The Address Obama Should Have Given - For a Change to Freedom by Richard M. Ebeling

President Barack Obama delivered his first State of the Union address before the Congress of the United States on January 27, and in essence called for more of the same policies that he has advocated during his first year in the White House.

The president proposed a new “stimulus” packaged to create “green” jobs in the small business and exporting sectors of the American economy; a continuing effort to implement some version of nationalized health care; the introduction of strangling environmental regulations over private enterprise; plus, additional and more intrusive government oversight of the finance and banking industry. He also proposed a partial “freeze” on some discretionary spending in the Federal government’s budget.

In other words, the president, in an often defiant tone, insisted that as far as he is concerned the era of “Big Government” is not only still here to stay, but needs to be dramatically expanded -- even if some recent elections and public opinion polls suggest that a growing number of Americans are leery of moving further in this direction.

In the face of the President Obama’s determination to push for more “change” down the path of expanding political paternalism, one imagines what he might have said in the State of the Union address if he had chosen to propose the type of change that really would have meant greater freedom and opportunity for the American people.

What he could have said might have been something like the following:

“My fellow Americans, I come before you tonight to lay out a new agenda for change that will not only get our great nation out of our current and difficult economic times, but will put us on track for a bright and better future for ourselves and our children.

“Let me start out by saying that last month during my Christmas holiday vacation in Hawaii, I had the time to catch up on some reading. I found on the top shelf of a bookcase in the White House some books that I guess must have been left over from when Ronald Reagan was president more than twenty years ago.

“So I took with me some books I’ve never read before, indeed, that my “progressive” professors and mentors had never even mentioned during my college days. I read Henry Hazlitt’s Economics in One Lesson, Milton Friedman’s Free to Choose, Friedrich A. Hayek’s The Road to Serfdom, and Ayn Rand’s Capitalism: the Unknown Ideal.

“I stand before you tonight, my fellow Americans, and tell you that I now realize how misguided and wrong-headed were all the ideas that I learned and which molded by thinking as a young man, and which inspired by campaign when I ran for this high office in 2008.”

[Behind the president, frozen and confused looks on the faces of Vice-President Joe Biden and Speaker Nancy Pelosi.]

“I now appreciate that real “people power” does not come by giving more political power and control to politicians and bureaucrats over the lives of the citizenry. No, it can only come from reducing the size and scope of government, and giving people the freedom to plan and direct their own lives through the peaceful and productive avenues of the free market and entrepreneurial creativity.”

[Restive murmurs from the Democratic side of the House of Representatives.]

“Today, America still faces high unemployment and a sluggish business recovery. It is clear to me, now, that is was the “easy money” monetary policy of the Federal Reserve and government manipulation of the housing market through Fannie Mae and Freddie Mac during the Bush years that created the economic bubbles that burst before I took office.

“But after doing some follow-up reading while flying back to Washington right after the Detroit bomb-scare, I understand, now, that once the financial boom years had lead to the inescapable bust through which we are living, the policies that I advocated and pushed Congress to implement last year have only ended up making a bad situation even worse.

“I have instructed Treasury Secretary Tim Geithner to see to it that before the end of February every senior and middle level officer in his department will have read the works of Ludwig von Mises and Friedrich A. Hayek on the “Austrian” theory of the business cycle. They will be required to successfully pass a written test to demonstrate their understanding of this theory if they are to retain their positions in the Treasury Department”

[Secretary Geithner is seen on television text messaging on his Blackberry some of his Wall Street friends about possible job openings for someone with his background and experience.]

“I have also informed Ben Bernanke, that I am withdrawing my nomination for his reappointment for another term as chairman of the Federal Reserve System. I will immediately have my staff start vetting new candidates for that position who support transitioning the United States back to the gold standard.”

[Ben Bernanke is seen on camera muttering under his breathe, “In Keynes we trust, in Keynes we trust,” while making notes about courses he might teach back at Princeton University in the fall semester.]

“But the real change, my fellow Americans, will come from a radical reversal of the types of policies that our country has been following for far too long. To begin with, I will be presenting to the Congress an agenda to cut government spending across the board by 20 percent for each of the remaining three years of my term of office as your president. I am not only talking about cutting discretionary spending, which makes up a fraction of the Federal budget. No, I mean all programs, including what are called entitlement programs, as well. I will appoint a blue ribbon commission to devise a plan to completely end government involvement in and privatize social security and health care.

"The only way out of our current economic recession is to get out of the way of the private sector so it can the create new and sustainable jobs to replace those that were recently lost because of the disastrous policies of the past that produced the unsustainable employments and imbalances that now need to be set right through the free interplay of market supply and demand.

"This will not come through the smoke and mirror of supposed “stimulus” packages that only siphon off the wealth of you, the people, through taxes and borrowing, and which leave a huge debt that we and our children will have hanging over our heads for decades to come.

"I am determined to end all government regulatory, subsidy and redistributive programs that take the hard earned income and wealth out of your hands, the hardworking American citizenry, and return to you the financial ability and open and competitive opportunity to plan what is best for you and your family. “

[The cell phones start to vibrate in the pockets of every Senator and Congressmen on both sides of the aisle from lobbying representatives of special interest groups that have been feeding at the trough of government spending, and benefitting from regulatory favors and privileges.]

“Government cannot create wealth. It can only either redistribute it or destroy it. Wealth comes from free men applying their minds to creatively finding ways to improve life. This requires that each and every American know that their government will protect their life and property, and not plunder them for the benefit of privileged others who use the power of the state to gain what they cannot honestly earn in the free exchange of the market place.

“I would like to introduce Shalala Brown, sitting over there in the gallery next to my wife. Shalala is a heroic inner city young woman of seventeen who dropped out of high school to help support her family, but who cannot find a job because the minimum wage law has priced her modest labor skills out of the market.

“Sitting on the other side of my wife is Jenny Jones. Jenny is 93 this year. She worked hard, saved her money, and had been living all of her life in a modest, but well kept home that was taken away from her under eminent domain laws. A fat cat land developer with close ties to the mayor in the town where Jenny lived had her home condemned so a shopping mall could be built where Jenny’s house once stood.

“What kind of judicial decision would deprive an honest, hardworking American of their home to benefit a greedy special interest and a money-hungry local government?”

[The president glances over, with a stern look of disapproval, at the justices of the Supreme Court.]

“I now realize that it has been the most exaggerated arrogance by people like myself – before I did my Christmas holiday reading – to think that we have the knowledge, wisdom and ability to plan, direct, and manipulate the lives of others in society.

[Behind the president, Speaker Pelosi is seen hyperventilating and grasping her chest. Vice-President Biden has a look of bewilderment with his hands stiff in mid-clap.]

“The knowledge, wisdom and ability to solve any and all of our problems can be found. But they only can be found through energies and efforts of free men and women who work together in the market place.

“The profit motive and pressures of peaceful competition for excellence through free enterprise will be the ways we find solutions to health care, the environment, and a more prosperous life and future for all Americans in the twenty-first century."

“My fellow Americans, thank you, and God bless America. Let the real changes for freedom begin.”

If only the President of the United States had the understanding and the courage to give such a State of the Union address!

Real Banking Reform? End the Federal Reserve by Richard M. Ebeling

President Obama announced on January 21 that he will push for legislation that would significantly limit the size of banks to make sure that they are not “too big to fail,” as well limiting their ability to invest in what the president referred to as investments that are “too risky.”

Two important questions immediately come to mind: First, when is a bank “too big” to be too big to fail? And, second, when is an investment “too risky” and who is to make that judgment call?

The fact is, the answers to both questions will end up being decided by politicians who sign off on the regulatory legislation and by bureaucrats who will have the discretionary power to implement the new guidelines.

Legalized Plunders and Political Power

The next major question that needs to be asked is: How do they know? These are the same politicians whose time horizon goes no further than the next election day, and who pander to the special interest groups that provide them with the campaign contributions and the votes that keep them in office.

And these are the same bureaucrats whose bread and butter are based on constantly finding more “social problems” and “market failures” to justify getting bigger budgets each year, along with more authority to control other people’s lives as the vehicle to get promotions and higher pay and perks within the bureaucratic structure.

They are not quite the god-like oracles and disinterested ethical eunuchs they claim to be in their public rhetoric about their desire to only further some elusive and indefinable “common interest” and “general welfare.” They are, in fact, what the ninteenth century French economist, Frederic Bastiat, called the “legalized plunders” of society.

They are also the same people who have a professional knack for shifting responsibility for their own policy mistakes on to others. The current economic and financial crisis was “made in Washington D. C.,” by politicians and bureaucrats who orchestrated a disastrous monetary policy and a frenzy-like housing boom, the consequences of which have now fallen on the shoulders of millions of ordinary Americans, as well as many others around the world.

But listening to those politicians and bureaucrats it is all the fault of the greedy bankers and businessmen, whose irresponsible behavior now has to be reined in by wise and judicious government regulation. It reminds one of that scene in the old movie, Casablanca, in which the prefect of police announces that he is ordering Rick’s Café to be closed because he is shocked to discover there is gambling going on in the backroom, and just then the croupier walks up to the prefect and says, “Your winnings, sir.”

Free Markets and the Banking Industry

In reality, those politicians and bureaucrats have neither the knowledge nor ability to rationally regulate either banking or business in general, even if they were the disinterested public servants they so loudly claim to be. Theirs is the arrogance of the social engineer who believes himself wise enough to mastermind the complex economic affairs of an entire nation.

The advantage of a decentralized and competitive market economy is that it can leave each of us free to manage and guide our own business affairs, with our limited and specialized knowledge about our own particular circumstances. It is the role of market prices and the profit and loss mechanism to guide us into producing and providing those products and services that consumers want to buy, while providing the required feedback to tell us if we are doing so successfully or not. The market gives us the necessary pat on the head (profits) or slap on the behind (losses), to see that the supplies we offer are more or less matching up with things that are demanded.

This applies no less to the banking industry than any other line of business in the economy. The problem with the banking industry is that it is not a free, competitive market. It is already highly regulated – in spite of the rhetoric coming out of Washington and much of the news media – and it operates within a system of monetary central planning.

Banks are supposed to act as intermediaries lending the savings of income earners to others who wish to borrow that savings for investment activities and other future-oriented desired uses. The market rates of interest are supposed to balance the supply of savings with the demands to borrow, and see to it that the investments undertaken do not over reach the savings available to sustain and maintain them. A construction project begun may not be completed, for example, if the blueprint design that is guiding the work requires more resources and building material than are available to finish the job.

How “big” any bank should be is the same question that can be asked about any other business in the free market: It should be the size that represents its profitability and market share as a reflection of its success in better serving its customers than its rivals in the market place.

What kind of and how much risk should a bank take on in investing its capital and its depositors’ saving? That type and degree of risk that sound business practices suggest in a financial environment not manipulated or distorted by “activist” monetary policy. If a bank makes a sufficient number of mistakes in making these decisions, then it will fail the market test and should be allowed to go under, regardless of its size. This will create more caution by other banks in making their own investment decisions when they really believe that there is no taxpayers’ safety net to bail them out.

Central Banking the Cause of Economic Crises

America’s central bank – the Federal Reserve – is the monopoly controller of the supply of money and credit. It has the ability to create the illusion that there is more savings in the economy to start and work on investment projects than is really the case by pumping money into the banking system “out of thin air.” As a result, interest rates can be artificially pushed down for a period of time that generates a mismatch between investments undertaken and the real savings pool available to support them. Investment and housing bubbles can be created that eventually must burst.

This situation easily fosters a feeding frenzy in which banks and other financial institutions undertake risks in support of investment ventures that would never appear attractively profitable at higher market-based interest rates, and if the amount of money available to lend out was limited to the real savings that has been set aside out of people’s incomes.

There often is unreasonable systemic risk-taking in the banking sector, but it is not due to anything inherent in the banking business or the profit-motivated behavior of bank managers or lending officers. It has to do with the Federal Reserve’s mismanagement of the financial environment in which bank managers and lending officers are given “money to burn” through monetary expansion, and induced to inappropriately evaluate what is reasonable risk and who is a creditworthy borrower due to false interest rate signals resulting from misguided monetary policy.

A Free Market Agenda for Banking Reform

The only real banking reform that would reduce the possibility and likelihood of the type of financial and economic disaster through which we have been passing is to radically reform the monetary system. This means abolishing the Federal Reserve System and end monetary central planning by doing away with central banking.

In other words, the goal of real reform should be the establishment of private, competitive free banking in the United States.

The following would be the steps to bring this about:

1.The repeal of the Federal Reserve Act of 1913 and all complementary and related legislation giving the federal government authority and control over the monetary and banking system.

2. Repeal of legal-tender laws, which give government the power to specify the medium through which all debts and other financial obligations, public and private, may be settled.

3. Repeal of all restrictions and regulations on free entry into the banking business, including interstate banking.

4. Repeal of all restrictions on the right of private banks to issue their own bank notes and to open accounts denominated in foreign currencies or gold and silver.

5. Repeal of all federal and state rules, laws, and regulations concerning bank reserve requirements, interest rates, and capital requirements.

6. Abolish the Federal Deposit Insurance Corporation. Any deposit-insurance arrangements and agreements between banks and their customers, or among associations of banks, would be private, voluntary, and market-based.

This six-point plan for banking reform would set America on a path to far greater monetary, banking, and financial stability than anything central banking has or can provide. It would be the establishment of a real free enterprise system in the banking industry, and put an end to the danger and damage of a Federal Reserve-created business cycle for the remainder of the twenty-first century.

Real Economic Reform for a Hurting Haiti by Richard M. Ebeling

Our televisions screens have been full of those tragic pictures of the devastation and human hardship that has been caused by the earthquake in the Caribbean country of Haiti.


Governments and private relief agencies are mustering their efforts to bring assistance to the survivors of this natural disaster, which may result in a death toll of possibly up to 100,000 people, according to some initial statements coming out of that country.


Private charitable agencies have historically shown themselves to have a greater degree of flexibility, creativity, and adaptability to handle these types of emergencies than governments in the context of the conditions in the affected area.


But besides that, governments – however well intentioned and helpful their relief aid may be for victims of these disasters – often start thinking “bigger thoughts” about the need and desirability of a more permanent political helping hand in the nation affected.


Such voices are already appearing in the form of former president Bill Clinton, who is now serving as the U.N. special envoy to Haiti. On the January 14, opinion page of The Washington Post, Clinton writes about “What We Can Do to Help Haiti, Now and Beyond.” He calls for a join effort by “governments, businesses and private citizens” to rebuild and move Haiti on to a path of future economic growth and prosperity.


We have been reminded that Haiti is the poorest nation in the Western Hemisphere. At a time when many countries in the less underdeveloped areas of the globe have been rising out of poverty over the last several decades, Haiti, however, is one of those countries that has continued to stagnate with a 50 percent rate of unemployment of the work force and with 80 percent of the population estimated to be living below the poverty line before the earthquake. At a time when more and more countries are becoming industrialized and economically more diversified, over 65 percent of the people in Haiti still depend upon low productivity farming for their meager standard of living.


The government, not just for decades but also for more than two centuries, has been notoriously corrupt, brutal and tyrannical. If there is any instance of Frederic Bastiat’s notion of “legalized plunder,” under which the powers of government are applied to steal the wealth of some for the benefit of others who are politically well connected, it is Haiti throughout it's sad history.


Billions of taxpayers’ dollars from the U.S. and many other countries have all gone down a huge government rat hole that has lined the pockets of the rulers and their political cronies in Haiti. And, now, President Obama has announced that U.S. taxpayers will send an additional $100 millions to Haiti over the coming months and years. Unfortunately, there has been no lasting benefit and sustained improvement in the wretched conditions of the Haitian people from all this politically redistributed largess.


For it's long-term improvement, Haiti needs what Adam Smith, in his Inquiry into the Nature and Causes of the Wealth of Nations, called a “System of Natural Liberty”:


1. Secure and defined private property rights for all citizens that are recognized and enforced by the police and the legal system.

2. Secure and respected civil liberties that include freedom of speech, the press, and association, with freedom of association including the right of each individual to open and operate businesses, and peacefully compete in any type of enterprise without restrictive government regulation, licensing, or controls.

3. Government activities greatly limited to those basic put essential functions of recognizing and protecting the right of each individual to his life, liberty, and honestly acquired property. This includes a system of impartial rule of law with no political favors or privileges for some at the expense and disadvantage of others.

4. Low, transparent, and predictable taxes to fund those limited governmental activities, with no fiscal bias detrimental to savings, investment, and capital formation, which are necessary ingredients for sustainable rising standards of living in the future.

5. A stable and non-inflationary monetary system.


6. Freedom of trade, with no tariffs, quotas or other regulatory restrictions on imports and exports. There also needs be a positive attitude toward market-based foreign investments in the Haitian economy.


7. No politics of envy against “business” and the entrepreneurially successful, since it is private enterprise and creative and risk-taking businessmen in any society who are the “human engines” for growth, innovation, and competitive coordination of the economy.


While these policies can be strongly recommended to the Haitian people and those in the government of Haiti, the fact is that these are reforms that must be understood, desired, and finally implemented by the Haitians themselves. They cannot be successfully imposed on that unfortunate country by any enlightened elite in the United States or from anywhere else.


All real and lasting change has to come from within individuals, themselves, and through them for their nation as a whole.


What the Haitian people do not need and will not be helped by are people inside or outside government in other parts of the world recommending and reinforcing all the attitudes, ideas, and policies that have only succeeded in maintaining the poverty of Haiti.


In international affairs, politicians and diplomats are always talking about not sending “wrong signals” to other nations and governments in the give and take of global relationships. Proposals such as former President Clinton’s represent just such wrong signals to a people who do need whatever individual and voluntary associative benevolent generosity might be mustered at the time of a great human tragedy.


The people of Haiti need some “right signals” about how out of this disaster a real recovery is possible that can lay the foundation stones for a new and prosperous Haitian economy. But those signals must not be policy ideas of more of the same failed government interventions, controls, or coerced redistributions either among the Haitian people or from the rest of the world to Haiti.


What the people of Haiti need are the individual liberty and secure property rights in an open, free market that can draw upon the creative potentials of the people themselves. No bureaucrats or politicians in either Washington, D.C. or in the Haitian capital of Port-au-Prince possess a fraction of the knowledge about what needs to be done – how, where or when, and for whom – that is known by the 10 million Haitian people, themselves.


Yes, they can use all the assistance that any and all men of good will may choose to provide right now, but the recovery that can begin “tomorrow” can only come about by releasing the creative energy and abilities of the Haitian people. And that means that their government and other governments need to get out of the way and not make a market-based recovery process more difficult than it has to be.

Ludwig von Mises and the Austrian Tradition - A New Book by Richard M. Ebeling

Routledge has just published a new book of mine with the title, Political Economy, Public Policy and Monetary Economics: Ludwig von Mises and the Austrian Tradition.

It is available from Amazon in Great Britain.

And it may be pre-ordered from Amazon in the United States for February delivery.

Ludwig von Mises, was one of the most original and controversial economists of the 20th century, both as a defender of free-market liberalism and a leading opponent of socialism and the interventionist-welfare state. He was both the grant designer of a political economy of freedom and a trenchant, detailed critic of government regulatory and monetary policies in the first half of the 20th century.

I offer an exposition and analysis of Mises' ideas on political economy, public policy and monetary economics in the historical context of his time, particularly during the interwar period when he was a senior economic analyst for the Vienna Chamber of Commerce, and after his arrive in the United States in the 1940s during the Second World War.

I discuss the cultural currents of anti-Semitism in Austria before and after the First World War that Mises confronted as an Austrian Jew; his analysis of Austria-Hungary's establishment and management of a gold standard before World War I; Mises' multi-sided activities in the years after the World War I in stemming a hyperinflation, opposing government fiscal mismanagement, and resisting misguided policies during the Great Depression; and his analysis of how Europe plunged into World War II and the policies to restore freedom and prosperity in the post-World War II period.

I also discuss the confrontation between the Austrian Economists and the Keynesians over the causes and cures for the Great Depression, as well as how Mises' "Austrian" approach to money and the business cycle contrasted with both the ideas of Joseph A. Schumpeter and the Swedish Economists of the interwar period.

Table of Contents
Inroduction
1. Austrian Economics and the Political Economy of Freedom
2. Ludwig von Mises: Political Economist of Liberty
3. Ludwig von Mises and the Vienna of His Time
4. Austria-Hungary's Economic Policies in the Twilight of the "Liberal" Era: Ludwig von Mises' Writings on Monetary and Fiscal Policy Before World War I
5. The Economist as the Historian of Decline: Ludwig von Mises and Austria Between the Two World Wars
6. Planning for Freedom: Ludwig von Mises as Political Economist and Policy Analyst
7. The Austrian Economists and the Keynesian Revolution: The Great Depression and the Economics of the Short Run
8. Two Variations on the Austrian Monetary Theme: Ludwig von Mises and Joseph A. Schumpeter on the Business Cycle
9. Money, Economic Fluctuations, Expectations, and Period Analysis: the Austrian and Swedish Economists in the Interwar Period
10. Human Action, Ideal Types, and the Market Process: Alfred Schutz and the Austrian Economists

I know the book is a bit "expensive," but I would suggest not waiting for the "movie version." For some reason Hollywood has not contacted me, yet. Go figure!

Richard Ebeling