The Free Market

A Days Inn on Long Island was fined on December 26, 2001 for having engaged in “price gouging” following the September 11 terrorist attacks. With the nation’s airports closed, stranded passengers created a sudden and unexpected rise in demand for lodging.

So long greenbacks; hello pinkbacks. So says the Bureau of Engraving and Printing, which promises to start changing the color of money next fall, beginning with the $20 bill.

The Enron scandal fueled the drive for campaign finance reform well enough for a campaign finance reform (CFR) bill to get signed into law. However, immediately after this occurred, various interest groups presented legal challenges to the new legislation based on its questionable compliance with the First Amendment.

Whether to distract the American public from the current set of hearings into the national security breakdowns that led to the September 11 attacks or just to be doing something, President George W. Bush has announced plans to create a new Cabinet-level monstrosity ostensibly aimed at making all of us safe from terrorist attack.

When a politician talks of "reform," grab your wallet. As in "welfare reform," for example. For as any hardened inside-the-Beltway observer of dark Washington ways can tell you, "welfare reform" is typically a spin for tightening the screws on the taxpayer and easing welfare access.

Creating traditions of free trade, property rights, and entrepreneurship in an impoverished continent, often amid lethal tribal and religious conflict, will take decades to achieve. But it is the only way to throw off the yoke of foreign aid.

Government bureaucracies always fail to live up to their promises because they are not market institutions. As such, there is no possible way of ascertaining how efficiently the bureaucracy is run since there are no profit-and-loss statements in the government sector, only "budgets."

The June 3, 2002, issue of The Nation heralds the 2001 Nobel Laureate Joseph Stiglitz as a "rebel with a cause." That characterization is certainly a stretch for an economist, who is former senior vice president of the World Bank and who adheres to orthodox Keynesian doctrine, the dominant economic paradigm of mainstream political and economic theory for the past 50 years.

As the war on terror drags on, many people calling themselves libertarians have decided that it's not such a bad thing after all. What, they ask, is the point of government if not to bomb those who would threaten our safety? The trouble is that real life works a little differently from the civics-text ideal of government. Government uses war—and sometimes foments it—in order to expand its power over its own people or to expand its imperial power.

It is time to recognize that food prices will likely continue to fall over the long term, and that the number of commercial farmers will continue to diminish and to recognize the benefits such a trend confers upon society. It should also be made apparent that to continue to fight this trend is futile, and that it is a waste of time and money—not to mention the outright theft involved in seizing money from one group only to give it to another.

Economic life is an intricate global system of exchange, one that works without any central direction. It generates prosperity and its own form of order within the framework of liberty. This is what is sometimes termed the magic of the marketplace, and we should never under-estimate its power. We can see by looking south to Argentina how a failing economy, one thrown into shock by bad legislation and monetary policy, has destroyed the livelihoods of the entire population.

The headlines of the business pages have been trumpeting the arrival of recovery now for months. How do the experts decide when recession has turned to recovery? By looking at the data, which come in packages labeled in various ways: the GDP, the leading indicators, the unemployment rate, industrial production, housing starts, commercial borrowings, office vacancy rates, and a host of others. If these tend in the negative direction, we are said to be entering a recession. If they move in a positive direction, it is said that we are recovering.

Corruption breeds poverty. That is the conclusion of the latest World Development Report, in which the World Bank cites "evidence that higher levels of corruption are associated with lower per capita income" (World Bank, 2002). The story told is that bribes raise the costs of doing business, so more corrupt countries attract less foreign direct investment, which lowers growth rates and per capita incomes.

As oil and gasoline prices begin their annual rite of spring, I am waiting for another rite that occurs among media pundits and some economists—who ought to know better. That particular ritual is the accusation levied against oil companies that they are "manipulating the market" in order to force up prices. Like the oil companies two decades ago and electricity producers and distributors during the California crisis, the mantra is going to be repeated ad nauseum, "They are manipulating the market. That is why prices are increasing."

The monetary situation in Argentina is a glaring example of confiscatory deflation. In 1992, after yet another bout of hyperinflation, Argentina pegged its new currency, the peso, to the US dollar at the rate of 1-to-1. In order to maintain this fixed peso/dollar peg, the Argentine central bank pledged to freely exchange dollars for pesos on demand and to back its own liabilities, consisting of peso notes and commercial bank reserve deposits denominated in pesos, almost 100 percent by dollars.

It is this economic law of exchange—not bombs, government spending, regulations, loose credit from the Fed, or stock-market scams—that is the source of wealth, health, and security in our world. Politicians care nothing about it because voluntarism is not what they are about. But economic law always has its revenge. It brought down the Soviet Union, and it will do the same to any state or institution that believes itself exempt.

Proponents of socially responsible investing, or SRI, promote it as a way to invest in stocks while having "positive social impact" at the same time. Beneath the surface, everyone knows that what SRI really promotes is old-fashioned socialist ideology employed in the name of investment.

Standardization in education is not a virtue, but a vice with immense consequences.

It has been said that the stock market is not an actuarial table. The same can be said of the bond market. Rather than an infallible guide to the future, the bond market embodies the best guesses, hopes, dreams, and fears of many investors. Hence, the bond market can be fallible and, in fact, has been so—in spectacular fashion—in the past.

If the Enron bankruptcy proves anything, it is that there are sinners in all walks of life, and that the market economy provides mechanisms for rooting out and punishing systematic liars. Those who clamor for Congress to “do something” to assure that this kind of thing will never happen again are delusional if they think Congress has the ability to legislate away sin or otherwise improve on the market system of profit and loss. Such delusions are a testament to the successful brainwashing of generations of public school students who have been taught to worship the “god” of the state and to look to it to solve all of life’s problems.