The Adventures of Citizen X

Constitutional Confusion

2010-03-20T01:35:00Z

I was listening to Rush Limbaugh today and was happy to hear him harping on the unconstitutionality of the health care bill and the Democratic chicanery to pass it through the House. But where was Rush's fidelity to the Constitution when the Bush administration was launching wars without a congressional declaration of war? Or when the Patriot Act was bum-rushed through Congress? Or when the Bushies were spying on Americans? Or when they were engaged in extraordinary rendition? Or...the list goes on and on.

Of course, one wonders where those who complained against the Bush administration's constitutional abuses are now that the Obama is doing many of the same things. Or where the Left can find constitutional justification for the health care bill? No wonder I've become a constitutional cynic. Like Lysander Spooner said, the Constitution "has either authorized such a government as we have had, or has been powerless to prevent it."

Social Security: The Successful Government Program

2010-03-16T03:35:00Z

The other day I heard some federal politician arguing that folks who don't think the government should be running the health care system because government makes a mess out of everything it touches should look at Social Security and Medicare as examples of "successful" government programs.

Time for a reality check.

(Thanks to Melinda).
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The U.S. No Longer Has a "Free" Economy

2010-02-23T02:36:00Z

From The Advocates for Self-Government

Study: U.S. No Longer Has A "Free" Economy

For more than ten years the Index of Economic Freedom, a joint publication of The Wall StreetJournal and the conservative Heritage Foundation, has ranked the countries of the world by the amount of economic freedom they have.

The study focuses on ten fundamental economic freedoms: business freedom,trade freedom, fiscal freedom, government size, monetary freedom,investment freedom,financial freedom, property rights, freedom from corruption and labor freedom.

The 2010 Index was released last month, covering the year 2009.

The United States dropped to number eight on the list, its lowest ranking ever.

Worse,for the first time the U.S. dropped out of the Index's "Free"category into the next category of "Mostly Free."

Ranking ahead of the United States in economic liberty are, starting with the freest,Hong Kong, Singapore, Australia, New Zealand, Ireland, Switzerland, and, yes,Canada.

America's plunge in the rankings is due to a variety of anti-market policies, including increasing tax rates and government spending.

"The U.S. government's interventionist responses to the financial and economic crisis that began in 2008 have significantly undermined economic freedom and long-term prospects for economic growth," say the Index editors."[U.S.]economic freedom has declined in seven of the 10 categories measured in the Index."

Of the179 countries graded in this year's Index,only seven scored high enough to qualify as having a "Free" economy.Another 23, including the U.S.,had sufficient economic liberty to rank"Mostly Free."

The Index clearly shows that economic liberty is vital not just for prosperity, but for personal freedom and protecting the environment.

"The2010 Index provides strong evidence that economic freedom has far-reaching positive impacts on various aspects of human development. Economic freedom correlates with poverty reduction, a variety of desirable social indicators, democratic governance, and environmental sustainability," notes the Index."Economies classified as free or mostly free also do a much better job promoting human development, reducing poverty and protecting the environment."

Government Agents Can't Hold onto Their Guns

2010-02-18T16:31:00Z

Homeland Security officers lost nearly 200 guns last year, yet many folks still trust government officials with guns more than they do private citizens.
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The War on Toyota

2010-02-18T02:42:00Z

As a loyal Toyota owner I've been somewhat dismayed at the media circus surrounding Toyota's product failures. When Transportation Secretary Ray LaHood announced that all Toyota owners should immediately stop driving their vehicles and take them into the shop, I thought something was afoot. Even coming from a government official, such a statement seemed extreme and rash. Well, it turns out that where there's smoke there's fire. And neither are probably emanating from under the hood of your car.

The part in question, a sticky accelerator pedal, is not made by Toyota, but by the Elkhart, Indiana-based company CTS. CTS supplies the same part to Ford, GM, and the U.S. military. So why is LaHood picking on Toyota? Could it be an attempt to capture market share for the (essentially) government owned GM? Or is it warning to Japan over its insistence that the U.S. pull out of its base in Okinawa?

Read more from Wayne Madsen via LewRockwell.com.

TSA is Good for Your Health

2010-02-12T18:20:00Z

Thanks to Todd.

Oath Keepers Video

2010-02-09T00:54:00Z

Powerful video explaining the mission of Oath Keepers. Please pass this around to military and police.

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School Bombing Exposes Obama's Secret War Inside Pakistan

2010-02-08T01:37:00Z

http://www.timesonline.co.uk/tol/news/world/middle_east/article7017929.ece

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More on Scott Brown

2010-01-31T19:16:00Z

Today I watched as Scott Brown told Barbara Walters that he would have voted to confirm Ben Bernanke to a second term as Fed chief, praising the job that Bernanke has done, and that he never said that all Americans should not have health insurance.

Sorry, but it bears repeating. Scott Brown is not the Great Republican Hope that the right-wing is hoping he will be. Just another addition to the Republican wing of the Big Government Party
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"Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem

2010-01-27T05:30:00Z

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The Meaning of Scott Brown's Victory

2010-01-25T14:48:00Z

It seems that many American voters are beginning to figure out what they don't want. When Scott Brown won the senate race for the seat previously held by Ted Kennedy, the Republican Party claimed that his victory was a rejection of President Obama's agenda, especially ObamaCare. The GOP was right. It was a rejection of Obama, not an endorsement of Republicans.

Trends forecaster Gerald Celente is predicting the rise of a third party to challenge the Democrats and Republicans within the next several years. With 73% of Republicans believing that their party has lost touch with its base, it's not hard to see why Celente is making such a forecast.

Folks are sick of politics as usual. Unfortunately, just like an abused spouse, voters keep coming back to their abusers. Brown's victory is no exception. Despite his rhetoric against tax and regulation increases and his opposition to ObamaCare, Brown's years as a Massachusetts politician speak differently. Brown never voted for a tax cut, never voted for a spending cut, and opposed efforts to eliminate the state income tax. Most disturbingly, Brown supported RomneyCare, Massachusetts's version of socialized medicine, implemented by Republican bigwig and former Massachusetts's governor Mitt Romney. Brown defends this decision by saying that ObamaCare and RomneyCare are two different things and that RomneyCare was a "free market enterprise where we're providing insurance at various levels to people in Massachusetts". A government program as a free market enterprise? Pretty much says it all, doesn't it?

While I hope I am mistaken, like almost all politicians, Scott Brown does not stand on principle. His opposition to ObamaCare is based on who is proposing the legislation, not the idea behind the legislation--that health care is a right and is best administered by the government.

Yes, Americans are figuring out what they don't want, but until they figure out what they do want and stop voting for the lesser of two evils, they are still going to be sadly disappointed.

George Washington's Finest Moment

2010-01-19T18:46:00Z

History is often presented as taking on a life of its own. The winds of history blow and forces beyond the control of man drive events towards their inevitable conclusion. This view is, of course, complete nonsense. History, at least as far as it concerns mankind, is the study of decisions made by individuals and actions taken by individuals. I say "individuals" because even the most impactful, powerful idea found its genesis in the mind of a single individual. While it is true that groups of individuals often develop, refine, and implement ideas, it is the individuals within the group, and not the collective itself, who do the thinking and acting. Thus, the decision of a single individual can shape history.

Conventional history teaches that the United States was destined to be a republic, a nation ruled by law and not the whims of men. A group of wise men driven together by the tyranny of a distant government gathered to form a confederation, throw off the shackles of oppression, and implement a new and revolutionary system of government. All of this was preordained. The truth is that none of this was destined to happen and was the result of a series of decisions and actions taken by a (very large) number of individuals.

Let us concentrate on one of those decisions and its enormous implications; consequences that we see to this day. Throughout history, military conquest generally resulted in the victors imposing their will on the population. Even in cases like the American Revolution in which locals revolted against an oppressive central government, the result was usually that the victorious insurgents would form their own government and themselves become the tyrants. So why was America different? After all, despite the sublime rhetoric of the Founders odds were still good that America would become a kingdom once the British were vanquished.

The reason that history followed the course that it did, that America became a beacon of freedom and liberty for the rest of the world, is that a great man, though flawed in many ways, made the right decision. Although most history books devote little ink to the Newburgh Crisis, it was George Washington's finest moment.

Towards the end of the Revolutionary War, in 1783, many of the officers and men of the Continental Army had not been paid for months. Some were even supplying their own equipment to help fight the war. As a result, many officers talked of staging a military coup d'etat to establish martial law and secure the funds owed them and the pensions promised to them. A delegation of congressmen, among them Alexander Hamilton (ever the opportunist), who wanted a stronger central government supported the plan in hopes that it would push the states into authorizing Congress to tax imports.

Although he was sympathetic to the plight of his men, Washington would not condone the army threatening the civil authorities. Things had reached a point at which some of the officers were threatening mutiny and forcibly replacing Washington as commander-in-chief. Washington called a meeting of his officers, and, after a surprise entrance, made an impassioned plea against the conspiracy. Seeing that his officers were unmoved, Washington reached into his pocket to read a letter from a member of Congress. However, Washington fumbled with the letter and did not speak. Instead, he reached into another pocket and pulled out his eyeglasses, which few of his officers were aware that he wore, and murmured, "gentlemen, you will permit me to put on my spectacles, for I have not only grown gray but almost blind in the service of my country." With these words, the conspiracy collapsed as his officers realized that Washington himself had made great personal sacrifices for the revolutionary effort.

By diffusing the Newburgh Crisis, Washington established the precedent that the military was subordinate to the civilian government, that the army would never be used to threaten Congress. Later, despite his amazing popularity and near universal respect, Washington chose not to be president for life, and stepped down after two terms, setting another important precedent. Because of Washington, America is not a kingdom, but a republic.

Throughout human history, freedom has been the exception, tyranny the rule. The notion that individuals could be self-governing and that sovereignty rested in the people were unprecedented in the 18th century. If Washington had not opposed the Newburgh Conspiracy, these ideas would never have come to fruition.

Libertarian ideas are often dismissed as "utopian" because they are not currently the state of things. Just because things are not the way we would want them to be or, indeed, not the way that they were meant to be does not mean that they cannot be that way. Washington's decision during the Newburgh Crisis could be considered utopian. Washington could have easily seized power like so many before him had and declared himself "King"; but Washington believed in a different ideal, and with conviction and courage changed the course of history. And we are all better off because he did.

None of us will probably have the opportunity to change history as Washington did, but that does not mean that we should sit back and believe ourselves powerless. The course of history is not predetermined; it is set by individuals, and you never know what you as an individual are capable of doing.

Update on Body Scanners

2010-01-15T15:22:00Z

Evidently, a Freedom of Information Act lawsuit filed by the Electronic Privacy Information Center indicates that the body scanner images posted by the TSA to reassure the traveling public are misleading and inaccurate. The actual images are much more detailed, can be viewed in high definition, and they can be zoomed to areas of interest.

In addition, while the government has been using the Underwear Bomber as an excuse for the widespread introduction of body scanners into America's airports, Rapiscan had already announced a $25 million order from the TSA on November 2, 2009. This was the first order in a multi-year contract worth $173 million.

"Fleshmob" Protests Body Scanners in Berlin

2010-01-14T15:31:00Z

I wish this had subtitles in English, but it's still pretty awesome.

The Body Scanner Scam

2010-01-12T19:26:00Z

According to USA Today, most Americans support the federal government's move to place body scanners in the nation's airports. I'm always skeptical of polls since polling is a very inexact science and depends on the phrasing of the questions. Perhaps the results would have been different if the poll had asked these questions:

Recently the TSA ordered the Bakersfield airport evacuated over fears of an explosive liquid found in a passenger's carry-on luggage. Several TSA agents were hospitalized when they complained about noxious orders emanating from the liquid. The suspicious liquid turned out to be honey. Would you trust this same agency to take examine revealing images of your body?
On January 4, the TSA shut down the Newark Liberty (how ironic) International Airport when a man breached security after a TSA agent left his post. The man was motivated by the evil intention of kissing his girlfriend good-bye. Because of the TSA's incompetence, however, thousands of passengers were forced outside in 15 degree weather to go back through the screening checkpoints, resulting in massive flight delays and cancellations. Would you trust this same agency with pictures of your naked body?
In December, the TSA inadvertently posted its secret security protocols online. Would you trust this same agency to protect revealing images of your body?
On January 8, a TSA agent at the LAX airport was arrest for behaving erratically. When arrested, he is reported to have said, "I am a god. I am in charged". Would you trust people like this with revealing pictures of your body?
A TSA employee at Logan Airport in Boston was recently arrested for stealing the identities of 16 fellow employees. Would you trust someone like that with revealing pictures of your children?
And finally, Former Department of Homeland Security chief Michael Chertoff has been making the media rounds touting the need for body scanners. According to the Washington Post, "what he has made little mention of is that the Chertoff Group, his security consulting agency, includes a client that manufactures the machines." In other words, Rapiscan, the company the Chertoff Group represents, stands to make a lot of money if these machines, which cost about $150,000 each, are installed at 300 of the nation's airports. Despite this obvious conflict of interest, do you trust that Chertoff is unbiased in his recommendations?

The government cannot protect you. It is not interested in protecting you. Schemes like body scanners are not designed to make you safer. They are designed to make you feel safer and to convince you that the government is doing something.

Honey Shuts Down Bakersfield Airport

2010-01-11T05:43:00Z

You can't make this stuff up. Here's the best part:

When the bottles were opened, two of the screeners smelled a strong chemical odor, complained of nausea and were rushed to a local hospital, where they treated and released, Kern County Sheriff's spokesman Michael Whorf said.
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A Libertarian's New Year's Resolutions

2009-12-30T22:04:00Z

A message from the Advocates for Self Government.

A Libertarian's New Year's Resolutions

by Harry Browne

1. I resolve to sell liberty by appealing to the self-interest of each prospect, rather than preaching to people and expecting them to suddenly adopt my ideas of right and wrong.

2. I resolve to keep from being drawn into arguments or debates. My purpose is to inspire people to want liberty -- not to prove that they're wrong.

3. I resolve to listen when people tell me of their wants and needs, so I can help them see how a free society will satisfy those needs.

4. I resolve to identify myself, when appropriate, with the social goals someone may seek -- a cleaner environment, more help for the poor, a less divisive society -- and try to show him that those goals can never be achieved by government, but will be well served in a free society.

5. I resolve to be compassionate and respectful of the beliefs and needs that lead people to seek government help. I don't have to approve of their subsidies or policies -- but if I don't acknowledge their needs, I have no hope of helping them find a better way to solve their problems.

6. No matter what the issue, I resolve to keep returning to the central point: how much better off the individual will be in a free society.

7. I resolve to acknowledge my good fortune in having been born an American. Any plan for improvement must begin with a recognition of the good things we have. To speak only of America's defects will make me a tiresome crank.

8. I resolve to focus on the ways America could be so much better with a very small government -- not to dwell on all the wrongs that exist today.

9. I resolve to cleanse myself of hate, resentment, and bitterness. Such things steal time and attention from the work that must be done.

10. I resolve to speak, dress, and act in a respectable manner. I may be the first libertarian someone has encountered, and it's important that he get a good first impression. No one will hear the message if the messenger is unattractive.

11. I resolve to remind myself that someone's"stupid" opinion may be an opinion I once held. If I can grow, why can't I help him grow?

12. I resolve not to raise my voice in any discussion. In a shouting match, no one wins, no one changes his mind, and no one will be inspired to join our quest for a free society.

13. I resolve not to adopt the tactics of Republicans and Democrats. They use character assassination, evasions, and intimidation because they have no real benefits to offer Americans. We, on the other hand, are offering to set people free -- and so we can win simply by focusing on the better life our proposals will bring.

14. I resolve to be civil to my opponents and treat them with respect. However anyone chooses to treat me, it's important that I be a better person than my enemies.

Harry Brown (June 17, 1933 – March 1, 2006) was a two time Libertarian Party Presidential nominee.

What is a Libertarian?

2009-12-19T15:38:00Z

When we ask someone about his political beliefs, we usually ask if he is a Republican or Democrat, a conservative or liberal. The left-right paradigm has been thoroughly ingrained in American political thought. When the media reports on an issue, it is always careful to present arguments from "both sides" of the political spectrum. When Congress debates an issue, politicians line up on "either side of the aisle". In the environment that we currently find ourselves, it is no surprise that when one criticizes a Democrat, others automatically assume that one is a conservative, and visa versa when the criticism is aimed at a Republican. This blog is neither conservative nor liberal. In fact, I consider the left-right paradigm a false dichotomy. The question that should concern us is not whether you are a liberal or conservative but whether, and to what extent, you believe in human freedom.

Since we usually deal with political issues on an ad hoc basis, we rarely explore the ideas behind the issues. Things just are the way they are because that is the way that they are.

What sets libertarianism apart is that it offers a comprehensive political philosophy based on a simple, yet irrefutable principle. That principle is the idea of self-ownership. Every individual owns his or her own life. This is an a priori fact; we know it to be true. We own ourselves. No one else can own us. Even if one is a slave, the slave's master cannot control what goes on in the slave's mind. No one else is responsible for our lives. They are ours to mold and shape as we see fit. This is the nature of human beings--to be free to create the life that we wish to create.

We know that we own our bodies. After all, if you stub your toe, you feel the pain, no one else does. While others may empathize with you, they do not feel the physical sensation of pain. If we own our bodies, we should be free to control our bodies. To ingest what we want, to modify our bodies if we wish, to use our bodies to pursue the activities we find rewarding. If we are not free to do what we wish with our bodies, then we do not really own them.

Since we own our bodies, we, by extension, own our lives. The body is simply the physical component of our existence. In order to exercise ownership over our lives, human beings must has the freedom to control their lives. Do you really own a car if you are never allowed to drive it or to open the doors? You may have title to the car, but what good is that? Without liberty, self-ownership is irrelevant.

Creating the life we wish requires certain tools. We call these tools property. Of course, the most basic unit of property, as we have shown, is our bodies. When we use our bodies, our labor, to create things, these things also become our property. As John Locke said, when we mix our labor with the resources nature gives us, we create a claim to the resulting products. We have invested time and effort in creating these things and thus they are now part of our life to do with as we wish including trading them for products others have produced or simply giving them away. We call this process the free market.

Hence, beginning with the foundation of self-ownership, we are able to formulate a theory of natural rights. As Thomas Jefferson wrote, all individuals "are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness." In other words, the rights to life, liberty, and property (the tools needed to pursue happiness) are an inherent feature of our humanity. Since we have highest claim to our lives, liberty, and property, no one else can rightly infringe upon them. To do so is trespassing, a crime.

Individuals may only use violence, coercion, and force in defending their lives, liberty, and property. No one may initiate force against another individual or group. Unprovoked aggressive acts are an infringement upon the natural rights of the target of the attack. Libertarians refer to this principle as the Axiom of Non-aggression and it forms the basis of natural law. Natural law theory refers to a system by which human beings interact with one another in harmonious ways. Natural law allows societies and civilizations to develop. The law of the jungle is another system which may be present in nature, but, when applied to humans, it will result in a Hobbesian dystopia where life is "solitary, poor, nasty, brutish, and short."

In a nutshell, individuals should be free to do as they wish so long as their actions do not infringe upon the equal liberties of anyone else. As the saying goes, your freedom to throw a punch ends where my nose begins. Likewise, threats and fraud constitute impingements upon the liberties of others and are therefore crimes. If you threaten to punch me, no one can reasonable expect me to stand there and be punched.

Commentator Richard Maybury has summarized natural law in 17 words: 1). do all you have agreed to do, and 2). do not encroach on other persons or their property. We have already seen why it is a crime to encroach on other persons and their property. "Do all you have agreed to do" refers to contracts. When we enter into a contract, each party holds a claim to property in that contract. If you agree to do something, i.e. enter into a contract, and do not fulfill your end of the bargain, you are encroaching on the property of the contract's other party.

Since it is individuals who are endowed with natural rights, no additional rights are conferred on individuals when they become part of a group of individuals, when people form societies. The individual still retains highest claim to his own life, liberty, and property, unless, of course, he voluntarily surrenders any part of that claim through contract. When one individual kills another without provocation, it is murder. Nothing changes if two individuals kill another. Nor does anything change if the murderer claims he is acting in the stead of thousands or millions of other individuals.

We can see, then, that governments are inherently unjust. Governments rely on taxation for their existence. A tax is defined as a sum of money demanded by a government for its support or for specific facilities or services, levied upon incomes, property, sales, etc. Since taxes require the government to initiate force or the threat of force in taking property which other individuals have rightly acquired, taxes are a form of theft and an act of unprovoked aggression against the individuals whose property is seized.

While it is true that some governments are vastly more unjust than others, we must recognize that all governments are based on an infringement of property rights--taxation--as well as the claim to a "legal" monopoly on the initiation of force. Government is based force, coercion, and violence. Throughout history, notable individuals have recognized this fact. George Washington said that "government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master." Mao Tsu Tung claimed that "political power grows out of the barrel of a gun." Even President Obama's Senior Counselor to the U.S. President for Manufacturing Policy andLeader on the U.S. Presidential Task Force on the Auto Industry (Manufacturing Czar) Ron Bloom recently stated that "we kind of agree with Mao that political power comes largely from the barrel of a gun."

So do you believe that people should be free to live as they wish, so long as they are not infringing upon the liberties of their neighbors? Or are you willing to use a gun, i.e. political power, to force your neighbors to live as you think they should? And do you realize that someday that gun will be in the hands of someone who may not approve of you?

The question is not whether you agree with liberal or conservative values and principles but whether you are willing to use violence to impose those principles on others.

In Praise of Risk

2009-12-05T16:42:00Z

The Powerball lottery game was recently close to $300 million. While the allure of this immense payout attracted many people to buy some tickets, most people didn't spend their last dime on Powerball tickets (although it is true that many people who buy lottery tickets can often ill afford to do so). How would that change if you were told that you would be reimbursed for your losses while at the same time you got to keep your winnings? What then would be stopping you from spending all your money in hope of winning hundreds of millions of dollars while at the same time exposing those now financially responsible for your loses to liabilities of thousands or perhaps even millions of dollars? Why not leverage your bets and get a loan for a hundred millions dollars? After all, you can guarantee the lender that you will repay him with other people's money.

In a properly functioning market, i.e. one free of government intervention, risk mitigates greed. We don't spend all our money on lottery tickets because while we know that there is a very small chance that we could win big, we also know that there is a much better chance that we will lose. The same is true of every other endeavor in which we engage. Life is a constant balancing act between risk and reward. Do I spend my money going to the movies or should I buy a book instead? If I buy the book and it stinks, I've lost the time required to read the book and I have less money to spend on something else which I would have enjoyed more.

The same thing happens in the aggregate in the market. While a certain amount of greed is necessary to produce profits, that greed is kept in check by the risk that excessive greed can lead to losses. For example, before a bank makes a loan, it may request certain information from the prospective client to make sure it gets its money back. It may also require that the client put up some collateral. Of course, as evidenced by the current economic crisis, this process often no longer takes place. What is preventing banks from making risky loans when they know that the government will backstop them?

Ironically, while in the free market bigger, more established institutions would be more conservative than smaller, less established businesses, the opposite is now true. Companies that have been around attract capital because they have a successful business model. They generate profits without exposing themselves to great risk by doing business as they have always done it. Investors expect steady returns: dependable dividends or rising stock prices, but nothing specular. On the other hand, companies that want to gain market share must take risks. They have to do things differently. They may attract investors who are willing to take the risk that the company will be the next big thing, but they probably will not attract the amount of capital that established companies do because of the chances that that money will be lost.

All this has been turned on its head by government intervention, especially in the banking industry. Goldman Sachs is more willing to buy risky investments like derivatives because it is politically connected and has been deemed "too big to fail". On the other hand, since small institutions know that they will not receive a bailout at taxpayer expense, your local bank's balance sheet is probably much more sound than Goldman's.

Even government institutions like the FDIC and the SEC undermine the market's ability to regulate itself by promoting a false sense of confidence among the public. The ostensible purpose of the FDIC is to bring stability to the banking system by insuring deposits up to a specified amount. Unfortunately, the result is that competition between banks for depositor's funds has been eliminated. Since all FDIC approved banks can claim to insure deposits up to (currently) $250,000, these banks are all perceived as being equally sound. When it comes to banks, the average American simply does think about the security of his deposits when shopping around for a bank. In our fractional reserve fiat currency system, sound banking practices are actually detrimental to a bank's ability to compete. Banks don't make money by keeping 100% reserve backing of deposits; they make money by loaning as much money as legally possible. Hence, by insuring deposits, FDIC actually encourages risky banking practices.

While we think of the FDIC as insurance, it is not. The FDIC's Deposit Insurance Fund is legally mandated to keep a balance equivalent to only 1.15 percent of its insured deposits. In other words, a series of big bank failures would bankrupt the FDIC. But why should the FDIC be more diligent when regulating banks? After all, if it fails, the taxpayers will bail it out, or the Fed will just print the money to bail it out. Private insurance companies would not have that luxury. Hence, they would not expose themselves to that sort of risk (assuming, of course, the government did not bail them out). In a free society, depositors would probably demand that their deposits were insured. The companies that offered this service would do a much better job of policing the banks which they insured since they could not pass the risk on to a third party, namely the American taxpayer.

Much like FDIC encourages complacency among depositors, the SEC encourages complacency among investors. After all, why should individuals question the honesty of a company when they know that that is the government's job?

This is not to say that government regulators don't try to do a good job; many do. The problem is that regulators cannot be everywhere at all times. Additionally, government agencies are subject to regulatory capture as well as political pressures. On the other hand, rating and due diligence companies that arose on the free market would work for investors. While the SEC failed to identify Bernie Madoff's Ponzi scheme until he had lured billions of dollars away from investors, a private due diligence firm was advising its clients to avoid Madoff like the Plague. Unfortunately,currently, bond rating agencies like Moody's, Fitch Ratings, and Standard and Poor's have a legal monopoly on the service and, like government regulatory agencies, often end up working for the companies they are supposed to be rating.

Risk is essential to the free market. Without risk, greed runs amok. By trying to eliminate risk from the system, the government has not only created massive moral hazards, it has put the taxpayer on the hook for trillions of dollars while rewarding the irresponsible actions of a few politically connected oligarchs.

The Austrian Theory of the Business Cycle

2009-12-01T15:49:00Z

I have written a lot on this blog about how government intervention in the economy distorts the price signals upon which entrepreneurs rely in order to determine how best to allocate resources and satisfy consumer desires. Austrian economists call this process "malinvestment." Recessions are the economy's way of purging itself of malinvestment and getting back on sound footing.

The boom-bust business cycle is the result of the central bank's manipulation of the money supply. A classic example of this was the Great Depression. In the years leading up to the stock market crash of 1929, the Fed had inflated the money supply in order to suppress the dollar which was rising in value against the British pound. The British had gone off the gold standard and inflated their money supply to fight WWI. Following the war, Britian went back on a gold standard, but attempted to assign the pound the same value in terms of gold as it had previous to the war. The result was that gold was flowing out of Britain and into the U.S. The Fed then increased the U.S. money supply (paper dollars) to try to alleviate this outflow of gold away from Britain. This new money had to go somewhere. It went into the stock market resulting in a huge speculatory boom. Recognizing the bubble, the Fed then began to contract the money supply and burst the stock market bubble. Thus started the Great Depression. You can read more about the Great Depression from the Austrian perspective here.

Understanding how monetary policy effects the economy is essential to understanding this most recent economic crisis as well as understanding the dangers which persist and which, in many ways, are bigger than ever. Here is a great short article that explains the Austrian Theory of the Business Cycle.