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I would point out the complete lack of consensus from the Democratic Party. Barney Frank is saying that it's not working but will take time. Chris Dodd has said that it's not working and banks must start lending for it to work.

For Barack Obama to say the bailout has prevented a 25% unemployment would go against the message of other big players in the Democratic party. If they want to control the narrative on this one, they're going to have to organize it. Too many people from the Dems are saying different things. That needs to be pointed out before an organization phase takes place and they do begin to repeat a unified clear mantra.

Your point raises the thought that the cheapening of capital is the root of our problems.

Why then is the Fed and western governments continuing to diminish the role of the capitalist by denying them any return on their investment?

This chapter of economics seems as entertaining as watching the dog chase its tail.

Perverse incentives: -- By word of mouth I'm hearing that people here in SoCal are stopping payment on their mortgages in order to qualify for the Federal bailout.

Is anyone tracking this or writing about this?

If I may suggest, there are some similarities with the situation in 1932 and our economic situation today, but not of the type that president-elect Obama or others like him have in mind..

The similarities are to be found in the politicization of economic life as had developed in Weimar Germany by 1932. The state was heavily and increasingly involved in the marketplace. Few business transactions or investment decisions could be made without the consent and participation of those in political power.

Corporate leaders were less concerned with satisfying consumers and directing business where market profitability suggested.

Instead, they were deeply concerned with placating those who held the political authority to grant subsidies, protections and regulations. The hallmark of a successful businessman was his “connections” and ability to influence regulations and interventions in ways that secured his survival in the market.

All of this was described with great clarity by Ludwig von Mises in his 1932 essay, “The Myth of the Failure of Capitalism” translated and published in “Selected Writings of Ludwig von Mises, Vol. 2: Between the Two World Wars: Monetary Disorder, Interventionism, Socialism and the Great Depression” (Liberty Fund, 2002):

"In the Interventionist State it is no longer of crucial importance for the success of an enterprise that the business should be managed in a way that it satisfies the demands of consumers in the best and least costly manner. It is far more important that one has “good relationships” with the political authorities so that the interventions work to the advantage and not the disadvantage of the enterprise.

"A few marks more tariff protection for the products of the enterprise and a few marks less tariff for the raw materials used in the manufacturing process can be of far more benefit to the enterprise than the greatest care in managing the business.

"No matter how well an enterprise may be managed, it will fail if it does not know how to protect its interests in the drawing up of the customs rates, in the negotiations before the arbitration boards, and with the cartel authorities. To have “connections” becomes more important than to produce well and cheaply.

"So the leadership positions within enterprises are no longer achieved by men who understand how to organize companies and to direct production in the way the market situation demands, but by men who are well thought of 'above' and 'below,' men who understand how to get along well with the press and all the political parties, especially with the radicals, so that they and their company give no offense.

"It is that class of general directors that negotiate far more often with state functionaries and party leaders than with those from whom they buy or to whom they sell.

"Since it is a question of obtaining political favors for these enterprises, their directors must repay the politicians with favors. In recent years, there have been relatively few large enterprises that have not had to spend very considerable sums for various undertakings in spite of it being clear from the start that they would yield no profit. But in spite of the expected loss it had to be done for political reasons. Let us not even mention contributions for purposes unrelated to business-for campaign funds, public welfare organizations, and the like."

Let us just hope that our version of the Weimar interventionist state does not lead to anything like what that one led to.

Richard Ebeling

I've made a close study of Obama over the last 7 or 8 months (perhaps as close as anyone in the country).

I've concluded from that close study that Obama will say most anything to advance his political advantage -- truth value is beside the point.

Philosopher Harry Frankfurt has a great academic paper titled "On Bullshit" which discusses the difference between a _liar_ -- someone who cares about truth and falsity, and attempts to hide the truth and advance a lie -- and a _bullshitter_ -- someone with little interest in the truth one way or the other, someone who is most interested in achieving an end by saying whatever is most convenient to that end, with little worry about what might be true and what might be false.

When Obama speaks on the economy or any other topic, he's not attempting to identify the truth (or get away with a lie). He's saying what he thinks with advance his interests and will "work".

So, for Obama, this isn't a "position" staked out as an assertion of truth, to be tested or affirmed.
It's simply what fits his current narrative. It works as far as his interests are concerned.


That's my well considered opinion.

I was thinking the same thing Richard. It seems the financial news are constantly revolving around the next action of the state. Or the statement of a leading Democrat. Unemployment figures and retail sales have almost become second rate news.

Greg. I agree with you on a large part. But I think Obama has some areas where he won't say anything. It would be important to create a list of these agendas. For example, abortion. Obama will make fuzzy answers but he sticks to his view.

Interview link here:

http://www.cbsnews.com/video/watch/?id=4608192n

It took time to get to 25% unemployment during the Great Depression. It didn't happen overnight.

"It took time to get to 25% unemployment during the Great Depression. It didn't happen overnight."

But all it would take is a sufficiently attractive unemployment compensation plan with insufficient controls.

Regards, Don

Very interesting post...I believe we have the right people in place, Bernake for one, to prevent a repeat of 1932. However, their decisions with the bailout are setting up a much worse scenario. The best solution that I have heard so far is to only grant bailout money to companies or individuals that are in bankruptcy. Bankruptcy lawyers would have a filed day, but it seems like the only reasonable way. Also, if I were Obama, I'd try to recruit Hume scholars instead of Depression scholars.

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