Thursday, October 23, 2008

Public Billionaires vs. Private Millionaires

By Howard Hyde

Fewer than 600 people in Washington D.C. command a budget of 2.6 trillion dollars, with extremely limited accountability. That’s $3 to $4 billion apiece, year after year, guaranteed, regardless of the success of failure of their decisions.

Meanwhile, these same people want you and me to resent, envy and punish the private businessmen, entrepreneurs, professionals and plumbing company owners who may earn more than $250,000 per year, or roughly 1/20,000th of what each of them command. Why? Why are the public billionaires so hostile to private (mere) millionaires? Is it too much of a stretch to suppose that they don’t want any competition from these unwashed upstarts?

Citizens, don’t be manipulated! The fact is, the millions of millionaires in this country are about a million times more qualified than the insulated, privileged billionaires in Washington to solve the problems facing this country, including healthcare, the environment, the credit crisis and your paycheck. They create the jobs. They figure out how to accomplish more with less. They satisfy the needs of the consumers. And most important, they are accountable. While Congress gets to spend its billions no matter what, a private millionaire stands to lose his fortune in a heartbeat if he makes bad decisions, that is, neglects to satisfy customers with the right products and services at the right time, place and price; treats or pays his employees poorly; or fails to show a healthy return on his sponsors’ investment. The vast majority of millionaires in this country are not lucky entertainers or lottery winners; they are deserving, hard-working successful business people of modest origins. THEY are the hope for this country, not the bureaucrats.

Place your trust where it belongs, with the free people of the United States of America.

Wednesday, October 15, 2008

Bail out the Oil Companies!

The price of a barrel of oil has dropped nearly 50%, to below $75, in just a few months. Surely this is a worse crisis than the 20% drop in the Dow. Aren’t the oil companies deserving of their own bailout? After all, it’s not their fault people lost money in the credit derivative markets due to government interloping and can no longer afford to speculate in crude futures. About $500 billion ought to do just fine.

For the public service of providing this vital insight to the market, I’ll take a tiny 1% cut of the gross. Really.

Sunday, October 12, 2008

Repeal the Bailout Taxpayer Robbery

By Howard Hyde

12 October 2008

If the bailout package had failed to pass and the stock market had subsequently fallen by 20%, that would be taken by many as proof that government inaction was the cause of the crash and that immediate intervention was needed. Will anyone take the fact of the crash following the bill as proof that the government’s action was the cause of the crisis, and that it should be backed out? Don’t hold your breath.

In one stomp, the federal government expands its footprint on the economy by 25%, and the aggregate value of privately owned assets falls by 20%.

Is that a coincidence? We were told by Congress, by the president, by both presidential candidates and by the Wall Street Journal that, while ‘regrettable’, this is all necessary in order to forestall total collapse (I’m sure their wasn’t a dry eye in the Capitol as congressmen and senators emoted their ‘regret’ over grabbing an additional $1.3 billion apiece). But what we got was precisely… collapse, in exact proportion to the government’s action.

If the bailout bill was necessary and proper on its own merits, why didn’t it pass when it was just a few pages long? It didn’t pass until it was several hundred pages long and larded up with unrelated pork.

This is not noble leadership in a time of crisis; this is cynical business as usual in the worst sense of the term at an increasingly corrupt institution.

The bill didn’t pass on its own merits the first time around because the constituents of all stripes were opposed, and told their representatives so. Is the dominant divide in this country to be found between left and right, between the Democratic party and the Republican party, or is it really between the people and the power elites? This episode suggests the latter.

“But Howard, the market needs liquidity in order to continue to function.” I’m sure the Weimar German monetary authority said something like that in 1924, right before the price of an egg shot to 1 trillion marks. What do you mean, liquidity? You mean, flowing dollars? The people aren’t smart enough to make their dollars flow in the beautiful, graceful fluidity required by the economy, therefore Congress and Hank Paulson to the rescue?

Citizens, beware the euphemism ‘liquidity’!

When a politician uses that word, it’s code for 1) wholesale counterfeiting on the part of the government, i.e. inflation, robbing you of the purchasing power of your dollars, 2) contrived credit expansion via the Fed forcing interest rates below market, resulting in an artificial drunken boom which MUST be followed eventually by a bust due to the bad debts incurred, or 3) an excuse to take away your dollars outright in order to liquify them according to the federal government’s preferences, not yours. Markets function perfectly when they write down assets that are discovered to be worthless (or merely worth less than previously valued), in order to direct capital to its best use.

But no! We can’t allow the market to price assets according to revealed reality! We’re told that the government has to step in here, because greedy lenders and speculators abused the market. This is less than half the truth. Lenders were alternately threatened, cajoled and bribed by the government into making loans that they otherwise would not have made, if they had to assume all of the risks themselves. Speculators only did their jobs, which is to keep all the others honest.

As for greed, this term is meaningless as an objective, analytical tool of economics.

If greed is wanting more than one has, then everyone is greedy. Businessmen are greedy, speculators are greedy, homeowners are greedy, the Pope is greedy, Mother Teresa is greedy, yo’ mama is greedy. But greed is impotent without a gun. Greed doesn’t become crime (and by extension abuse and/or destroy markets) until someone uses illegitimate force or deception to make others bend to his/her will. Who has such power? A street thug with a Glock has a little. A mafioso with a ‘family’ may have a few million. A corrupt businessman may even have a few billion to throw around. But Congress commands hundreds of billions of dollars and assumes a nearly limitless right to tell you and me what to do with ours. If they can vote it, they can do it. If you don’t do what Congress wants, sooner or later you are going to be facing men with guns.

The federal government caused the crisis. Until it is reformed, it won’t be the source of a solution.

What’s needed in the market is not liquidity so much as rationality.

Who can forecast, plan and invest with confidence in a market where outcomes are not determined by fundamentals, by intrinsic value, by projected cash flows, by price-earnings ratios, by voluntary cooperation among millions of customers, suppliers and competitors, but by the whims and commands of Congress? Is the price of a share of stock of GM a legitimate political issue, to be determined by committees and lobbyists?

In a market, millions of individuals cooperate and compete to help each other, take real risks, identify real needs and opportunities, create wealth, enjoy successes from good decisions and suffer losses due to bad ones. In a casino, by contrast, the risks are contrived, the rewards are mostly chance, the house always wins, no net wealth is created and the games may be rigged.

The more the government commands the market, the more the market becomes a corrupt casino.

This crisis will not be solved by Congress, by the President (of either party), by the Fed or by the Treasury department (or the World Bank, the International Monetary fund, London bankers or the Chinese Communist Party). The only people qualified to solve this are you and me, the businessmen, the clergy, the computer programmers, the corporate managers, the hot-dog stand owners, the investors, the musicians, and the figure skaters of America; in short, the taxpayers, including the greedy, much-maligned ones who earn $250,000+ per year (a drop in the bucket compared to what your average Congressman commands).

A bad idea is still a bad idea, even (or especially) when it’s a done deal.

Repeal the bailout bill. It’s just a taxpayer robbery.


How Government Stoked the Mania - By RUSSELL ROBERTS - Wall Street Journal

The United Socialist States of America - By Robert Murphy

Sunday, September 28, 2008

Stop the bailout bank robbery

By Howard Hyde

28 September 2008

Government intervention in the economy, meddling and fiddling, fiddling and meddling, is what got us into this mess in the first place. More government intervention, artificial price supports and an unprecedented $700 billion taxpayer bailout won’t get us out.

Think it through, people. You want this problem solved, so you relinquish $700 billion more of your money … to the US Congress? Do the math people! That’s $1.3 billion per congressperson and senator, on top of the $2.5 trillion per year that we already give them. Politicians rail against the greedy rich, those making a whopping $250 thousand, and then demand that THEY (the congresistas) be put in charge of 24,000 times that --- apiece!

And for what? Mortgage delinquency rates of 6.4 percent? Unemployment at 6.1 percent? A dozen bank failures per year, the biggest of which has already been resolved in the market? Stock prices lower than what some would prefer? Housing prices falling to… reasonable levels? We’ve had much worse in the past, and the rest of the world, even much of Europe, lives with much worse all the time.

Never mind that Congress is a den of scoundrels. We could replace them tomorrow with 535 of the most wise, honorable and non-partisan sages in the nation, and they STILL wouldn’t be qualified or morally warranted to take on this task. They don’t have the information, the incentives or constraints to be able to judge the right thing to do for each of the hundreds of millions of the rest of us.

$700 billion dollars of new taxpayer liabiltiy is a radical interventionist/socialist solution to the problem which won’t work. What’s needed is a radical laissez-faire capitalist solution that actually will.

To the extent that free-market capitalism is still permitted to function in this county, it is already working. Bank of America bought Countrywide and Merrill Lynch. JP Morgan Chase bought Washington Mutual. The players who didn’t let themselves be swept away by the currents of moral hazard unleashed by the Fed and Congress are now in the relatively strong position to take charge of the assets which were mismanaged by those who did.

And so it goes. Joseph Shumpeter called it ‘creative destruction’. John Maynard Keyenes referred to ‘animal spirits’, which, as long as they are given free rein, will never be in short supply.

The various players in our economic and political system each have a role to play in the solution. Here are my recommendations:

The Fed: Stop trying to force the interest rate where YOU want it, and start targeting it to where it would be if YOU didn’t exist. Stop fighting the will of a hundred million savers and investors who have their own market information (better than yours), time preferences and demands for rates of return. Stop counterfeiting dollars, debauching our currency. Peg the dollar to gold at a nice round number like $1000 an ounce (you don’t have to tell anybody, just do it) and take the credit for the ensuing monetary strength and stability.

Congress: Give yourselves a raise, say, $250,000 (tax free), and then get out of the way. Reduce the federal government footprint on the economy so that the forces capable of realizing the recovery can do their jobs. Cut marginal income taxes, abolish the death tax and the double-whammy capital gains tax. The best income tax cut strategy would be simply to remove all bracket-based rates except for the bottom one; everyone pays the same low flat rate from above the the poverty line to Barack Obama, Cindy McCain and beyond. The Laffer Curve effect will ensure that this results in MORE revenue, not less, to the treasury. Embrace your inner John F. Kennedy.

While you’re at it, lift all the unreasonable restrictions and bans on resource development, including offshore drilling. We can EASILY push the price of a barrel of oil below $50 while creating thousands of new jobs and business opportunities, which will contribute handily to enabling us to weather the monetary storm (of course, cheap energy is anathema to the radical environmental movement and they will oppose it tooth and nail in the fraudulent name of ‘saving the planet’).

The president (and presidential candidates): Thank you for a sincere effort. Please sign the bills lifting the federal boot off of our throats.

Taxpayers earning $250,000 or more. Keep your money; spend it, save it and invest it as you see fit. You have proven by your hard work, productivity and judgement that you are the most capable of making the right decisions, judging real asset values, and creating jobs. YOU are the saviors in this crisis, not Congress, not the president (regardless of party).

Speculators: Keep speculating. Keep the politicians and corrupt CEOs honest. If you’re right, you’ve done a public service and received your reward. If you miss, you’ll have less resources with which to influence the market in the future, and that’s as it should be.

But what about regulation?

The legitimate purpose of regulation is to prevent and punish murder, assault, robbery, theft, rape, persecution, conspiracy and fraud. So by all means, if any players have acted in criminally fraudulent ways, then hold them to account and institute regulation which minimizes the risk of unscrupulous players getting away with it in the future.

But let us never lose sight of the root fraud of all of this: It came from Congress, chartering and conferring indefensible privileges upon its favored companies Fan and Fred which predictably morphed into corrupt behemoths threatening the stability of the entire economy with their implicit taxpayer guarantee, as the Wall Street Journal has been warning for at least six years (; and it came from the Fed, inflating the money supply and expanding credit, a recipe for disaster that Ludwig von Mises and his disciples have been warning about for nearly a hundred years (

But what about affordable housing? It’s time to laugh that canard out of Barney Frank’s office and out of Washington. Housing was attempted to be made more ‘affordable’ by the classic political means: forcing the rate of interest below that which would have prevailed in a free market (and easing other requirements --- can you spell Subprime lending? Liar Loan? Countrywide?). But how in the world was ‘affordable housing’ served by the housing bubble --- prices rising year after year at 2, 3, 5 times the rate of inflation? Shouldn’t there be rejoicing in the streets now that the bubble has burst and prices are more ‘affordable’?

Some people, myself included, enjoyed the inflated home equity while it lasted. But that sentiment doesn’t qualify as a moral principle upon which to base public policy. It certainly doesn’t justify a massive expansion of federal government power.

Legalize captialism; the only solution.


Saturday, July 26, 2008

The Stockholders of Pemex

Leer en Español

Energy reform in Mexico seems like a very complicated subject that only the specialized politicians and elites can understand. But fundamentally, it’s not really that complicated. The fact that Pemex, the national oil company, is failing in spite of record world market prices per barrel illustrates a fundamental and timeless principle of economics: socialism doesn’t work; it’s not a solution but rather the road to serfdom.

The United States does not have a national oil company, yet americans are not any poorer for lacking one.

President Felipe Jesús de Calderón Hinojosa is heading up the movement to reform the energy industry in Mexico, which includes the possibility of privatizing Pemex. His former rival for the presidency, Andrés Manuel López Obrador (‘AMLO’) is rallying the political left against any privatization, arguing that the oil belongs to all mexicans and that it would be robbery (or even rape) of the national patrimonio to sell shares to foreign (read: north american) companies [‘Patrimonio’ is a rich spanish word with meaning somewhere among ‘estate’, ‘inheritance’, ‘heritage’ and ‘fatherland’, in the PAT-riotic sense].

The principles of capitalism will show the way to the ecomically correct solution even if politics can always cause a derailment. Those principles are: if it doesn’t have to do with murder, assault or robbery; if has to do neither with theft, nor fraud, rape, persecution nor conspiracy, then government should not interfere. The purpose of government is to defend the rights of the citizens; rights to life, to security against the violence of other citizens or foreigners, to liberty and to property. It is not the proper role of government, with its monopoly of violence, to promote the interests of one group of citizens against those of other groups or individuals.

Therefore any activity which has nothing to do with defending the lives, security, liberty and/or property of the citizens must be located in the private sphere, that is, outside of government. To act otherwise leads by nature to the violaction of these rights and to economic inefficiency. This is exactly what we are witnessing in the energy sector in Mexico today: privileges for a chosen firm, the absence of market freedom and discipline, exclusion by force of other, non-favored participants, and a poorly-served public.

If the mexican citizens are the rightful owners of Mexico’s petroleum, as Obrador asserts, then the management and bureaucracy of Pemex is cheating these owners. These owners are not enjoying what true proprietors deserve. The management and well-connected politicians run the company for their own benefit, and the people receive no dividend save for shortages and high prices.
If the citizens are the owners of the company, then they must be given their shares of stock and their rights to buy, sell and participate in corporate governance must be implemented, just as it is for any stockholder in other publicly traded company listed on, say, the New York Stock Exchange.

Once the citizens become stockholders of a company that participates in an open and free market, and that all privileges and protections have been lifted, the majority of the political conflict will disappear, because stockholders vote primarily through their buying and selling, and thus dictate how the firm must be run. Managers and divisions that fail to operate profitably will lose their privileges and capital and investment will seek more competent ones. Stockholders will insist that management contract with partners that have the knowledge necessary to modernize the facilities and technology, and that they seek new capital. They understand that any company that fails in this will face bankruptcy. The company and the market as a whole will end up healthier and more efficient, and supplies, quality and variety of products will all increase while consumer prices fall.

AMLO wants to portray foreign companies as sharks preparing for the kill, but the economic reality is, thank goodness someone already has developed the technology and saved up the capital that can provide thousands of jobs at increasing wage rates and millions of ever-cheaper barrels of crude. All that’s required is to permit freedom of contract and to defend the property rights of owners ---- the citizens of Mexico.