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Was Friedman Right About Rothbard on Banks?

August 27, 2013 in Economics

By Mises Updates

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Today at Mises Daily: William L. Anderson examines Milton Friedman’s attack on Rothbard for his “do-nothing policy” on failing banks.

Meanwhile, Paul Krugman invokes Friedman’s “contempt” for Austrians as proof that the Austrians are wrong.

Read the full article.

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Source: MISES INSTITUTE

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The Danger of an All-Powerful Federal Reserve

August 27, 2013 in Economics

By John H. Cochrane

John H. Cochrane

Interest rates make the headlines, but the Federal Reserve’s most important role is going to be the gargantuan systemic financial regulator. The really big question is whether and how the Fed will pursue a “macroprudential” policy. This is the emerging notion that central banks should intensively monitor the whole financial system and actively intervene in a broad range of markets toward a wide range of goals including financial and economic stability.

For example, the Fed is urged to spot developing “bubbles,” “speculative excesses” and “overheated” markets, and then stop them—as Fed Governor Sarah Bloom Raskin explained in a speech last month, by “restraining financial institutions from excessively extending credit.” How? “Some of the significant regulatory tools for addressing asset bubbles—both those in widespread use and those on the frontier of regulatory thought—are capital regulation, liquidity regulation, regulation of margins and haircuts in securities funding transactions, and restrictions on credit underwriting.”

This is not traditional regulation—stable, predictable rules that financial institutions live by to reduce the chance and severity of financial crises. It is active, discretionary micromanagement of the whole financial system. A firm’s managers may follow all the rules but still be told how to conduct their business, whenever the Fed thinks the firm’s customers are contributing to booms or busts the Fed disapproves of.

Macroprudential policy explicitly mixes the Fed’s macroeconomic and financial stability roles. Interest-rate policy will be used to manipulate a broad array of asset prices, and financial regulation will be used to stimulate or cool the economy.

Foreign central banks are at it already, and a growing consensus among international policy types has left the Fed’s relatively muted discussions behind. The sweeping agenda laid out in “Macroprudential Policy: An Organizing Framework,” a March 2011 International Monetary Fund paper, is a case in point.

“The monitoring of systemic risks by macroprudential policy should be comprehensive,” the IMF paper explains. “It should cover all potential sources of such risk no matter where they reside.” Chillingly, policy “should be able to encompass all important providers of credit, liquidity, and maturity transformation regardless of their legal form, as well as individual systemically important institutions and financial market infrastructures.”

What could possibly go wrong?

It’s easy enough to point out that central banks don’t have a great track record of diagnosing what they later considered “bubbles” and “systemic” risks. The Fed didn’t act on the tech bubble of the 1990s or the real-estate bubble of the …read more

Source: OP-EDS

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Should the Constitution Be Amended?

August 27, 2013 in Economics

By Richard W. Rahn

Richard W. Rahn

What amendments to the U.S. Constitution, if any, would you like to see? The widespread belief is that the American constitutional republic, if not actually broken, is in a state of disrepair. In his new, best-selling book, “The Liberty Amendments: Restoring the American Republic,” Mark R. Levin, president of the Landmark Legal Foundation and nationally syndicated talk-show host, proposes a number of amendments to the Constitution as a fix. Mr. Levin argues that amendments are needed because the nation has entered an age of “post-constitutional soft tyranny” — as defined by the great 19th-century French historian and philosopher, Alexis de Tocqueville, who wrote in “Democracy in America”:

“It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. The will of man is not shattered, but softened, bent and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd.”

Has America become what de Tocqueville feared 170 years ago?

It is hard to deny that America, along with most of the other major democracies, has become a bureaucratic state, where degrees of individual freedom have been reduced, and fear of the government has grown. Journalist-commentator Peggy Noonan asserts that we are in danger of becoming “a nation of sullen paranoids” as a result of the excesses of many individuals in the Internal Revenue Service, the National Security Agency, the Justice Department and other government agencies, unless we choose to “stop it.”

Mr. Levin and many other commentators have correctly noted that most of the present-day problems exist because successive administrations, Congress and the courts have ignored or been less than faithful to the Constitution. The open question is: Can amendments to the Constitution, which has only partially been adhered to, fix the problem?

Having been in the forefront of the battle to protect liberty for decades, Mr. Levin has the depth and breadth of knowledge to properly describe how our liberties are being lost. In sum, Mr. Levin’s approach is to describe pieces of the overall problem (with the necessary supporting evidence), and then lay out his solution for correcting each particular piece. If I were teaching an advanced course …read more

Source: OP-EDS

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In ‘The Free Market’: Love, the State, NGOs, and a New Archive of Mises Papers

August 27, 2013 in Economics

By Mises Updates

In the August issue [PDF] of The Free Market, the Mises Institute’s monthly, Daniel McAdams covers the International “non-governmental organizations” scam, Robert Higgs discusses Love vs. the State, and the Mises Institute gains a new archive of Mises’s personal papers.

Robert Higgs notes the downside of the “realist” view of politics:

Hardheaded people mock the idea that “love is the answer” to the people’s dire situation. They insist that evil forces and evil men are afoot in the world, men who care nothing for love and seek only vile ends, and that such malevolence can be fended off effectively only by meeting it with adequate force and violence. Thus does the perceived “security gap” fuel a race to the bottom in which the ostensible protectors become more and more indistinguishable from the evil men who allegedly seek to hurt us.

And Daniel McAdams describes how shady government-funded non-profits drive foreign policy:

What is behind these human rights NGOs? The Libyan League for Human Rights is a member of the International Federation for Human Rights…It should not be much of a shock to learn that the International Federation for Human Rights relies heavily on governmental sources for funding. Governmental funding of NGOs has been an increasingly effective tool for mobilizing popular support for governmental policies. A land or resource grab is hardly as compelling to the masses as a claimed human rights crisis when a foreign intervention is planned.

Also inside: Mises Bibliographer and historian Bettina Bien Greaves donates her extensive archive of Ludwig von Mises’s personal notes, books, and photographs to the Mises Institute, including many never-before-published photos of Mises and his associates.

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Source: MISES INSTITUTE

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Krugman attacks Murphy

August 27, 2013 in Economics

By Mises Updates

Krugman is not a fan of Robert Murphy, author of the Human Action Study Guide and The Politically Incorrect Guide to the Great Depression and The New Deal

Murphy will also discuss teaching for Mises Academy in the upcoming September issue of The Free Market.

See previous anti-Murphy Krugman posts.

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Source: MISES INSTITUTE

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U.S. Can't Fix Syria

August 27, 2013 in Economics

Support is gathering in Washington for military action in Syria. The desire to do something in Syria is understandable. The gut-wrenching images of the dead, including the young, have rocketed around the world. To casual observers, it seems obvious that a country as rich and militarily powerful as the United States must be able to stop the violence. But the truth is that not even the United States can solve Syria’s problems. Cato scholars Benjamin Friedman and Christopher A. Preble discuss the recent violence in Syria and the role of the United States.

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Source: CATO HEADLINES

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Outsiders Have No Tool to Fix Syria

August 27, 2013 in Economics

By Christopher A. Preble

Christopher A. Preble

The desire to “do something” in Syria is understandable. The gut-wrenching images of the dead, including the young, have rocketed around the world. To casual observers, it seems obvious that a country as rich and militarily powerful as the United States must be able to stop the violence.

But the truth is that not even the United States can solve Syria’s problems.

The deeply dysfunctional Syrian state is not something outsiders have the tools to repair. Cruise missiles launched from ships and submarines won’t persuade the divided Syrian opposition to unite around a common goal, nor are they likely to cause President Bashar Assad’s supporters to capitulate and throw in their lot with the rebels.

But such strikes will result in additional death and destruction on the ground. The violence will end only when the warring factions within Syria tire of the struggle and are willing to compromise for peace. That is unlikely to happen any time soon, with or without U.S. involvement.

U.S. strikes will do nothing to solve the supposed credibility problem President Obama created by stating that use of chemical weapons was a “red line.” Instead, by involving the United States in a war without winning it, they will worsen the problem.

The American public remains strongly opposed to military intervention of any type, even if it is proven that Assad has used chemical weapons. To be sure, this reflects war weariness after Iraq and Afghanistan. But that wariness is also a hard-earned lesson of those wars: The violence within Syria, while tragic, does not directly threaten U.S. national security.

This month, Chairman of the Joint Chiefs of Staff Martin Dempsey told ABC that “the application of force rarely produces and, in fact, maybe never produces, the outcome that we seek.” More recently, Dempsey explained that military leaders were “realistic about the cost we incur in blood and treasure when we apply the military instrument of national power, and … pragmatic about the limits of military force.”

While the president no doubt has many people advising him to intervene, he should listen to his senior military adviser and the American people, and keep U.S. military personnel focused on those essential missions that they can accomplish, and that might actually advance U.S. security.

Christopher Preble is the vice president for Defense and Foreign Policy Studies at the Cato Institute. 

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Source: OP-EDS

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The Danger of an All-Powerful Fed or the Danger of a Central Banking: Cochrane and Cochran

August 27, 2013 in Economics

By John P. Cochran

The Danger of an All-Powerful Fed or the Danger of a Central Banking: Cochrane and Cochran

John H. Cochrane: The Danger of an All-Powerful Federal Reserve: ‘Macroprudential’ policy thinkers want central banks to micromanage the entire financial system.

John P. Cochran: Can Fed policy get any worse? – Bernanke A Tenure of Failure

Macroprudential policy is Mondustrial Policy on Steriods.

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Source: MISES INSTITUTE