Not very  often, but  occasionally he hit on something of importance.

For example, he said in the Communist Manifesto  that: “The cheap prices of its commodities are the heavy artillery with which [ the profit system]…compels all nations, on pain of extinction, to adopt the  [ profit]… mode of production.” President Obama evidently missed that passage, since he claimed in a debate with Mitt Romney that the government could provide health services more cheaply because it did not have to earn a profit. The truth, as even Marx understood, is that  the search for profit  drives prices down.

One of the few things Keynes got right was his dismissal of Marx. He told his student Michael Straight: ” Marxism was even lower than social credit as an economic concept. It was complicated hocus-pocus.” [ Skidelsky, vol 2, p 523] Curiously, Marx had already said much the same about Keynesianism, even before Keynes was born. His scorn for Keynesianism was of course possible because there wasn’t anything particularly new about what Keynes said.

Here is the passage from Capital [ P. 827-29] in which Marx seems to be anticipating the Keynesian  system:

“The only part of the so-called national wealth that actually enters into the collective possessions of modern people is– their national debt. Hence,…the modern doctrine that a nation becomes richer the more deeply it is in debt. Public debt becomes the credo of capital. And with the rise of national debt-making, want of faith in the national debt takes the place of blasphemy against the Holy Ghost….

As with the stroke of the enchanter’s wand…, [ the public debt] endows barren money with the power of breeding and thus turns it into capital.”… [But] modern fiscal policy…contains within itself the germ of automatic progression. Overtaxation is not an accident, but rather a principle.”

It would be fitting punishment for Marx and Keynes to have to debate each other face to face forever  in some gloomy spot beyond the River Styx.

The Fed has committed itself to maintaining its zero interest rate policy as well as quantitative easing for as long as the unemployment rate remains above 6.5 percent (and inflation rate below 2.5 percent). James Bullard, the President of the Federal Reserve Bank of St. Louis, heroically dissents from this policy of unemployment targeting, which is basically a reversion to the crude and discredited Old Keynesian doctrine. In a speech last month entitled “Some Unpleasant Implications for Unemployment Targeters”, Bullard, himself a New Keynesian inflation targeter, stated:

Attempts to address the various labor market inefficiencies solely with monetary policy do not work very well because improvements on one dimension are simultaneously detriments on other dimensions. . . . monetary policy alone cannot effectively address multiple labor market inefficiencies, and so one must turn to more direct labor market policies to address those problems.

Unfortunately, President Bullard did not articulate those “more direct labor market policies,” but they would include: the repeal of minimum-wage legislation, which destroys jobs for the unskilled; the repeal of the National Labor Relations Act, which coerces employers into collective bargaining and privileges union “insiders” against non-union “outsiders” causing unemployment or lower wage rates among the latter; and the phasing out of unemployment “insurance,” which encourages unemployed workers to spend an excessive amount of time in “searching” for jobs.

The full PowerPoint presentation of Bullard’s speech can be found here.

The Mises Institute will be hosting the David Stockman Seminar in New York City on Tuesday May 21. Lew Rockwell, Judge Andrew Napolitano, and myself will be in attendance. Mr. Stockman will be talking about his hard-hitting new book on crony capitalism, The Great Deformation.

The Great Deformation is an indispensable book, packed with insights and careful historical analysis. The massive bailouts injected into the economy by the Bush Administration in response to the 2008 crisis were not needed to stave off a collapse of the monetary system. To the contrary, Stockman shows, they were a triumph of “crony capitalism”. This nefarious system, based on massive government debt, has deep roots in twentieth-century economic history. Stockman offers one of the best discussions I have ever read of Roosevelt’s New Deal, and the vital role of Richard Nixon on our road to financial ruin receives much needed stress. Neither Keynes nor Milton Friedman fares very well here, and readers will learn why the policies of both of them have led to disaster. The Great Deformation is a magnificent defense of a free economy and sound money.

There is now a Wikipedia entry on William H. Peterson available here. Dr. Peterson was a student of Ludwig von Mises, a prominent business economist, and a great man.

Line of the day, from Michael Kinsley: “Krugman sometimes writes as if, right or wrong, his view is the courageous one, held by folks willing to stand up to the plutocrats and their lackies. But his message to all classes is: party on.”

I also like the way Luigi Zingales put it in 2009:

Keynesianism has conquered the hearts and minds of politicians and ordinary people alike because it provides a theoretical justification for irresponsible behavior. Medical science has established that one or two glasses of wine per day are good for your long-term health, but no doctor would recommend a recovering alcoholic to follow this prescription. Unfortunately, Keynesian economists do exactly this. They tell politicians, who are addicted to spending our money, that government expenditures are good. And they tell consumers, who are affected by severe spending problems, that consuming is good, while saving is bad. In medicine, such behaviour would get you expelled from the medical profession; in economics, it gives you a job in Washington.

See also my comments here.

You would not think that there would be any worthwhile ideas in an article entitled “Bring on the ‘Helicopter’ Money.” Written by hedge-fund manager Daniel Arbess in today’s Wall Street Journal, the article contains a very good idea buried among many bad ones.

Arbess argues that quantitative easing is failing because there is a lack of demand for credit, so that Fed policy is “pushing on a string,” as it were. In addition, Arbess contends, fiscal policy is acting as a “headwind” to the economic recovery because of higher payroll taxes and rising health care costs.

To combat such “monetary impotence” and “fiscal paralysis,” Arbess recommends a “helicopter drop of money” directly into the economy. In technical terms this is today called “overt monetary finance,” which means that the Fed would bypass the banking system and credit markets in creating money and send the new money directly to the Treasury where Congress would decide on how to use it. Since it is illegal for the Fed to purchase debt directly from the Treasury, this procedure would be considered “a direct equity investment” in the Treasury. Sure this policy poses the obvious risks of inflation in the hands of an undisciplined Congress, but Arbess believes that these risks are “manageable” and that this mechanism offers “an optimum combination of fiscal and monetary stimulus without increasing private or public debt.” Thus, Arbess’s main concern seems to be to expand government spending without further bloating Federal deficits and the national debt.

Of course these are all very bad ideas and are based on the crude and destructive Keynesian notion that money and spending–more paper tickets or their electronic substitutes changing hands–will lead to the creation of more real goods and jobs. But the Fed has created $2.3 trillion (M2) since 2008. What makes Mr. Arbess think that creating dollars through a different channel will alter the result? Furthermore, what is retarding the economic recovery is not the Federal budget deficit or the size of the national debt per se. It is rather the amount of resources that the Federal government is prying from the hands of productive entrepreneurs, investors and laborers, and siphoning out of the private economy into wasteful subsidies to domestic special interests, the financing of unnecessary wars, the feeding of an insatiable and gigantic military machine, and the payment of the salaries of the unproductive politicians and bureaucrats who oversee it all. This is the true burden dragging down the economy and is measured by precisely total government spending that Mr. Arbess so desperately seeks to increase. It matters very little whether such spending is financed by taxes or by deficits funded by debt issuance and money creation.

The one good idea in the article is overt monetary finance, but for different reasons than Mr. Arbess gives. Arbess sees this measure as only a temporary “crisis-fighting tool” that will be stowed away as soon as the economy recovers. But as a permanent policy, it would be a wonderful device for wresting control of monetary policy from un-elected, secretive, and pseudo-scientific Fed bureaucrats and placing it under a Congress subject to popular scrutiny and elections. Of course this would not be an ideal system, which would be a hard money consisting of a market supplied commodity like gold. But it would have a number of significant advantages over the present Fed-dominated system. First, as just noted, money creation by Congress would be far more transparent and understandable to the public than the arcane procedures by which the Fed expands the money supply. Second, the injection of new money directly into the economy via government purchases of goods and services would avoid the continual and systematic distortion of financial markets and the interest rate currently caused by Fed open market operations. This process of “simple inflation” as Mises called it would, therefore, certainly produce rising prices but would not generate business cycles of recurring booms and busts. Finally, the Fed could no longer operate as a bailer-outer of last resort, surreptitiously bailing out gigantic domestic and foreign financial institutions in the absence of discussion and consent by Congress and the knowledge of the public.

For a more detailed discussion of the pros and cons of placing the Fed directly under Congressional control see my article The Flipside of the Trillion Dollar Coin.

The president of the Minneapolis Fed, one Narayana Kocherlakota, decided to devote the entire 2012 Annual Report to not one but two interviews with . . . . . . . . himself.   The interviews are a celebration of economic stupidity.  A few excerpts:

“Quantitative easing has the impact of pushing down on longer-tern interest rates.  And that should be directly stimulative to the economy because by pushing down on market interest rates, people are led to think, ‘Hmm, maybe I shouldn’t be buying those assets that are paying such a low yield.  I should spend money instead.’”    No need to save, invest, or work and produce; just spend, spend, spend, like a nation of spoiled rich kids.

“We’d like to push it [interest rates] down further and can’t.  That should be a signal to the fiscal authority to be more interventionist in the economy” with a “future consumption tax” to “encourage current spending.”

Responding to a question after his speech in Stockholm earlier today, Federal Reserve Bank of Philadelphia President Charles Plosser admitted that the Fed’s policy of targeting a zero interest rate “is increasingly troubling to many people on the Fed.” Plosser went on to state, “We’re very conscious of the fact that keeping rates at zero for very long periods of time can distort decision making in various ways.” Ya think?

I just had a long conversation with a longtime member of the Mises Institute. We discussed the economy, gold investments, and the great Burt Blumert. I thought it would be worthwhile to post Burt’s Wikipedia entry here for both all the people who admired Burt and younger members and scholars who did not have the pleasure of knowing Burt. He was a great man and a vital figure in building the libertarian movement and the resurgence of the Austrian School.

http://www.youtube.com/watch?v=iwNLRNpVbN8