Michael D'Angelo

Today I want to take a break from modern day issues and focus on more of a book review.  A few weeks ago, Dr. Robert Murphy came to speak in one of my Economics classes.  His lecture focused on the hidden thoughts behind many mundane issues such as: seatbelt laws, airbag legislation, discrimination laws, and environmental protection laws.  Many of these issues he discusses in his book:  The Politically Incorrect Guide to Capitalism.

Dr. Murphy continued to host a seminar later that evening about his new book:  The Politically Incorrect Guide to the Great Depression and the New Deal.  I found his lecture about his book to be terrifically spot on, and dispel a great myth that has been spun in classrooms around the country for decades.  I particularly enjoyed this book because Dr. Murphy doesn’t beat around the bush; he flat out tells you that the New Deal was not the reason we got out of the Great Depression.

More interestingly, this book is not theory, or math intensive.  While critics of his may like to point out that lack of empiric proof could be grounds for dismissal, the idea behind this book was for people of little to no Economics background to be able to read through it.  This book is also a great introductory book for people who are not familiar with free-market thought or just enjoy a good political thriller.

Throughout the book, Dr. Murphy also provides a bunch of “what if” columns; not only for entertainment, but to also stimulate intellectual thought.  Lastly, I like how Dr. Murphy includes quotes and arguments from famous speakers and Economists on the matter of the New Deal.  These arguments help convey the theme of the book and strengthen his argument.  Overall, I thought this book was a great read, and more importantly a very informative piece on of the most defining moments in current American Economic policy.

As it stands today we face an approximate 9.8% Unemployment (According to BLS).  That means that out of the roughly 175 million person labor pool, roughly 17 million Americans that are looking for work, are unemployed.  Unfortunately, due to various factors, this number will continue to rise.

One of the leading reasons this number will continue to be high is because of the lag effect.  In economics the “lag effect” is one of the market forces that take a longer period of time to react to the changes in the market; whether they be fiscal, monetary, or free.  The Economy as it is today is starting to show some life.  The data on business inventories suggests that production will begin to increase soon.  The last recorded data on production indicated that businesses were emptying their inventories; this means that people are buying goods and serviced produced by these companies which leads to companies needing to produce more.

This is good news because it shows the goods market sector is beginning to thaw.  With demand catching up to supply, companies can then start producing more goods and services which will then require them to hire more workers.  Unlike financial markets, goods markets take a longer time to react to changes in the Economy.  A financial market’s supply and demand is reflected instantaneously in its bond or stock prices.  So for arguments sake let’s only examine the goods market for now.  In goods markets, it takes time for companies to determine that their inventories are depleted, time to figure out what needs to be produced and how much of it, and time to rev up production and hire workers.

So yes, I would say unemployment will continue to rise at least for another year, and, accounting for the lag effect, we may start to see a drop in unemployment in Q2 or Q3 of 2011, and this will be because of the necessity for workers in jobs related to production and services within the goods market.  Inevitably, financial markets will follow once people have more money in their pockets and choose to invest their excess wealth.

Statistics source: http://www.bls.gov/news.release/empsit.nr0.htm

Everyday, news reporters, school teachers, philosophers, and the everyday hardworking men and women point out things that are wrong with this country.  The everyday person often complains about the headache that is the Department of Motor Vehicles, the long line at the Post Office, and bad Airline food.  As you move up the educational hierarchy, the arguments become more sophisticated.  Business’s complain about patents and copyrights, the construction sector argues against unions, Pharmaceutical companies fight claims of  “coming short of viable vaccines”  (this complaint has become common practice for those lobbying for more funding for the FDA).

So what do all these complaints have to do with Capitalism?  Absolutely nothing!  Unfortunately we live in more of a Corporatist state here in America than capitalist.  Everyone from Congressmen to unoriginal film makers such as Michael Moore love to blame Capitalism for our country’s problem but fail to understand that we do not live in a Capitalist society.  The DMV, FDIC, FDA, FCC;  These are all umbrella organizations set up by the government to “regulate” and manipulate the respective businesses that fall under each category.  People, more often than not, blame the businesses when something goes wrong or their products are not so useful.  Instead they should look to the organizations controlling them; telling them what they are allowed to produce and how they have to do it.

Corporatism promotes state intervention on business practices.  This is exactly what these government institutions have done.  Let me now site a very relevant situation:

The Civil Aeronautics Board (CAB) was established in 1938 to oversee the airline industry.  This was done to make sure that any “harmful competition” wouldn’t hurt the consumer.  This also meant that the government now had a control over the operations of the airlines.  In 1938, air travel was still a commodity only for those with a great deal of wealth; but as time progressed, most notably in the 1950′s and 60′s; the price of traveling should have decreased due to technological advances and competition.  However, adjusting for inflation, the price of flying had increased over the duration of the CAB’s existence.  Many people refused to fly, blaming the “evil airline industry for raising prices”.  The real culprit was the CAB.

The CAB not only gave Pan-Am a monopoly for the sky, they also regulated ticket prices.  In a time when air travel was made affordable to people of all economic backgrounds in other countries, not only did it lag in the United States, people who could afford the outrageous prices wouldn’t pay.  The CAB kept prices extremely high, couldn’t effectively respond to demand, and barred entry to the industry.  All of this was a recipe for disaster.  Once the CAB was dismantled, dozens of airline companies began to take off (literally); prices dropped drastically and many Americans were able to fly.  Even the food was better! (Yes, the CAB regulated the food on the planes too).

It was the Corporatist entity of the CAB that caused the insane Airline prices and crippled the industry for decades; and it was the Capitalist simplicity of supply and demand market feedback that fixed the problem.

I certainly do not.  In the past year, the United States government has written fat checks to corporations in excess of $800 billion.  There are many problems with this action by the Fed that goes beyond obvious thought.  Firstly, these bailouts not only privatize company profits, they also publicize the debt.  Basically when the government wrote this fat check they passed the bill to taxpayers with no promise of reimbursement from the companies.  Last I checked I didn’t get any stock options or dividends from AIG and Lehman Bros; and nor should I expect to get such propositions.

So the taxpayer cleans up the mess as always, not such a big deal right?  Wrong.  This time it is different.  With the current credit freeze that still has yet to be thawed, the money given to the failing companies by the Fed is promoting bad business.  In a free-market society, consumers reward good companies by purchasing their product or using their services because they provide them at an affordable price; conversely, we punish bad business practices that charge too much for inefective products by not buying their goods.  Ultimately that company is forced to compete at fair levels, or if it can’t it goes out of business and its resources are reallocated by other firms in the industry.  By giving more money to failing companies, the government is building another bubble in the economy that will inevitably burst.

This bubble causes a vicious boom/bust cycle that started after the creation of the Fed in 1913; it’s one of the major hidden reasons behind the Great Depression.  This boom and bust will lead to something far worse than a recession; we very well could be looking at an economy with stagflation if the Fed continues it’s practices.

Hi everyone.  I want to thank all my potential readers out there for stopping by.  I am new to the blogging sphere, but not new to the politics and economics of our great nation.  You can read more about me on this site to get a feeling for my brand of writing.

I am free-market advocate, economics student, and avid follower of global markets and trends.  The goal of this blog is quite simple.  I want to take complex issues in our society such as health care and bond markets, etc.  and show the everyday American the economic implications of these systems.  Applying my background in Economics, my goal is to simplify these complex topics in broad outlines that everyone can understand.

That’s it for now, please feel free to check out the links to the right; I guarantee they will spark an interest.