Freedom Watch on the Fed (12/21/10)

1 Ron Paul and Tom Woods


2 Steve Horwitz and Jim Rogers


3 "Fear the Boom and Bust"


4 Panel discussion on Bailouts

Glenn Beck Show on F. A. Hayek

Part I



6/8/10 episode

watch the entire episode

Mises Institute Conference: Economics for High School Students

Tom Woods on "Applying Economics to American History"




Robert Murphy on "The Core of What Economics Teaches"




Doug French on "Money, Banking and the Current Mess"




Floy Lilley on "The Economics of Recycling"




Jeffrey Tucker on "Technology and Social Change"

Is Limited Government an Oxymoron?

Tom Woods and Steve Forbes on the Economic Crisis

The Depression of 1920-21

It is a cliché that if we do not study the past we are condemned to repeat it. Almost equally certain, however, is that if there are lessons to be learned from an historical episode, the political class will draw all the wrong ones—and often deliberately so. Far from viewing the past as a potential source of wisdom and insight, political regimes have a habit of employing history as an ideological weapon, to be distorted and manipulated in the service of present-day ambitions. That’s what Winston Churchill meant when he described the history of the Soviet Union as “unpredictable.”...

If the Austrian view is correct—and I believe the theoretical and empirical evidence strongly indicates that it is—then the best approach to recovery would be close to the opposite of these Keynesian strategies. The government budget should be cut, not increased, thereby releasing resources that private actors can use to realign the capital structure. The money supply should not be increased. Bailouts merely freeze entrepreneurial error in place, instead of allowing the redistribution of resources into the hands of parties better able to provide for consumer demands in light of entrepreneurs’ new understanding of real conditions. Emergency lending to troubled firms perpetuates the misallocation of resources and extends favoritism to firms engaged in unsustainable activities at the expense of sound firms prepared to put those resources to more appropriate use....

The experience of 1920–21 reinforces the contention of genuine free-market economists that government intervention is a hindrance to economic recovery. It is not in spite of the absence of fiscal and monetary stimulus that the economy recovered from the 1920–21 depression. It is because those things were avoided that recovery came. The next time we are solemnly warned to recall the lessons of history lest our economy deteriorate still further, we ought to refer to this episode—and observe how hastily our interrogators try to change the subject.

read the entire essay

Tom Woods on the Fed

The entire debate on youtube

From C-SPAN about 54 minutes total

related post

Tom Woods and the Economy

These recent attacks on capitalism are not only wrong they are misdirected. One of the greatest myths about the free market in the United States is that we have one. The U.S. economy – after a hundred years of Progressive Era reforms, the Square Deal, the New Deal, the Great Society, and, most recently, government ownership stakes, rescue packages, stimulus packages, and bailouts – is a mixed market economy. Behind the façade of the free market is a myriad of government prohibitions, restrictions, and regulations.

So, if it is not the failure of the free market, then what is it that has caused the worst economic crisis in this country since the Great Depression? More importantly, what is the cure?...

Government intervention is the cause of the current economic meltdown, not the cure...

Woods considers the Federal Reserve’s previous interventions in the economy "to push interest rates lower than the market would have set them" to be "the single greatest contributor to the crisis." He equates the Fed’s money and interest rate planning to the now-discredited economic central planning of the Soviet Union. And even though government and Fed intervention is the cause of the crisis: "There is nothing the government or the Federal Reserve can do to improve the situation, and a great deal they can do to prolong it," he writes.

The business boom-bust cycle is not "an inherent feature of the market economy," argues Woods. Following the Austrian economists Ludwig von Mises and F. A. Hayek, he singles out the central bank as the culprit – "the very institution that postures as the protector of the economy and the source of relief from business cycles." Additional government interference is then exactly when prolongs the bust and delays the recovery...

Woods gives his perspective on some cures to restore the economy to health: let firms go bankrupt, abolish Fannie Mae and Freddie Mac, stop the bailouts, cut government spending, end government manipulation of and control over money, and put the actions of the Fed on the table for review – the institution "responsible for more economic instability than any other."

read the essay

Tom Woods on the Fed

A lot of people seem to believe that although the market economy is a swell system, it requires the equivalent of a Soviet commissar to be in charge of money and interest rates. This belief is altogether misplaced. The Federal Reserve System, or simply "the Fed," is both harmful and unnecessary.

Since the Fed was created in 1913 the dollar has lost at least 95 percent of its value...

We were once told that boom-bust business cycles were a thing of the past because, thanks to the Fed, we now had scientific management of the money supply... To the contrary, they artificially stimulate capital-goods production and long-term investment. They thereby deform the structure of production into a configuration that the public’s freely expressed pattern of saving and consumption will be unable to sustain. When this phony boom inevitably collapses, it is "capitalism" that takes the blame – when in fact the Fed, a non-market institution, is the culprit...

The Fed is the lifeblood of the empire, the great enabler of the perversion of the original American republic into the world’s largest and most powerful government. Even if the central bank did confer a net economic benefit, a contention the great Austrian economists F.A. Hayek and Ludwig von Mises strenuously denied (and indeed Hayek won the Nobel Prize in the process of denying), the alleged benefit could not possibly be worth the destruction of the American soul...

For the sake of American freedom and prosperity, it is long past time that, in the spirit of Andrew Jackson, we killed the monster.

read the essay

My thoughts: Naturally the people in Washington want to extend even more power to the Fed instead of abolishing it. Ron Paul's Audit the Fed bill gained a majority of the House as co-sponsors, yet it is unlikely that the Fed will ever be audited.

Tom Woods on the Stimulus

So the "stimulus" package, a dagger through the heart of the economy, has passed. The geniuses who govern us, who insist that seizing the produce of the voluntary economy and devoting it to arbitrary projects will make us wealthy, have had their victory.

Much of the debate turned, unfortunately, on how much "pork" was in the bill. This or that spending program was silly or an obvious waste of money, critics said. All too true, of course, but unless we're looking to be hired by the Titanic’s Department of Deck Chair Rearrangement, we're missing the point with arguments like this.

The primary fallacy of the tooth-fairy economics at the heart of the stimulus is the very idea that economic health is the product of government spending, which is financed either by borrowing (which leaves private businesses with a smaller share of the pool of savings for them to borrow from), printing money out of thin air, or direct seizure from the population. Whatever government spends the money on is necessarily arbitrary -- government lacks the profit-and-loss feedback mechanism that keeps the private sector from squandering resources and employing factors of production in ways that do not cater to consumer wants. It can seize its resources from the people without their consent, and it makes no difference to government whether or not people actually want or wind up using the things it produces. Meanwhile, the economy loses the goods that would have been produced by the voluntary sector had the government not seized these resources for its own use.

read the entire essay

Tom Woods on the Stimulus

According to Bob Higgs we may as well call the so-called stimulus bill “swimming-pool economics.” It’s based on the idea that if you take water from the deep end and pour it into the shallow end, the water level will rise.

Over the next few years, the February 4 report of the Congressional Budget Office (CBO) assures us, the stimulus is all sunshine and lollipops. The CBO concedes that by 2019 the stimulus will have depressed GDP by somewhere between 0.1 and 0.3 percent, but almost no Washington politician has a time horizon that long...

The Keynesian idea behind the so-called stimulus is that prosperity can be restored if the government is allowed to seize enough resources from the private sector and spend them on just about anything...

If “creating jobs” is all we want, we should hand out teaspoons and tell people to start digging trenches. Government, since it acts in isolation from the market, can’t possibly know what kind of jobs actually yield value rather than simply squandering resources and wealth...

The stimulus-mongers, on the other hand, now with support from the CBO, intend to do whatever they can to prevent this healthy adjustment from occurring, and to try to inject life into the corpse of the bubble economy...

In 1920-21, the United States endured a depression whose first year was worse than the first year of the Great Depression. What got us out of it? Inflation by the Fed? Wasn’t tried. Fiscal “stimulus”? That’s a laugh -- the federal government actually cut its budget.

No, what solved the problem was the free market itself, which was by and large left alone to clean out all the malinvestments and reallocate capital sensibly.

read the entire essay