interest rates those 15 times bc of oil. We would have experienced serious inflation.
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Thomas Jefferson
Sean’s just a troll. And an effective one!
you can’t join in a debate, you just get online and call people names. What does that make you? i’ll let your words speak for themself.
ken!!! a troll??? as in the little guy under a bridge or a lure thrown in the water??? seriously…I am very new at this..
peter
OMG what is really frightening is sean…do you really believe what you say or are you just having some fun??? please do not tell me you are a recent college graduate??if you loan money to people who are a risk then we all pay when they go belly up…ask yourself another question young man,,what happens when 51% of voting americans are paid with taxpayers dollars??? the 49% become slaves to a socialist society…get it?
please explain how that is going to happen. in detail
Ron paul’s whole austrian theory of low interest rates creating malinvestments is totally incorrect.. He is correct, low interest rates had an effect on the housing market, but it was negative amortization that caused the market to fail..
It wasn’t that shady people were buying mortgages, it was people buying short term contract mortgages and having to foreclose when interest rates rose when they couldn’t afford to renegotiate their contracts… If you study Austrian economics, than you would understand the manifistation of choice and outcome.
You can talk to anyone who had to sell their home, it wasn’t because they could afford their homes and then all of a sudden not… It was people who did not sign fixed rate mortgages. The ones that had to renegotiate their contracts after so many years, and a 7% interest spike made it impossible to come to terms with.
The negative amortization was the catalyst that got the deflation of prices started, but now, for the most part, people are leaving their homes because they overpaid and since the value is now less than the mortgage, they feel it’s better to declare bankruptcy and live like crap for 8 years than pay for the over valued mortgage. I can’t say that I blame them for not wanting to pay for their mistake, but it was theirs to make, and they should do the right thing and pay it anyway. But instead, the new bailouts are going to “reduce principle” on those mortgages, which is horrible for a number of reasons. One reason is that the bills of sale will still show the higher price they agreed to buy at, but they are actually paying much less.
Sean,
You’re not describing how a bubble gets started, you’re describing how people had to foreclose on their homes. The bubble props up the price of the house to higher than it’s really worth.
You can see that you are simply addressing the peripheral aspect of the issue. That is to say, you’re describing what happened after the bubble was formed. I agree (and Ron would also) that the problem was not shady people buying mortgages. The problem was that the bubble was already created. And when free-market measures began to kick in, in an attempt to bring the price of housing back down to the appropriate values, it caused the banks to have to increase interest rates to pay for their malinvestment on a house that wasn’t worth as much as was being paid for it.
The reason these houses are devaluing is because the bubble was already created several years ago and the free-market is now trying to correct it. What the federal government is now attempting to do is a price fix which will prevent the housing market from ever stabilizing thus perpetuating the housing bubble rather than keeping a hand’s off status, allowing the price of housing to come down so that American’s accross the country will be able to afford housing again. Proping up the price of housing may help those who are already home owners; but for those who are not price fixing hurts them significantly, and ultimately hurts the housing market because it reduces the likelihood that there will be any new buyers in the market.
I don’t believe the treasury and fed should get it up the butt because they tried to just put money back into the financial market and it was the oversight committee that forced them to change path and buy up the mortgages.
http://www.youtube.com/watch?v=mZzqp_Ty-kI
The federal reserve has been putting money into the housing market for the past several years. That is what created the bubble. The problem is now that the bubble is trying to deflate, the federal reserve is continuing to prop it in an attempt to prevent the prices from coming down. If the bubble gets bigger it will come down even harder hurting more people than if it came down now.
It has to come down eventually, it’s just a matter of how hard will it come down, and when. At this rate it will probably be another 10 years or so and then it will come down really hard and then we’ll be praying for anyone with a mortgage.
actually no. the federal reserve did not touch the housing market over the past several years because it was appearing to do well bc of subprime lending.
Sure Sean I’d be happy to explain.
Whenever the Federal Reserve Injects more money into the economy a few things happen.
First, we’ll start with the things that appear to be positive. Consumption remains relatively high, thus allowing business to keep selling their products. It also keeps cash in the hands of banks as well as major industry to keep them from going bankrupt. That is really the only possible positive of the Federal reserve’s injection of money.
Unfortunately, since the only way of “stimulating” the economy by utilizing direct action by Congress and the Federal Reserve is by the creation of money out of thin air. The arbitrary creation of money has many side effects.
1. Although businesses have cash on hand, their profits never increase because the value of the cash that they have deteriorates (ill address this later).
2. Although the banks have more cash, they don’t have many incentives to lend because they’re still waiting for reimbursement from all the bad debt that has been accumulated, thus while they don’t go bankrupt, they end up treading water with the cash they have.
3. The value of the dollar decreases. If you don’t understand this economic principle, let me illustrate it like this. I love Jelly Beans, and when I have 5 jelly beans, they are extremely valuable to me. If my wife asks me for 1 of my 5 Jelly Beans, I may give it to her, but I would do so very reluctantly. Now, if someone were to randomly give me 25 more Jelly Beans, so that now I have 20 Jelly Beans, and my wife asked me for one. I would probably offer her a couple of them because now I have plenty.
The point here is, the more of something you have, the less valuable it is. The same is true of the dollar. When the Federal reserve creates cash out of thin air, the cash itself is not worth anything and so it’s value necessarily goes down. This is called inflation.
Inflation is the most immoral consequence of government intervention/meddling/manipulation in the economy. It doesn’t hurt the people who get the money first (bankers, industrialts, etc.) It hurts the poor because the value of their minimum wage job goes down significantly. And trust me, the government doesn’t increase the minimum wage fast enough to keep up.
To put it in very simple terms however, you can know that our economy is deteriorating because the value of the dollar is slowly decreasing. Not only that, but our government has only been causing the value to continue to go down for past many years, by creating more debt and creating more money out of thin air.
oh ya, super genius are ya? what happens when the saudi’s take 20 of your 25 jelly beans? if you studied any kind of economics, you would know that its not that simple.. We printed trillions of dollars this past year and our dollar is strengthening right now.. we have a trillion dollar trade deficit, so really need to print a trillion + 3% (for gdp) if we want a balanced system of money.
The dollar is only strengthening in comparison to other currencies, which are also inflated. You can compare a piece of sh!t to a turd, but at the end of the day, all you have is crap.
Even obama says that we are going to be looking at one trillion dollar deficit per year for now on, but i’m sure the president elect knows a lil more than you
To Brendan:
It would send us down a spiral that we need to go down. If we don’t go down it now, we’ll go down it eventually, and the longer we stave of it off, the worse it will be. You may not be alive for it, but some people do have a sense of responsibility for the generations of the future.
hoW is it going to get worse? i would like details. How is the economy going to “go down”
I agree kyle…but read between the lines what brendan and sean are saying…do you think they would EVER understand.There are some good parts to a bad economy..I like having my lawn cut by a local american..I like him worrying if he did a good enough job to be asked back…I even like the new attitudes at the supermarket… a very easy 10.00 an hour job is no longer a given…people are starting to appreciate employment..by the time the republicrats are done 2-3 years maybe just maybe we americans might even know the difference between a democracy and a republic…say your prayers meantime
Nope. Ron’s got this one wrong. The worst thing we could do, now, is tighten our belts, pull a “Hoover”, and attempt to balance the federal budget. That would definitely send us even further down the deflationary spiral that we’ve already started down. It’s correct policy to deficit spend during down times. Most economists and students of history agree that it was the massive deficit spending (~130%GDP) heading into WWII that finally kick-started our economy into the greatest boom of this country’s history…following the Great Depression.
What I hope we learn from this is that it’s BAD to deficit spend during good times.
I would tend to agree somewhat, but I disagree that the government should be the one spending. They should be incentivising new investment by cutting taxes and the goverment.
kick start?? you sure it was not the production levels going up??? suddenly everyones hatred was funneled into production of products at a soaring rate. bullets belts or radios…all were cheaper to make. FDR did just what we are doing today…. to “kickstart” the economy.More regulations and more taxes will only discourage those with REAL capital. Would you risk your last dollar with no faith in americas economy???By no faith I mean being almost certain the courts or crats will get in your way of a new business…not to even mention being taxed to death..just hireing a new employee today is a great risk…WE are all in a world of hurt until big brother is chastised and FORCED to “get out of the way”
Hoover wasn’t a free marketist! That’s the biggest myth in the Keynesian monopolized education system!
http://www.youtube.com/watch?v=jFXx2N1McuA
http://www.youtube.com/watch?v=V4kv6441Oyo
http://www.youtube.com/watch?v=OV3k03FXwLk
I hope you take the time to read Murray Rothbard’s “America’s Great Depression” at Mises.org. You will be amazed what you find about the bureaucratic political system we call government.
HOLY. The free market totally got oil wrong? You wanna trust the same with your future? lol
Why is it that common sense is so uncommon these days? How stupid can the majority of the sheeple and our ‘leaders’ be? Don’t worry Ron, it’s all going to burn to the ground one way or the other. Stay safe. We’ll need you to rebuild this country from the ashes.
Hm. Aren’t the ’sheeple’ the peeps that comprise your ‘free market’? lol So when do the “majority of people” as you say become stupid, and you and Ron start making socialistic decisions? (e.g. eliminate the fed)
How in the world can you derive a socialist agenda from the abolishment of the Fed?
ken…I believe if the revolution EVER really starts to fly…doctor ron will really need to stay safe as he will be ground zero for the crats…makes you think???