"[EMAIL PROTECTED]" <[EMAIL PROTECTED]>
> Do you agree that having a FDIC and a Federal Reserve System is an acceptable
> intervention in the free market?
Sure, they can be helpful. I'd like to see private bank insurance rather than
the FDIC,
but that is probably a pipe dream since even a Berkshire Hathaway is not big
enough
to insure a significant fraction of the banks, and there are not enough
Berkshire
Hathaway's to insure them all. But bank failures are extremely bad for growth,
and
I have no doubt that insuring banks benefits long term growth. So the FDIC is
helpful. It would be interesting if a Berkshire Hathaway were to start insuring
some
bank deposits, say, amounts over $100K, to see whether we could get at least
limited competition in the bank insurance market.
As for the Fed, they can be helpful in a severe liquidity crunch, such as during
bank runs, but the Fed is more intrusive than it needs to be. I'd like to see
the
Fed keep quiet except in the case of banking panics. I have not seen anything
to convince me that it is anything more than an grand illusion that the Fed
actually has significant control over the economy (outside of a liquidity
crisis)
by varying short term interest rates. The Fed is a bit like the rooster that
thinks
his crowing raises the sun each day. All the Fed is doing when they vary
interest
rates is controlling whether government obligations take the form of treasury
bonds
or money supply (currency and reserves). Inflation is primarily the result of
unproductive government spending, and if the government is spending a lot of
money unproductively, it does not matter whether the Fed tilts towards
greater money supply or greater treasury debt. If the government wants to limit
inflation, they should reduce unproductive government spending.
> FDR responded with a more Keynesian policy after 1932. Economic growth from
> '32
> to '37 was significant, about 7% per year. Then, FDR significantly reduced
> the
> Federal deficit in '37-'38, and there was a downturn of about 4%. This is
> consistent with Keynesian theory.
Sounds like the rooster again, I think. The problem with this sort of analysis
is that
there is a lot of randomness in economic growth figures. I expect you can
probably
find a lot of variables that correlate with the data you mention (have you seen
the
graph of global warming versus number of pirates?). You would have to do a huge
statistical study to convince me that FDR actually caused the economy to change
that drastically that quickly. Basically, you'd have to make a list of dozens
of things
which occurred around that time, study the correlation of them, and show me that
FDR was significantly more important than all the other factors. It would be a
heck
of a lot of work, and I doubt you will find much more than random chance. It
takes
decades for the signal to appear out of random fluctuations with this sort of
data.
> So, I'd argue that historical data applies bounds on both sides of the pure
> free
> market/socialist debate. Clearly, full socialism doesn't work. It was tried
> by
> countries for decades, forced on the people by a barrel of a gun, and we thus
> have decades of data on it.
I agree with this, since you are indeed talking about many decades of data. I
just
don't agree that your shorter-term examples are proof of much.
> For me, somewhere around the Clinton economic line looks pretty good,
> especially
> in comparison to the more free market theories that have been practiced in
> the
> last 8 years.
I would not call the last 8 years free market. Between the prescription drug
fiasco, the farm bill, the wasteful defense spending in Iraq, and the recent
government bailouts of Bear, Fannie, and Freddie, I think the last 8 years are
less
free market than the Clinton years. I'm of the opinion that we already have far
too
many laws and regulations and government systems, and almost all news ones are
likely to be harmful. I suspect the Clinton years worked well primarily because
the
government did not undertake any big new projects...it was lucky Hillary's
health care
plan did not go through, or maybe it was not luck, maybe a Democratic president
and a
Republican congress is best for limiting new government projects.
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