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Two Mises columns that expose economic follies

Thomas DiLorenzo exposes the moranic follies and the total immorality contained in a ludicrous article in Time magazine about how the next president should fix our economy. I have a feeling that if I had read the vacuous Time article without knowing where it came from, without knowing it was published in a once-serious publication, I would have guessed it was by a libertarian blagger or columnist who was trying to parody and ridicule the wholly ignorant and immoral proposals put forth by socialist politicians and beloved by millions of socialist voters. Don’t believe how outrageous the article is? Either read it for yourself or read what DiLorenzo wrote about it:

Time magazine is staffed by socialist ideologues who display little or no evidence of ever having studied economics at all.
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Justin Fox…explains the real problem as Time sees it: Americans enjoy too much economic freedom. The natural solution, therefore, is to strip them of their freedom with higher taxes, more regulations, and greater regimentation of their lives. The cause of all of today’s economic problems, says Time, is of course Ronald Reagan, who supposedly cut taxes, went about “slashing regulation,” and preached “the gospel that individual Americans were better suited to make economic decisions than bureaucrats in Washington were.” [Yes, the article really says that, in those words! How could someone who actually opposes the individualist viewpoint phrase that sentence in that way? That's how I'd phrase it if I were mocking the Statists' hatred of the individual and worship of the State.—JTP]
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“There are signs that … America’s 25-year love affair with tax cuts and deregulation” is ending. One reason for this is that the federal budget is “way out of balance.” According to Time, the fact that the Bush administration has been even more spendthrift (on domestic spending as well as military) than the notorious Johnson administration, and has accumulated huge budget deficits, is evidence that Americans have too much freedom and too much money in their pockets. They need to be taxed more severely in the name of budgetary “balance.” Not one word is devoted to the idea of cutting spending of any kind by a single dollar, let alone abolishing entire government bureaucracies altogether.

… Even though regulation has caused this problem [oil prices], the “solution,” according to Time, is more regulation of the energy industry.

A third reason for “hope” that Americans will give up their economic freedom is the housing crisis, which again was caused primarily by the Fed-generated boom-and-bust cycle, with a little help from the government’s thirty-year policy of forcing banks to make bad loans to uncreditworthy borrowers under the Community Reinvestment Act. Time wants to blame it all on the free market, however, and makes no mention at all of the role of monetary policy in generating the housing-market crisis.

Health-care costs began spiraling out of control as soon as government became involved in the post–World War II era, especially with the advent of Medicare and Medicaid. Health care and health insurance are arguably the most heavily regulated industries in America; decades of cost-increasing regulations have been the main cause of the “health care crisis” that the socialist ideologues at Time are so worried about. Government control of health-care markets is the problem; therefore, the obvious “solution” is even more government control of health-care markets, says Time.

Time’s Justin Fox presents a tired, old, laundry list of failed socialistic interventions. These include protectionism; more income “redistribution” (a.k.a., legal theft) via the tax system, i.e., “heavy taxes on the rich”; more pork-barrel “infrastructure” spending—and higher taxes to pay for it; an additional round of tax increases “to close the budget gap” (which of course tax increases never do); yet another round of tax increases on oil, gas, and natural gas to “steer” consumers away from these items; more tax increases still in the form of elimination of the mortgage-interest deduction, which “costs the government about $80 billion a year”; and, of course, socialized medicine, the tax increases for which would entirely swamp all of the previously mentioned tax increases.

It’s hard to believe, but that’s what socialist-Statists actually think, and they write for major magazines and newspapers, and they spout their economic fallacies on TV and radio stations, and they run for political office and win repeatedly. Or they listen to what all of these supposed “authorities” say, and they vote for those politicians, and they believe them because such ignorant socialism agrees with what they want to believe.

William Anderson exposes more economic ignorance from our elected criminal class regarding oil prices specifically. He writes that Republicans successfully filibustered a bill that would have exercised heavy taxes on oil companies on profits that exceeded an arbitrary point determined by our elected criminal class, and the bill also would have punished market speculation and “price-gouging,” both of which are non-crimes that would be arbitrarily interpreted and prosecuted by professional criminals.

Instead of looking at this situation squarely and putting together the obvious pieces, it seems that the political classes in this country have decided that supply and demand really don’t matter at all, and that all commodity prices are simply arbitrarily administered by people who are impervious to the desires of consumers. Such a view permits the political classes to ride in as heroes. …
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Politicians insist that the causality chain runs from profits to prices when, in reality, it is the other way around. Oil companies are making large profits because they purchased the factors of production at relatively low prices and are able to sell their products for more than the company managers and the factor owners projected at the time of the agreement to sell.

However, record profits also mean better opportunities for recapitalization and new exploration. If executives are not investing many of their profits into exploration and new equipment, then it means that they do not have confidence in the future. This would not be because oil suddenly will be unprofitable, but rather because oil executives have no confidence in the political classes.

Anderson doesn’t mention something that Bob Murphy has: If the elected criminals exact punitive taxes on the profits of oil companies, the companies will simply raise their prices to make up the lost profits. At the very least, it won’t result in lower prices.

Regarding speculators, Anderson writes,

Far from being “faceless” villains, the “speculators” are people purchasing future contracts for oil (and other commodities) to ensure that they will have supplies in the future. They represent firms that purchase gasoline and oil contracts and they have no interest in jacking up the price for its own sake.
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Government regulation of the futures markets in oil would simply make the markets more chaotic, less predictable, and would guarantee prices that would be higher in the absence of a free-flowing market.

Here, again, Bob Murphy succeeded in explaining why this is true in a very clear and logical manner, but Anderson neglects to, possibly because it is obvious to him and his colleagues or possibly because his goal is to decry the demagoguing naure of politicians’ “solutions” and not actually explain what’s right.

What’s right is that by buying low and selling high, speculators keep the market for a particular good less volatile and mitigate the extreme increases or decreases in prices that would exist in their absence. Speculators act as a kind of price buffer in a given market. The price of a good is an indication of its demand relative to supply. A low price indicates low demand relative to supply, and a high price means high demand relative to supply. As the price of a good is sinking, indicating lower demand, speculators speculate that the price is near its short-term nadir and buy contracts for the good (or its production), thereby increasing perceived demand and keeping the price from dipping too low. When the price of a good is rising, speculators speculate that the price is approaching its apex and they sell, sending a decreased-demand signal to the market and thereby contributing to a slightly lower price than would otherwise exist. Just as a buffer solution in chemistry keeps the pH of the solution it’s added to from getting too high or too low, so do speculators keep prices from reaching extreme highs or lows; they are a price buffer in the market. They keep prices less volatile, whereas the disruptive coercion and arrogant regulation of socialism add chaos to every industry.

Lastly, regarding the proposed legislation to criminalize windfall profits and “price-gouging,” Anderson writes incisively:

When in doubt, Congress makes something a crime. Keep in mind that while they are first speaking of $5 million fines, ultimately they will be throwing people in prison for “economic crimes,” and “speculation,” which was the hallmark of the former Soviet Union.

Furthermore, “the power to declare an economic emergency” is a nice euphemism for dictatorship. The Congress — which claims that it really does believe in separation of powers — wants to endow the president of the United States with the power to declare “economic emergencies,” and if people afterward raise the prices of oil (or, most likely, anything else), they will ultimately be fined into bankruptcy or thrown into prison.