Wednesday, March 18, 2009

The New Power Play

Something I have often said as a joke is that Germany realized after World War II that it could never take over Europe militarily, so it switched to trying to take over monetarily. Somehow, that joke always slipped into conversations regarding the European Union and the Euro. I made the joke initially because the Euro was so heavily backed be the German economy and banking system. As it stands now, to join the Euro community, a country must meet the "Maastricht Criteria." These conditions (which include domestic price stability, measurements of responsible public finances, exchange rate, and others) were put in place to insure financial stability amongst the nations involved with the single European currency. Basically, a country subordinates its economic and monetary policy to the wisdom and wishes of the European Central Bank.

While the purpose of the ECB is to maintain stable growth throughout the EU, policy will always favor the major players, in this case, the two largest players in the European economy are Germany and France, with Germany typically leading (of the $18.85 trillion dollar Gross Domestic Product, $3.82 trillion is Germany and $2.98 trillion if France.) Germany and France are also two of the countries that do not follow the economic and public finance guidelines set down as requirements of the member states, specifically the percentage of public deficit and debt allowable(60.7% and 67% public debt respective of GDP, respectively, with the maximum allowed by the ECB set at 60%.) For those interested, or in need of reading material as sleep aids, here is the Maastricht Treaty.

Why do I find it interesting to point all of this out? Russia recently tossed out the idea of proposing a global currency at the next G20 summit. With the Gross World Product at $78.36 trillion and the US economy running a Gross Domestic Product of $14.33 trillion, that puts the United States at 18.3% of the world's economy. Would Russia (GDP of $1.76 trillion, or 2.25% of the world's economy) be willing to subordinate itself to the needs of the largest segment of a globalized economy, or would this proposal turn into a device to institute "parity" in the world's economic systems? With some of the other recent moves by Russia, I would think motivations need to be carefully considered.

Friday, March 13, 2009

Economic Policy or Economic Paradigm?

This article on Yahoo News was brought to my attention today. President Obama's desire for stable economic growth is understandable, laudable even. However, wanting economic growth in a free market without accepting the fact that free markets have downturns as well as growth is something of a pipe dream. As I have said before, one of the fundamental features of a free market is the unstable nature of growth. To change that would be to change the economic system which we live with and, as has been shown numerous times by the countries that try centralized economic planning and heavy price regulation, the chaotic nature of capitalism tends to promote growth best.

Now, I understand the President says he doesn't wish to supplant the private sector, merely to regulate it in such a manner as to prevent the “reckless speculation and spending beyond our means; on bad credit and inflated home prices and over leveraged banks.” He also said, “Such activity isn’t the creation of lasting wealth. It’s the illusion of prosperity, and it hurts us all in the end.” Which is, of course, why his spending plan calls for the US government to borrow heavily so that the government can spend beyond its means and create the illusion as economic growth.

However, is government action the correct answer to a market crisis (in this case a crisis precipitated by the financial markets)? Is the answer to regulate the market until it, supposedly, cannot fluctuate so drastically? Or is the answer to allow the fluctuation to amputate the non-functioning segments? To allow economic Darwinism (by which I mean profitability, aka, greed) streamline the market until it flows smoothly again seems like a painful alternative to the easy way out of letting the government handle our mistakes.

As a warning against a greater degree of government intervention, I present the findings of the Cato Institute relating to the relationship between financial deregulation and financial crises. According to the study, financial deregulation in itself does not lead to financial instability, as half of the countries in the study that deregulated their financial systems experienced market instability and half did not. The findings point to the size of the country's government as the pivotal factor in whether or not the country will experience a financial crisis: the larger the government, the more likely the market will not self adjust without crisis.

What does all of this mean? It means that continued government interference and "help" is more likely to maintain economic instability rather than promote economic growth. As further evidence of this claim I put forward the theory, increasingly popular as economists study it, that the New Deal prolonged the Great Depression. Also, there is the claim that the government's intervention in the financial market increased the market drop last year. As it is, I wonder how long it will be before the people of this country remember that economic trouble means a shift in the economy as well as economic opportunity to those brave enough to take personal risks. This economy became the world's largest through risk and perseverance rather than cowardice and government control.

"You and I are told we must choose between a left or right, but I suggest there is no such thing as a left or right. There is only an up or down. Up to man's age-old dream -- the maximum of individual freedom consistent with order - or down to the ant heap of totalitarianism. Regardless of their sincerity, their humanitarian motives, those who would sacrifice freedom for security have embarked on this downward path. Plutarch warned, 'The real destroyer of the liberties of the people is he who spreads among them bounties, donations and benefits.' " -- Ronald Reagan, October 27, 1964

Tuesday, March 3, 2009

Food for Thought

While I have been lax in my postings here the world has moved quickly onward. It has moved onward, but not necessarily upward (fans of the Narnia books, you know the reference.) I have not had the time to find the subject for a complete post... so I have a question instead. Food for thought, as some would say.

Can true advocates for personal freedom and personal responsibility be found in the rank and file of formalized and institutional government? Can anyone who has the desire to work as a lawmaker and a leader of a country actually believe that the people are better off doing things on their own, without interference from the powers that be?

In partial answer to my own questions, I present the statement of the statesman Daniel Webster, "Good intentions will always be pleaded for every assumption of power. It is hardly too strong to say that the Constitution was made to guard the people against the dangers of good intentions. There are men in all ages who mean to govern well, but they mean to govern. They promise to be good masters, but they mean to be masters." Webster, himself a leader, recognized the subverting influence power has over man. It goes along with the old adage "The road to Hell is paved with good intentions." When people can sit back and abdicate personal responsibility to the promise of a being given a better life, they may in the end be given the "better life," but is it actually theirs? Does a man possess that which is not earned or does the man become the servant of those who can provide for him?

Finally, the last little bit to think over is another quotation from one of the great men who shaped the United States, Samuel Adams. All I ask is that people read this and think about what the ideals this country was founded upon mean for us today: "If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; and may posterity forget that ye were our countrymen."