James Quinn

The Law of Unintended Consequences: 20th Century and Beyond

I agree. Crocodilian did make some good points and disagreement and opposing opinions should be encouraged. Civility is important.


On Jan 08 11:04 AM [e-mail] wrote:

> Mr. Quinn - - -
>
> Great article and comments. I would, though, appreciate it if you
> would recognize when commenters make some valid points. I'm thinking
> of Crocodilian, who made some good points with excellent references.

The Law of Unintended Consequences: 20th Century and Beyond

According to the Austrian School of economics, the Great Depression was mainly caused by the expansion of the money supply by the Federal Reserve in the 1920’s that led to an unsustainable credit driven boom. Both Friedrich Hayek and Ludwig von Mises predicted an economic collapse in early 1929. In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods. Ben Strong, the head of the Federal Reserve, attempted to help Britain by keeping interest rates low and the USD weak versus the Pound. The artificially low interest rates led to over investment in textiles, farming and autos. In 1927 he lowered rates yet again leading to a speculative frenzy leading up to the Great Crash. By the time the Federal Reserve belatedly tightened in 1929, it was far too late and, in the Austrian view, a depression was inevitable. The artificial interference in the economy was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse. According to Murray Rothbard, government intervention delayed the market's adjustment and made the road to complete recovery more difficult.

Marcus Tullius Cicero 106 BC to 43 BC:

The budget should be balanced. Public debt should be reduced. The arrogance of officialdom should be tempered, and assistance to foreign lands should be curtailed, lest Rome become bankrupt.


Even Rome had politicians with some common sense. Decisions we make in the next decade will determine whether the American Republic follows the path of the Roman Empire or can reverse course and fulfill the noble dream of our Founding Fathers. Thomas Jefferson and George Washington foresaw the hazards ahead.

Thomas Jefferson:

Yes, we did produce a near-perfect republic. But will they keep it? Or will they, in the enjoyment of plenty, lose the memory of freedom? Material abundance without character is the path of destruction.

Thomas Jefferson:

I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.

George Washington, Farewell Address, September 17, 1796:

As a very important source of strength and security, cherish public credit. One method of preserving it is to use it as sparingly as possible.

Our country was founded upon the principles of freedom, responsibility, and opportunity to succeed or fail. Government was supposed to play a limited role in our lives. Government’s function was to defend against foreign invaders, provide basic services, enforce the laws, and maintain the public infrastructure of the country. Over time government has incessantly intervened in the economic system and by successive steps has moved the country toward socialism. Millions of Americans are now totally dependent upon handouts from the government. This policy of government expansion through the use of credit at the expense of taxpayers is detrimental to the rest of society. Interventionist wars, undeclared by Congress, and maintaining military bases in 117 countries were not envisioned by the Founding Fathers. The more we consent to government intervening in our lives, the more freedom that we lose. We are now experiencing the utmost intervention by government in our 222 year history.




On Jan 07 05:01 PM gdg wrote:

> Actually, Mr. Quinn, history suggests that it was perhaps Fed tight
> money defense of the gold standard pre 1929 that prevented a classic
> Mississippi Company, Dutch Tulip , South Seas Corp, dot.com, current
> mtg market bubble. The definitive Friedman/Schwartz study of the
> Great Crash never blames the crash itself on the Fed, but does blame
> it for extending the crisis by a tight money policy that led to over
> 10,000 bank failures over the next several years and wiped out personal
> and business wealth with equal vigor.
>
> A lot of things are possible if resources had been alocated differently
> by any number of actors across the last decade although, my guess
> is you'd need to go back further than that to have saved US infastructure.
> But neither you nor anyone else can now determine whether the outcomes
> would have been "better" or "worse", even if we could agree on definitions
> for those value judgment terms.
>
> And you do manage, in your zeal, to miss the point about the statements
> about Obama and the US economy and the American people. That being
> that all I hope for any government action is to not make things worse.
> I have no expectation that government planned action is ever a particularly
> good and certainly almost never the best solution for any economic
> issue. And are we living during a period when politicians seem even
> more venal and less capable than usual? Sure. Could we use some better
> folks, lobbyist reform, and a whole revisitiation of political "virtue"?
> Absolutely. But I still know of no better SYSTEM available, even
> if our current execution of it leaves much to be desired. Hell, maybe
> you ought to run for office and directly improve the political gene
> pool....
>
> That the road not taken would have made all the difference, is a
> poetic assertion, not a factual one.
>

The Law of Unintended Consequences: 20th Century and Beyond

The Fed had a loose money policy in the 1920's that led to the Crash of 1929. Fed and governement actions in the 1930's worsened the crisis and prolonged it.

Maybe if the capital allocated to weapons and war over the last decade had been allocated to infrastructure, we wouldn't have 156,000 structurally deficient bridges, crumbling water pipes and a power grid that could breakdown at any minute.

One thing will clear the excess of homes on the market. Lower prices.

If the American people are an inventive lot. We are trying to invent a political system that isn't corrupted by money. Either join, or sit idly by waiting for Obama to fix everything.



On Jan 07 12:44 PM gdg wrote:

> Unintended consequences have been with us as long as groups of men
> have collectively tried to address the human condition with planning
> of one sort or another. Human enterprises are way more complex than
> we have intellect or imagination to foresee, so addressing one issue
> with one set of planned actions almost always at least reveals if
> not outright causes another issue or set of issues.
>
> It is also true that all political systems have serious weaknesses
> of one sort or another and that all politicians are venal to a greater
> or lesser degree.
>
> It's clear, however, only in hindsight, what relation the former
> of these trueisms has to the latter. And even then, the conclusions
> to be drawn are not indisputable.
>
> Mr. Quinn insists that the Fed devalued the money supply after 1929
> and that led to a recession becoming a depression. My understanding
> is rather that the Fed has in recent times been criticized on exactly
> the opposite ground, that Fed actions after 1929 tightened money
> supply by raising the interest rate in order to defend the US gold
> supply to which the currency was pegged. Much of current Fed and
> Treasury action has been an attempt to avoid that exact mistake and
> prevent the 1000's of bank failures of the late 20's and early 30's
> and their resultant devastating effects on ordinary folks and businesses
> alike.
>
> Mr. Quinn rails against the "military-industr... complex" as a source
> of our current malaise. Yet military spending in the US supports
> quite a lot of employment, quite a lot of industrial contribution
> to GDP, not to mention produces exports which reduce the trade deficite
> primarilly related to consumer spending.
>
> One might also consider the world-wide impact of reduced US defense
> spending and the consequent reduction of US defense commitments.
> The rest of the welfare state democracies all have higher transfer
> payment requirements that probably preclude them from picking up
> the slack for any such reduction. What would a revitalized Russian
> agression do as a result? What impact would it have on an already
> strapped Japanese economy, or the French and Germans who have grown
> largely dependant on the US military for their own external defense
> or on North Korean tendencies toward adverturism to ameliorate domestic
> insufficencies?
>
> Mr Quinn insists we ought to save more and I agree. He also suggests
> that household debt should be reduced by $1T and I do not disagree.
> And yet neither of those actions would tend to help clear the huge
> inventory of available homes the creation of which has been so key
> in the current financial system implosion. In fact, one might reasonably
> argue that more saving and less household spending would have a drag
> effect there.
>
> One hopes that Mr. Obama and his administration will not make things
> worse and will provide opportunities for the US economy to work its
> way out of the current morass. That economy is still very large,
> very diverse, and (I believe) quite resilient. The American people
> are still an inventive and imaginative lot and the American political
> system, with all its flaws, still the best available. I think we'll
> come out of this eventually, albeit not unscathed, so long as we
> don't try to force that recovery into too narrow a "planned" structure.
> Markets will eventually work so long as government regulates THEM
> and not their component parts.

The Law of Unintended Consequences: 20th Century and Beyond

So your point is to point out flaws in my arguments but propose no alternative policies to get us out of this mess that we have created.

I'd rather jump in to the fray and try to make people think outside of their box than sit on the sidelines and tell others why their arguments are fallacious.


On Jan 07 10:44 AM Crocodilian wrote:

> On Jan 07 08:12 AM Jim Quinn wrote:

The Law of Unintended Consequences: 20th Century and Beyond

The harsh reparation terms of Versailles made it impossible for Germany to make payments without inflating their currency. The misery, starvation, and anger in Germany made them turn to a dictator. Read some history.

The appeasement was allowing Germany to rearm and take over sovereign countries after Hitler had gained power. Your arguments don't hold any water.

The terms after WW II were not harsh. McArthur ran Japan and helped them rebuild their society. Ever heard of the Marshall Plan that rebuilt Europe and Japan? Before you spout off, read some history.

And what is your point? Do you have a better idea or a solution?



On Jan 06 11:45 PM Crocodilian wrote:

> This is one of those vague assertions that has little explanatory
> value, its not clear how one can speak of a "Law" of Unintended Consequences,
> unless by that you mean "things we don't expect end up happening".
> Well yes, obviously . . . but so what?
>
> Many of the things that you claim are "unintended consequences" are
> either policy errors or not logically an "unintended consequence".
> Did "the harsh terms of Versailles" _cause_ the rise of Adolph Hitler?
> How do you know that? If the terms of Versailles had been easier,
> would that have meant "no Hitler"? The terms that the Allies imposed
> on Germany and Japan in 1945 were scarcely modest: Unconditional
> Surrender. Allied policy towards Germany and Japan is generally thought
> to have worked out quite well.
>
> Moreover, I note that on the one hand you fault Versailles for being
> too harsh on the Germans, but Appeasement for being too soft on them.
> Well which is it?
>
> Any complex policy will have complex effects, some good, some bad;
> the job of policymakers is to seek the best possible outcome, not
> a perfect outcome-- such doesn't exist in this world.
>
> There is no "law of unintended consequences" any more than there's
> chemotherapy without side effects. The informed calculus is called
> "cost-benefit analysis":
>
> What is the goal?
> What is the strategy to achieve that goal?
> What are the costs to pursuing that strategy?
> Is the goal being pursued worth the costs?

The Law of Unintended Consequences: 20th Century and Beyond

Chris B

I'd have to agree with all your proposals. I'd also include term limits as a way to reduce the money influence.

I'd also love to see every project that will make up the $775 billion stimulus package listed on a public website so that all taxpayers could see where their money is going.

The real question is how could any of these solutions be implemented without the whole existing system collapsing first.


On Jan 05 10:42 AM Chris B wrote:

> The author doesn't offer remedies (other than advice to invest in
> commodities). His statements that "They are only concerned about
> the next election cycle" has been used by others to claim that democracy
> itself it the problem. I have some far simpler solutions:
>
> 1) Ban Lobbying. It is blatant bribery. How in the world did our
> society decide that bribes were acceptable. There is nothing free
> speech about trading money for political favors at the expense of
> the public. What did we expect would happen when we made fundraising/corruption
> a prerequisite for public office? If we publicly financed all campaigns,
> and banned all gifts to public officials, the investment would yield
> exponential returns in terms of government integrity and competence.
>
>
> 2) A Balanced Budget Amendment. Make it a crime for Congress to spend
> more than the government takes in unless a well defined short term
> state of emergency is declared - by the supreme court. This relatively
> simple step would practically ensure currency stability, remove an
> economic doomsday weapon from China's hands, and wipe out the national
> debt within a generation.
>
> 3) Align tax incentives with the changes we desire. Tax hikes on
> cigarettes and alcohol have been proven to reduce consumption of
> those products. Why not tax gasoline to reduce our economic dependency
> on hostile dictatorships? Offset a gas tax with a cut in the income
> tax. Net results: More incentive to be economically productive and
> earn income. Less incentive to waste gasoline while funding terrorists.
> Why tax manufacturing businesses at 35% and hedge fund speculators
> at 15%? Are we trying to discourage manufacturing and encourage AIG-style
> speculation? You get more of what you encourage. Duh.
>
> 4) Equal Justice for All. Corrupt politicians, lobbyists, and financiers
> should go to the same prisons as convenience-store robbers and for
> the same terms. The public should be outraged that there is no justice
> for people with wealth or connections.
>
> 5) End Earmarks. This is where the pork comes from. It's hidden in
> budget documents thousands of pages long and placed there anonymously
> by paid-off congresspeople. The opportunity for corruption is obvious.
>
>
> 6) Refuse to Fight Oil Wars. "Spending" tens of thousands of American
> lives and trillions of dollars spent to secure oilfields in dictatorship
> nations that support terrorism offers no return on investment for
> the public, only for oil and defense firms and their lobbyists. The
> trillions spent on the Gulf War and Iraq have done nothing for the
> public, except increase the national debt burden on their children,
> thousands of whom lost a parent in "the sandbox". No "made in China"
> pseudo-patriotic magnetic bumper ribbon will change that fact. <br/>
>
> There you have it. Six relatively minor steps that would lead to
> a stable currency, the end of the national debt, a more competent
> government, a less corrupt government, and a more functional society.
> No crackpot economic theories or radical revolutions needed.
>
> The trick is getting the population to demand these changes - the
> same population where 60% of people haven't read an actual book since
> high school.

The Law of Unintended Consequences: 20th Century and Beyond

Volcker fixed inflation, not Greenspan. Volcker was Fed Chairman from 1979 to 1987. Give me an example of something Greenspan did right that has benefitted our economy.

Facts are in the eye of the beholder.

Instead of calling me Rush Limbaugh (how Rachel Madow of you), please provide examples of economists and Politicians being right.

Government shouldn't choose the winners and losers in energy. They've done a bang up job choosing ethanol already.

We provided Bin Laden with the weapons to defeat the Soviet Union. Just like we provided the weapons to Sadaam Hussein to fight Iran. Don't be so naive.

Here we go with Obama walking on water. My horse was neither McCain or Obama. I will call them as I seez them.


On Jan 05 06:47 AM Robert I. wrote:

> Some interesting points you make here. But I have a problem with
> some of your ideas:
>
> * You make a lot of "assumptions"... and present them as "facts"
> (See 'weasel words')
> * No one is 100% correct, or even 50% correct! you draw a straw man
> argument around the fact that politicians and economists must reach
> a higher level of competence or accuracy or be discredited entirely!
> How Rush of you.
> * Alan Greenspan is 100% wrong? That's a broad stroke! He did nothing
> at all right? Even right of Regan left of God Republicans have at
> least one thing nice to say about him (fixed 13% inflation of 79'
> anyone?)
> * Why do you not suggest that government fund energy exploration?
> We subsidies food, why not shale improvement or deep sea drilling?
> That would prevent the "shooting ourselves in the foot" you foresee
> with the oil supply.
> * Are you sure Bin Laden didn't have a sore spot about the U.S. assisting
> Muslims in the 80's with the Russians then bailed when they won and
> said "now what do we do?". Bin Laden didn't take out the Jihad card
> on America because of a Military base alone! (See 'over simplification'
> FTW)
>
> It seems to me that you're really seeing red now that Obama is the
> new guy on the block. Your horse didn't come in, and your grand plans
> for our new economy will now get muddied or won't reach the table.
> For this, you typed your post way to fast without fully thinking
> through every point.