Posts tagged with: Bernie Sanders

On National Review Online, Acton Research Director Samuel Gregg discusses remarks made by President Barack Obama at a March 30 campaign stop at the University of Vermont. From the White House transcript of the speech, here is some of what the president said:

The American story is not just about what we do on our own. Yes, we’re rugged individualists and we expect personal responsibility, and everybody out there has got to work hard and carry their weight. But we also have always understood that we wouldn’t win the race for new jobs and businesses and middle-class security if we were just applying some you’re-on-your-own economics. It’s been tried in our history and it hasn’t worked. It didn’t work when we tried it in the decade before the Great Depression. It didn’t work when we tried it in the last decade. We just tried this. What they’re peddling has been tried. It did not work. (Applause.)

Gregg on NRO:

… it’s especially noticeable that when insisting we must take care of our neighbor the president said nothing about the role of volunteer associations — or any non-state formation whatsoever — in addressing social and economic challenges. Nor did he mention anything about the often-selfless work of loving our neighbor undertaken by the same religious organizations whose constitutionally guaranteed (and natural) liberty to live, act, and serve others according to their beliefs is being unreasonably constricted by the more ghoulish segments of his administration in the name of “choice.”

Like all good Rawlsians, President Obama finds it hard to conceptualize the possibility that private communities and associations might often be better at helping our neighbor in need than governments. Instead, his instinct is to search immediately for a political state-focused solution. If the president invested some time in exploring the concept of social justice, he would discover that its earliest articulators — mostly mid-19th-century Italian Catholic theologians – thought it should be primarily realized through associations and institutions of civil society with the government playing a supportive, but normally background role.

Read “So Who Is Our Keeper, Mr. President?” by Samuel Gregg on NRO.

This week’s reappointment vote for Fed Chairman Ben Bernanke has created some strange bedfellows in Washington. A muddled middle of Republicans and Democrats supports the Keynesian’s reappointment, but the real odd couples are among the opposition. For different if overlapping reasons, free market proponents and far-left figures such as democratic-socialist Bernie Sanders of Vermont are both convinced that Bernanke has done much to hurt our economy, particularly those in the bottom half of our economy.

Desmond Lachman of The Enterprise Blog observes:

Throughout 2006, when the worst of the sub-prime lending was taking place, Bernanke was conspicuously silent in sounding the alarm about the dangers of the U.S. housing bubble. Similarly, he was painfully slow in recognizing how severe the fallout from the bursting of the housing bubble would be….

If there is one more item that should sink Bernanke’s bid for a second term it has to be his recent statement that the Federal Reserve’s extraordinarily low interest rate policy between 2001 and 2004 contributed little to the creation of the largest U.S. housing market bubble on record. The Senate would do well to ask itself whether the economy’s interests would be best served by again choosing a Fed chairman who seems to have learned so very little from the Federal Reserve’s past monumental mistakes.

A sign that Bernanke’s reappointment really may be doomed: John McCain, whom many would characterize as a member of the muddled middle, also has come out against Bernanke. Political calculations may lead others to follow. For instance, if the new senator from Massachusetts, Scott Brown, wants to reinforce his strong crossover appeal, opposition to Bernanke offers an uncommon opportunity: Both working class Democrats and limited government conservatives reject Bernanke’s vision of Uncle Sam playing wet nurse to Wall Street.

As I wrote recently, our economy would be best served by a Fed Chairman who will let the market of lenders and borrowers guide interest rates, and who understands that unproductive companies should be allowed to go bankrupt. What’s useful in those companies doesn’t disappear in a bankruptcy. The valuable assets are purchased and put to better use by more productive companies. And when interest rates are allowed to float upward to reflect the scarcity of current savings, people will be more careful what they borrow for, while others will be enticed to save more, attracted by the higher interest rates paid for bonds. This, in turn, will boost available capital for longer-term business ventures aimed at enhancing our productivity.

Consider the short depression of 1920. A decade before the Great Depression, World War I had just ended and a flood of American soldiers returned home in search of work. Meanwhile, the Federal Reserve, having roughly doubled the money supply during the war, now put the brakes on the easy money by moving interest rates closer to where they might sit if simply left to market forces. The government also largely refrained from bailing out failed businesses or trying to juice the economy with big stimulus packages.

All of this is the opposite of what the Keynesians recommend in an economic slowdown. It’s the opposite of the Keynesian strategy pursued by both FDR and Hoover during the Great Depression. And it’s the opposite of what Chairman Bernanke has sought to do.

So how did the depression of 1920 play out? The readjustment to a peacetime economy was severe. Production fell by some 20%. Unemployment shot past 11%. But then the depression quickly reversed itself.

Many companies had gone broke, but their useful assets were sold to well-run companies. During the early phase of the contraction, goods and savings were tight, but the higher interest rates signaled to people, “Hey, if you want to borrow money, you’d better have a good, productive use for the money because you’re going to have pay a premium for it” — not because of a bunch of mean old capitalists but because there wasn’t a lot of savings to loan out right then. People got the message. Money got loaned to the most productive enterprises, and before long, the economy was humming again. The unemployment rate dropped below 7% in 1922, and below 3% in 1923. The government allowed the free market to readjust itself, and it quickly did.

This is the strategy recommended by the Austrian school of economics (which incidentally has more adherents in the United States than in Austria). The Austrian school is the polar opposite of the Keynesian school. The Austrian school predicted the Great Depression when others were preaching permanent prosperity. And it predicted our current recession when Bernanke the Keynesian was saying everything was right as rain.

All of this should give the Senate pause.