Wednesday, December 31, 2008

2008 Oil Prices

2008 S and P 500

While Wall Street has taken monumental losses that far outnumber gains this year, one sector has managed to weather the storm better than others - consumer-related stocks that include big names like Wal-Mart and McDonald's.

Of the 500 companies in S&P 500 index, which represents a broad cross-section of the nation's economy, a mere 22 saw their stock prices end the year in the black. But among those, nearly half came under the consumer-related umbrella.

read the CNN story

Yankees Try to Buy a Championship


Peter Schiff on the Crisis its Causes and Solutions

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized...

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards...

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

read the entire essay

My thoughts: Schiff is one of the best economic commentators around.

Crisis of 2008: A Summary

In summary, the essence of the subprime crisis is that money was lent (often through the agency of questionable mortgage brokers) at very low interest rates (courtesy of the Fed) to hundreds of thousands of people (all they needed was a credit score and a pulse) who could not afford to pay it back; and it was backed by collateral (a house) that was not properly valued. Such assets, accurately described as "liar loans," were then packaged into opaque securities, known as structured-investment vehicles (sponsored but not guaranteed by a respected and well-known name), which very few people understood. They were sold on to pension funds, banks, and others whose gullible investment managers also did not understand them and failed to carry out the rigorous analysis that their clients had a right to expect.

read the entire essay

My thoughts: One of the best explanations of the crisis that I have seen.

Greenspan to Blame

With no one denying the obvious fact that America is in a deep slump anymore, the discussion has instead shifted to why it happened. The Austrians (including me) who predicted these problems based on Greenspan’s low interest rate policy know of course that the main cause was that low interest rate policy, with his numerous bailouts of failed financial institutions also creating a moral hazard that encouraged risky behavior...

In conclusion, there can be no doubt that Greenspan, primarily through his low interest rate policy but also through the negative effects of his various bailouts, was responsible for the housing bubble and therefore the current slump.

read the entire essay

My thoughts: Greenspan has been discredited.

How to Spot a Keynesian

One of the best tests for determining whether a financial columnist or a professional economist is a Keynesian is to examine his views on personal spending. If he favors an increase of personal spending as a means to stimulate the economy, he is a Keynesian. He may not call himself a Keynesian, but he is a Keynesian...

Keynes and his disciples had a solution to the liquidity trap: increased government spending and monetary inflation. This debases the currency, forcing hoarders to spend. The process by which this was accomplished, worldwide, was World War II. In the name of the war effort, every nation authorized its central bank to inflate.

This is what they are all doing again, in our Keynesian world, in which hardly anyone in the West hoards currency. Central banks are inflating. Governments are running huge deficits...

The Keynesian assumes that in a recession, the world is no longer suffering from scarcity. He believes that there are no remaining opportunities for profit in serving future consumers. The Keynesian believes that the central government must intervene and spend money in order to stimulate the economy. Expected private demand for future goods is insufficient to persuade entrepreneurs to invest money to meet this demand. The expected return on capital is zero. The Keynesian economist believes that the government gets money from lenders, and that by spending this money, the government can increase demand by consumers. This increased demand stimulates the economy. There will be economic growth, and therefore the government will reap a positive rate of return on its investments. This is what politicians are promising. "The government will be repaid." It is a fantasy, but even if it comes true, this will benefit the government, not taxpayers...

If someone believes anything as silly as the Keynesian economic system, he is likely to believe that consumer spending, in and of itself, will create such demand that the economy will be reversed from its recessionary condition. He believes that if he can just persuade enough people to go out and spend money, no matter what they spend it on, the economy will revive...

Stein then cited the source of his seemingly revolutionary idea: John Maynard Keynes.

Look, we're faced with John Maynard Keynes called "the paradox of thrift." If everyone is cheap and thrifty and doesn't spend, the economy slumps and everyone is poorer, not richer.

This really isn't rocket science. It's part of what caused the Great Depression.

No, this was not what caused the Great Depression. Federal Reserve expansionary monetary policy in the 1924–29 period caused it...

The money supply will increase, prices will increase, and we will be back in the clutches of price inflation by the end of 2009. From that point on, price inflation is going to be the major problem in American economic life. The Keynesians will get their wish: spending without investing. There will be more money chasing a restricted supply of goods and services. The supply of goods and services will be restricted precisely because the government has intervened in the credit markets in order to stimulate consumption.

This is why the recession is going to last much longer than normal. It is going to be an inflationary recession. It is going to result in what was once called stagflation. This is what Keynesianism always produces. It is hostile to thrift; it is hostile to investing; and it is favorable to government deficits. The productivity that is needed to get us out of this recession will be restricted by policies of government spending.

read the entire article

My thoughts: A must read article. Consumers and government cannot spend an economy into prosperity. Inflation concerns should have began in September 2007 when the Fed began slashing interest rates. In 2010-2011, when inflation becomes obvious to everyone, people will regret not listening to North, Schiff, and others.

Cartoon: Investor

Friday, December 26, 2008

12 Days of Bailouts

Cartoon: The Economy

Cartoon: Big Three Automakers

Cartoon: Interest Rates

Cartoon: Housing Market

Cartoon: General Motors

Cartoon: Interest Rate Cuts

Cartoon: Leading Economic Indicators

Tuesday, December 23, 2008

Third Quarter GDP Down 0.5%

The gross domestic product, the broadest measure of the U.S. economy, fell by the annual rate of 0.5% in the summer, according to the final revision from the Bureau of Economic Analysis, released on Tuesday.

The measure was unchanged from the government's prior revision for the third quarter, matching economists' expectations. The report compares the three month period that ended Sept. 30 to the preceding quarter.

The 0.5% decline marks the biggest drop in seven years. A 3.8% slump in personal consumption during in the third quarter helped to drag down the overall GDP, according to government figures.

read the CNN story

My thoughts: The Paulson/Bernanke Depression and aftermath may likely be recorded as the most avoidable economic downturn ever. The entire bailout idea was insane. The double digit inflation that Bernanke is cooking up at the Fed currently, should be ready in 2011-12.

Saturday, December 20, 2008

Capitalism and Its Death

The Paradigm Has Shifted

...Capitalism is much more than an economic system, although many conservative defenders of the market never articulated, never knew, or flatly denied this fact. Capitalism rests upon the notion of the rights and sovereignty of the individual including his or her right to deal with others as they see fit. By definition, capitalism is anathema to government intervention, because one cannot be free while under the threat of coercive measures such as taxation and majority fiat.

I realize that my even writing such things baffles many people. The whole idea of a truly free, unencumbered society is lost on most members of American society today...

Let me say that, while I blame government officials—on both sides of the aisle—for the problems we’re facing and the response to them, my highest scorn is saved for the very people who have made millions in the market: business leaders. Not one highly visible businessperson stood up to
defend capitalism. Not one argued against the advent of fascism (let’s call state control of the economy what it is). Not one blamed lobbyists working for the Wall Street gang wining and dining their buddies in D.C. in return for favors and bailouts. No, the majority of the big business executives kept their mouths shut and stuck their hands out. I never thought I would witness such a spectacle in my life, but I have.

read the entire essay

Wednesday, December 17, 2008

Oil at 4.5 Year Low

The Organization of Petroleum Exporting Countries, in a bold but not unexpected move to prop up falling oil prices, said Wednesday that it would cut production by 2.2 million barrels a day starting next month. The cut is the largest ever announced by OPEC.

OPEC hopes the cuts will stabilize prices, which have dropped by more than $100 a barrel since reaching a record high in July. The worsening economic downturn has sapped demand worldwide.

But traders were unmoved by the production cut, which had been widely expected. U.S. crude for January delivery sank $3.54 to settle at $40.06 a barrel on the New York Mercantile Exchange.

That's the lowest settlement price since July 13, 2004, when oil settled at $39.44.

read the CNN article

Tuesday, December 16, 2008

The Fed Slashes Rates to Between 0 and 0.25%

In its latest effort to try and stimulate the U.S. economy, the Federal Reserve cut its key interest rate to a range of between zero percent and 0.25%, and said it expects to keep rates near that unprecedented low level for some time to come.

The central bank typically sets a specific target for its federal funds rate instead of a range. The rate had previously been at 1% and this marks the first time the Fed has cut rates below 1%. Most investors were expecting the Fed to cut rates to either 0.25% or 0.5%.

The federal funds rate is an overnight lending rate used as a benchmark to set rates for a variety of loans, including adjustable rate mortgages, credit cards, home equity lines of credit and business loans. This marks the tenth time it has cut rates in the last 15 months.

read the CNN story

Monday, December 15, 2008

Cartoon: Wall Street v Detroit Bailout

Cartoon: Detroit Dinosaurs

Cartoon: CEO's v. Assembly Line

Cartoon: The BIg Three on the Way to Washington

More Rate Cuts From the Fed?

After what is likely to be the last in a long series of interest rate cuts Tuesday, the Federal Reserve is expected to continue its new, perhaps more effective monetary strategy: printing lots of money.

The Fed traditionally uses its rate-cutting tool to encourage lending and boost the economy. But despite a staggering 4.25 percentage points of cuts since September 2007, the economy has not improved - in fact, it has gotten worse, drifting in to a recession last December.

Economists expect the Fed to produce one more cut to its benchmark funds rate at the conclusion of its Federal Open Market Committee meeting Tuesday, trimming the rate to 0.5%, the lowest level on record. Whether one last rate cut will help stimulate economic growth remains to be seen.

At any rate, the Fed will likely continue to use its new favorite tool, quantitative easing, "Fed-speak" for pouring new money into the economy.

read the CNN story

My thoughts: Inflation has been the number one threat since the Fed started cutting interest rates. A market correction was needed, but the Fed tried to delay it; thus making matters worse in the long run.

Cartoon: Investing

Sunday, December 14, 2008

Gas Price Decline Ends After 86 Days

Gas prices rose for the second consecutive day following eighty-six consecutive declines.

The national average price for a gallon of gas rose Sunday to $1.663 a gallon Sunday from $1.66 a gallon Saturday, according to a daily survey of credit card swipes conducted for motorist group AAA. The average price was $1.656 on Friday.

During the nearly three months that gas prices were falling, prices decreased by $2.199 or 57 percent. The current national average is now $2.454 below or 59.6 percent off the record high price of $4.114 that AAA reported on July 17, 2008.

According to AAA, the last time the national average price for a gallon of regular unleaded gasoline was near the current price was February 23, 2004, when the national average was $1.66.

read the CNN story

Thursday, December 11, 2008

Cartoon: Big Three Meeting?

Against the Big Three Bailout

The spectacle of corporate magnates from Detroit pleading to be on Uncle Sam's dole is a sordid one. So why aren't more Americans appalled? One reason is widespread misunderstanding -- much of it sowed by these auto makers -- about the size of their firms. The Big Three, we are told, are "too big to be allowed to fail."

This myth begins with the idea that GM, Ford and Chrysler are so huge that if they go belly-up, the livelihoods of a disproportionately large number of workers and suppliers would be affected. At once, the market for their services and products would close. Therefore, the argument concludes, government must prevent any such failures.


Bankruptcy doesn't make assets -- such as factories, machines, contractual options to buy raw materials, workers' skills -- disappear. If markets still exist for products produced by these firms, Chapter 11 is the best way to discover this. Some workers might lose their jobs and some suppliers might lose their markets, but there would be no industry-wide collapse of the sort portrayed by the bailout's cheerleaders...

What will President-elect Barack Obama tell these other firms when they come begging? If he says no, he'll be seen as having played favorites with three firms that deserved no such special treatment. If he says yes, he gives private industry a blank check drawn on the American economy. To imagine that firms will not draw on that account too often, too greedily, and without real justification is a dangerous fantasy.

read the entire essay

Chris Cox: SEC Not To Blame

When the Securities and Exchange Commission was created in 1934, its purpose was to serve as an independent regulator of the unbridled profit-seeking activity of self-interested individuals and firms in the securities markets. It was not intended to supplant the market or directly participate in it. Instead, it marked a deliberate effort to clearly define and separate the role of the national government, on the one hand, and the capital markets, on the other...

Over the years, the agency has acquired three explicit goals: protecting investors; maintaining fair and orderly markets; and promoting capital formation. These three complementary missions are logically consistent with the original premise of the securities laws, which was that government is an auxiliary to the market, not a substitute for it or a participant in it. Virtually every aspect of the 1933 and 1934 Acts, and the regulations implementing them, follows from the notion that markets should be efficient, competitive, transparent and free of fraud...

read the entire essay

Barry Ritholtz remind us that Cox dropped the ball as well.

You will note that nowhere in his entire Op-Ed is there any mention of the role of the SEC in the entire credit or financial mess — most notably, the SEC’s nonfeasance. They utterly failed to discharge their legal responsibility to regulate the Rating Agencies (Moody’s, S&P, Fitch). Note that these same agencies are the ones that slapped triple AAA rating ont he mortgage backed paper at the root of the current crisis.

Nor does he address the role of the SEC in allowing the 5 biggest investment banks — now wards of the state — to waive net cap rules and lever up to 40-to-1.

Cox takes zero personal responsibility for the current crisis for the acts of his own agency, or even himself.

read more

Friday, December 5, 2008

Gas Drops for 79 Days and Counting

Gasoline prices continued their steady descent Friday, with the average national price in a motorist group's survey falling for the 79th consecutive day.

Regular unleaded gas fell 1.6 cents to a national average of $1.773 a gallon, according to motorist group AAA.

The price has tumbled nearly 57% from the record high of $4.114 a gallon set July 17. It's down 59 cents in the past month and $1.26 in the past year.

The slowing economy has sent the price of gasoline's main ingredient - crude oil - plummeting on the open market. Crude oil prices have lost more than $100 a barrel since mid-July.

Unemployment: November 6.7%

The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy.

During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month.

The economy shed 533,000 jobs in November, according to a government report Friday - bringing the year's total job losses to 1.9 million.

November had the largest monthly job loss total since December 1974.

"No one expected such a drastic number," said Tig Gilliam, chief executive of placement agency Adecco. "This is a real wake-up number."

According to the Labor Department's monthly jobs report, the unemployment rate rose to 6.7% from 6.5% in October. Though lower than economists' forecast of 6.8%, it was the highest unemployment rate since October 1993.

Prohibition Ends 12/5/1933

Americans will Friday toast the 75th anniversary of the end of Prohibition, a dry spell that began in 1920 when a constitutional amendment outlawed alcohol throughout the United States.

The nationwide ban on the manufacture, sale, transportation, import and export of intoxicating beverages was brought into law by conservatives for moral and health reasons, and repealed in 1933 on economic grounds.

Despite pleas throughout the 1920s by journalist H.L. Mencken and a tiny handful of other sensible people to end Prohibition, Congress gave no hint that it would repeal this folly. Prohibition appeared to be here to stay -- until income-tax revenues nose-dived in the early 1930s.

Tuesday, December 2, 2008

Recession: December 2007---???

What Is a Recession?

Common definition: Two consecutive quarterly contractions in gross domestic product, a measure of the output of goods and services.

National Bureau of Economic Research: The semiofficial body that defines the U.S. economic cycle defines a recession as 'a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.

read the WSJ article

My thoughts: We are in a recession according to definition #2, but not definition #1. This tells us take while the this recession is likely to last over 2 years it will not necessarily be as deep as the mid 1970s and early 1980s recessions. However, the unprecedented intervention into Wall Street and the housing market could have serious repercussions in the coming months and years.

Cartoon: Recession

Cartoon: Congress, Automakers, and Taxpayers

Lawrence White on the Housing Crisis

What Really Happened?

Our ongoing financial turmoil began in the mortgage market...

Among the prominent results: the nation’s two largest mortgage finance institutions, the government-sponsored Fannie Mae and Freddie Mac, have gone into bankruptcy-like “conservatorship.” Major investment banks, insurance companies, and commercial banks have gone bankrupt outright (or have been sold for cents on the dollar) because of their heavy exposure to real estate lending. Prices and trading volumes in mortgage-backed securities have shrunk dramatically. Doubts about the value of mortgage-backed securities have led naturally to increased doubts about the solvency of institutions heavily invested in those securities, making it hard for those institutions to borrow at accustomed rates. So what made the mortgage market boom and bust?

What Didn’t Happen

The housing-finance boom and bust are not the results of a laissez-faire monetary and financial system. We didn’t have one. The boom and bust happened in a system with an unanchored government fiat money and extensive legal restrictions on financial intermediation. Nor have we had banking and financial deregulation since the bipartisan Financial Services Modernization Act (the Gramm-Leach-Bliley Act), signed by President Clinton in 1999. Far from contributing to the recent turmoil, moreover, that Act has clearly been a blessing in containing it by allowing acquisitions, such as the acquisition of Bear Stearns by JP Morgan Chase or of Merrill Lynch by Bank of America, that have shielded bondholders from losses...

The housing boom and the aftermath of its bust arose from market distortions created by the Federal Reserve, the government backing of Fannie Mae and Freddie Mac, the Department of Housing and Urban Development, and other federal interventions. We are experiencing the unfortunate results of perverse government policies, compounded in some degree by private mistakes.

The remedy for private business mistakes is bankruptcy. The remedy for the mistaken government monetary and regulatory policies that have produced the current financial train wreck is to identify and undo policies that distort housing and financial markets, and dismantle failed agencies whose missions require them to distort markets. We should be guided by recognizing the two chief errors that have been made. Cheap-money policies by the Federal Reserve System do not produce a sustainable prosperity. Hiding the cost of mortgage subsidies off-budget, as by imposing “affordable housing” regulatory mandates on banks and by providing implicit taxpayer guarantees on Fannie Mae and Freddie Mac bonds, does not give us more housing at nobody’s expense.

read the entire essay

My thoughts: A good analysis.

Monday, December 1, 2008

Another Bad Day on Wall Street

Stocks got hammered Monday, as investors bailed out following confirmation that the U.S. is mired in a recession and indications that it's likely to continue for some time.

The Dow Jones industrial average (INDU) lost 680 points, its fourth-biggest single-session decline on a point basis ever. The decline was 7.7% in percentage terms - the 12th worst percentage one-day decline ever.

Year-to-date, the Dow is down 38.6% and has lost 42.5% from its record close of 14164.53 hit on Oct. 9, 2007.

The Standard & Poor's 500 (SPX) index fell 8.9% and the Nasdaq composite (COMP) gave up 9%.

read the CNN story

Cartoon: Paulson's New Plan

NBER Report

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough. Between trough and peak, the economy is in an expansion.

Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity. The committee believes that domestic production and employment are the primary conceptual measures of economic activity.

The committee views the payroll employment measure, which is based on a large survey of employers, as the most reliable comprehensive estimate of employment. This series reached a peak in December 2007 and has declined every month since then.

read the report and FAQs

NBER Declares Recession Began in December 2007

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

read the CNN story

Richard Ebeling on Obama's Economic Team

Obama Team Not "Free Market"

In spite of the impression in the media, that President-Elect Obama’s economic team reflects an underlying “pro-market” orientation, they in fact are advocates of manipulating markets to generate outcomes more to their interventionist and welfare redistributive liking. The French have long called this “indicative planning”: use the tax system and the regulatory mechanism to induce the private sector to do what politicians and ideological special interests want. That is not the free market. They will manipulate the markets to bring about the “green” and pro-labor union outcomes that will have nothing to do withthe outcomes we as consumers would have desired in a more competitive environment.

In addition, they are all on board to design and implement a vast deficit spending package that will end up doing far more harm than anygood, by creating politically influenced public works jobs that will only last for as long as the government keeps spending money in particular ways. Also, they seem to be completely oblivious to the simple but vital question: where is the money coming from to fund what will end up being a total $1.5 trillion bailout and stimulus budget buster? An answer would be nice.


Obama's Economic Team: More of the Wrong People

President-elect Obama has announced that Paul Volker will head a new Economic Recovery Advisory Board that will propose interventionist policies to bring about economic recovery from the recession.

At the same time, Obama announced that University of Chicago economist, Austan Goolsbee, wil head the staff of this new advisory board.

Goolsbee believes that incentives matter, and because of this he believes that goverment can, therefore, manipulate tax rates and market prices (through various fiscal and regulatory tools) to get people to act more along the lines the policy-makers would like...

Well, we have now seen the future that Goolsbee was counting on, and it has turned out to be a disaster. Cheap, easy money policies supplied the Fed- created credit to feed the housing frenzy so many of those who Goolsbee want to get a house were able to become "home owners."So here we are. One of the economic "experts" who praised the misguided policies that generated the housing bubble now is to be a leading "player" is supposedly getting us out of the current economic crisis.

This another "footprint" telling us where Obama's "journey of discovery" is likely to be taking us.


read other assessments here

Lawrence Summers: Competing Views

Summers a smart choice choosing to keep the 53-year-old economist close to his side, Obama made the calculation that he needs this centrist voice to calm markets - and he needs a counselor with Summers' proven ability to sense economic dangers lurking around the corner.

At Monday's press conference, Obama called Summers, appointed director of his National Economic Council, "one of the great economic minds of our times....His thinking, writing and speaking have set the terms of debate." The President-elect added that he plans to "rely heavily on his advice as we navigate the uncharted waters of this economic crisis."...

Summers' appointment, alongside that of Geithner at Treasury, marks a continued centrist path for the President-elect, and promises that an Obama White House will be the target of incoming fire from both ends of the political spectrum. If Summers wants to limit the future role of Fannie Mae and Freddie Mac - both now under government conservatorship-- he'll have to battle liberal-left affordable housing lobbyists and their powerful Democratic advocates like House Financial Services Committee Chair Barney Frank...

read the CNN story

Larry Summers: Heavyweight Centrist or Lightweight Leftist

Summers apparently does not see, or if he does see, does not care, that in presenting his proposal for redistribution, what he is urging is armed robbery on a massive scale. That is the essence of any policy of "redistribution," whether advocated by Summers and Obama or by Lenin, Stalin, or Mao...

A proposal this hare-brained makes Summers come across more as an intellectual lightweight than as any kind of brilliant thinker able to identify the errors in others' thoughts...

Summers should be fired. He's too shallow and ignorant and his ideas too evil for him to serve in the United States Government in any capacity. Although generally viewed as a prominent professional economist, his actual knowledge of the subject is minimal. This conclusion follows from the fact that the essential subject matter of economics is capitalism. And Summers' ideas on redistribution reveal that he fails to understand the nature of the most essential feature of capitalism, namely, private ownership of the means of production and the indispensable role it plays in the standard of living of the average person.

His views may qualify him to be an economic advisor to Hugo Chavez of Venezuela or Robert Mugabe of Zimbabwe, but certainly not to be an economic advisor to the President of the United States. Before anyone assumes that position, he should know and understand the ideas of Ludwig von Mises, who is far and away the leading theorist of capitalism, and whose works explain its operation as it is has never before been explained. In the absence of extensive knowledge of Mises, one is, simply put, an economic ignoramus, irrespective of the degrees, awards, and public acclaim one may enjoy.

read the entire essay

My thoughts: Reisman is correct. Summers is portrayed as a moderate, but he is a redistributionist leftist.