Missing the Point

The Economist recently interviewed Ron Paul about HR 1207, “The Federal Reserve Transparency Act Of 2009”, which he sponsored and which currently has some two-hundred and seventy cosponsors (it is more popularly called the audit the Fed bill). Ron Paul as usual does a commendable job answering the various questions put to him by the somewhat snarky interviewer. Like most in Washington, the interviewer clearly thinks that inquiring attitudes towards the Federal Reserve’s everyday operations are, as he puts it, “potentially dangerous.” I think the truth is exactly the opposite: the attitude of viewing the Federal Reserve as sacrosanct is dangerous. And not just “potentially”, either. The last ninety-six years of living with a central bank have shown full well the dangers inherent in such an institution, what with inflation, business cycles, and the like.

Basically, the biggest problem the interviewer seems to have with the idea of making the Fed more transparent and therefore giving Congress a greater ability to “oversee” the bank is that it might weaken the Fed’s political independence. This would be a bad thing, the interviewer argues, because Congress may pressure the Federal Reserve into taking politically popular but economically disastrous steps (for instance, raising interest rates to put a brake on inflation which would have the effect of slowing down the economy).

This particular criticism misses the point of Paul’s bill by leaps and bounds, however. First, the bill doesn’t give Congress anymore “power” over the Fed than it already has (which is very little). Anyone can read the bill for itself here. It is extremely short, and merely changes Section 714 of title 31 of the United States Code to allow the Comptroller General to audit the Fed at will, instead of having to get the permission of the Federal Reserve and its member banks to do so. Seems like a pretty reasonable demand, right? Is there any other section of the Federal Government that gets the convenience of choosing to be audited or not?

Second, the interviewer misses the target of this bill by focusing on the Fed’s manipulation of the interest rates which can sometimes be politically unpopular. But where the Federal Reserve wants interest rates to be is probably if anything the most transparent aspect of Federal Reserve policy. A simple Google News search found an article from a few weeks ago indicating the New York Federal Reserve was going to buy 7.5 trillion dollars worth of government securities in an attempt to…”lower long-term borrowing costs and revive economic growth.” Unless I’m mistaken here I really doubt the Federal Reserve is rushing to have a gag order put on Reuters for revealing such sensitive information. In other words the interest rate policy is right out in the open for Congress to see if it so chooses.

Interest rate policy is not the driving factor behind Ron Paul’s sponsoring of this bill. If it were it would not explain why it has so many supporters in Congress. While some commentators may care that the Fed controls interest rates, Congress certainly doesn’t. The whole point of the Federal Reserve is to control monetary policy. The simple reason why the bill has been supported by such an ideologically diverse group is simple: the Federal Reserve refuses to disclose who is receiving the money it is handing out to troubled banks. In fact, back in December the Federal Reserve expanded its balance sheet by 2 trillion dollars with zero oversight from anyone but the seven members of the Federal Reserve Board and then refused to let anyone know where that money went. Could it really be so difficult to understand why Congress would want to find out where that money is going?

As Ron Paul points out in the interview, the bill is really political in nature and aimed not so much at monetary policy per se which, as pointed out above, is largely seen to be the legitimate function of the Federal Reserve. The real issue at stake is what we don’t know. To be more specific, we don’t know who specifically is getting the money. We also don’t know why they are getting the money. When the nation’s money supply rests in the Fed’s hands do we really want to assume the Fed is made up of altruistic do-gooders, which is exactly what they want us to believe? To put it another way, if Lord Acton’s dictum, “absolute power corrupts absolutely”, is an even slightly correct description of human nature, can we really afford to let the Federal Reserve be independent?

Top 3 for April 15th

3. 94 Years of Serfdom

Once upon a time the Constitution stood as a bulwark against state power. Then came the progressive era where up become down, wrong become right, and big business manipulated the law to enrich themselves at the common person’s expense. During the midst of those dark days, Wilson signed into law the 16th amendment, effectively committing IP infringement against Karl Marx. No, but really the 16th Amendment allowed for the income tax (a progressive tax) which was one of the ten planks of communism. A principle part of communism became enshrined into our Constitution in 1913, changing the role of the constitution from bulwark to facilitator of state power. 

Paul Craig Roberts, former Assistant Secretary of the Treasury under Reagan, explains how the income tax has put us into a position comparable to the medieval serf.

2. Payback

President Obama, hard at work garnering funds for his war in Afghanistan by using a special troop funding provision he voted against as a senator, is setting America up for another Vietnam style exit in central Asia. Former Chief of the Bin Laden Issue Station of the CIA Michael Scheuer presents evidence that a land war with Russia may be looming in our future as the U.S. is forced to draw on the help of Russia in subduing Afghanistan. 

1. Green Cities, Brown Suburbs

Edward Glaeser, an economist at Harvard, presents evidence that him and fellow economist Matthew Kahn have compiled showing that, paradoxically, bigger cities can actually be better for the environment then trying to “live green” out in the country. The article is long, but well worth it for the treasure trove of interesting statistics.

A List of Books

What follows is a small list of the books I read in 2007 that I thought were particularly good. Enjoy!

1. The Costs of War, edited by John V. Denson

This is without a doubt in the top five books I read in 2007. Denson brings together some of the best essays written on war by some of the best historians, economists, and sociologists available. Often times, if people think of the costs of war at all, it usually takes the form of the casualties. Most people either ignore or simply don’t realize the effect that war has on the economy, and the culture of both the winner and loser. This book will slap them firmly into the real world, where actions of consequences. The historical analysis, too, was breathtaking. Specifically, Murray Rothbard’s essay on WWI, entitled World War Fulfillment: Power and the Intellectuals (which can be read online here), detailing how it was the left that wanted war and not the right, and Professor Hans-Hermann Hoppe’s controversial and astonishing essay Time Preference, Government, and the Process of De-Civilization: From Monarchy to Democracy, which I won’t even attempt to describe here but suffice to say is entirely convincing in it’s case that monarchy is superior to democracy.

2. Hegemony or Survival, by Noam Chomsky.

Noam Chomsky, one of America’s most controversial authors and intellectuals, has never been known to hold back his hatred of America’s foreign policy. Agree or disagree, he makes a strong case for whatever he argues for, and anyone defending America’s foreign policy will definitely need to deal with the arguments Chomsky makes in this book. Although I agree with him for the most part, I do disagree with his economics. A self-professed anarcho-syndicalist (whatever that means), his economics are leftist and at times entirely silly. He fails to distinguish between actual free-market capitalism, and state-sponsored corporatism when arguing against America’s entirely unjust actions of economic imperialism in South America and other countries. But all in all, an important book in realizing and analyzing American imperialism.

3. Terrorism and Tyranny, by James Bovard.

James Bovard has been criticized by just about every Federal Agency in existence. This probably means Bovard is right, and the government knows they are wrong. At any rate, this book is an important analysis of the post-9/11 American response to terrorism. Bovard pulls no punches in detailing the excessive abuse of rights, the gross incompetence of the government, and the way Americans naively assume the government is on their side. Also includes a great look at the Israeli response to terrorism, and the Iraq war.

4. By what Standard, By R.J. Rushdoony.

The is really a brilliant evaluation of the philosophy of the late Christian thinker Cornelius Van Til. Rushdoony (a dreadfully boring speaker, but engaging writer) does a nice job of bringing the complex writing style and difficult ideas of Van til to a level probably anyone could understand. Van Til is the “creator” of what is termed “presuppositional apologetics”. Now, I hate the term “apologetics”, and can’t stand calling Van Til’s philosophy “presuppositional apologetics”. Maybe one day I’ll write a post on why, but I simply prefer something like Christian philosophy. At any rate, Van Til’s philosophy states (to put it very simply) that when it comes to claims of ultimate reality, there is no neutrality. Often times, atheists will make the claim that Christian’s “don’t use reason, but instead rely on an appeal to authority, like the Bible”. But this is a very naive accusation. Why assume that “reason” is the final authority on matters of truth? As Greg Bahnsen, one of Van Til’s students, has said, it really comes down to “a question of ultimate commitment.” To think that atheists (or whatever the belief system may be) start off as neutral, and reason their way to truth, is to be incredibly mislead. Reason becomes the final authority, the god ironically enough, of the atheist, and all facts and experience are interpreted through that lens. Anyways, definitely a must read.

5. For a New Liberty, by Murray Rothbard.

If there is any book to read as an introduction to libertarianism and austrian economics, this is the one. I cannot recommend this book enough. Rothbard’s entertaining and clear writing makes this book an easy, fun read, but his provocative ideas really challenge the reader intellectually. Rothbard’s ability to carry concepts out to their logical ends means that not everyone will be comfortable with his ideas, but anyone will be hard pressed to refute them. And of course, when it comes to economics, Rothbard is king. Seeing as his strongest subject was economics, and he contributed a large amount to Austrian theory, the economics he puts forward in For a New Liberty are undeniable in that everything he says is so true. Ok, maybe thats my bias showing, but I challenge anyone to read this book and not come away feeling the same. Also, Rothbard was also a great historian and his analysis of the Soviet foreign policy was a real eye opener for me. Buy it!

A Book I am Reading

Man, Economy, and State the Scholar’s Edition with Power and Market, by Murray N. Rothbard

Admittedly, I’m already having a hard time getting through this book. It is the book to own on Austrian economics, and a clear repudiation of socialism, keynesianism, and any form of economics that advocates government intervention into the economy. Wish me luck!