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Dr Mark Skousen’s Five Questions for President Obama

November 28, 2010 By Mark Skousen Leave a Comment

Dr. Mark Skousen’s Five Questions for President Obama and How Free-Market Thinking Can Build a Better Future

The Daily Bell is pleased to publish an exclusive interview with the distinguished free-market scholar and economist Dr. Mark Skousen

Introduction: Dr. Skousen taught economics at Columbia University’s Graduate School of Business in 2004. In 2001- 02, he was president of the Foundation for Economic Education (FEE) in New York. Since 1980, Dr. Skousen has been editor in chief of Forecasts & Strategies, a popular award-winning investment newsletter published by Eagle Publishing in Washington, D.C.

Mark Skousen: He is also editor of his own website, www.mskousen.com, and editor of three trading services, Skousen Hedge Fund Trader, Skousen High Income Alert and Skousen Turnaround Trader. He earned his Ph.D. in economics and monetary history from George Washington University in 1977. Since then he has written over 20 books, including Economics on Trial (McGraw Hill, 1991), Puzzles and Paradoxes in Economics (Edward Elgar Publishers, 1997), and The Making of Modern Economics (M. E. Sharpe, 2001). Dr. Skousen is the creator and producer of Freedom Fest, an annual gathering of the freedom movement from around the world, held every July in Las Vegas (www.freedomfest.com). Mark Skousen was interviewed on Board the Ship Veendam, in Port Montt, Chile. This is his second interview with the Bell. The first can be seen here.

Daily Bell: Thanks for joining us again.

Mark Skousen: Happy to be here.

Daily Bell: You wanted to interview President Obama. Here’s you chance, before we move into more general questions.

Mark Skousen: I came up with five questions. They are what I call hardball questions. If he does not answer, I will answer for him.

Daily Bell: Sounds like you may have to.

Mark Skousen: Mr. President, do you support the repeal of the invasive requirement that all business report a 1099 of all sales of goods, services or assets of $600 or more during the calendar year?

President Obama does not answer …

Mark Skousen: All right, then. You say all the time that you are pro business, pro-small business, but how could you possibly support this part. It was added on at the last minute to what is now called the ObamaCare bill. It’s another example of pushing through legislation that nobody has read. It’s going to have a terribly retardant effect on the economy.

Daily Bell: Maybe you will have more luck with number two.

Mark Skousen: Another government agency that has run amuck is the TSA. Do you support their decision to install full body scanners and full pat downs for travelers that refuse to subject themselves to nude photographs of their body?

President Obama does not answer …

Mark Skousen: Has America come to the point where the US government is officially sanctioning sexual harassment? That question has been asked in a softball way….”well what do you think President Obama, what do you think of these scanners?” You defended it by saying that this was the only way they could capture somebody like the Christmas day bomber who had a bomb in his underpants and so now we have to subject ourselves to this kind of indignity. At what point is this going to end.

Another point is the aggressive nature of the TSA. There must be something like Murphy’s Law when it comes to government agencies that inevitably they go over board and no longer fulfill their basic function. I really feel that this is a travesty of the worst kind. I am really glad to see there is a group that’s forming a kind of Tea Party protest for this decision. It is on the web called, www.wewontfly.com, and I recommend that everybody go to that, wewontfly.com.

This is an egregious example of government run amuck and it reminds me of in the 80s when the Federal transportation agency, in order to encourage seat belt wearing, actually required a new device to be attached to the ignition of all new cars. You had to have your seat belt on before the car would start. Americans were so incensed by this, there were protests and they stopped buying cars and they started finding ways around the device and eventually the government backed off.

I am very hopeful that this will be the case but as Doug Casey says, American’s today are spineless, they are whipped dogs as he says and there are only a small minority of libertarians protesting this. I think it’s a sad. Apparently 80% of Americans supported full body scanners, it’s just a total invasion of privacy. Of course, I have been at the forefront of this battle all my life having written a book called; The Complete Guide to Financial Privacy in the early 80s.

It was a bestseller and sold over half a million copies, kind of an underground best seller. It wouldn’t make sense that it would make the New York Times list considering the topic is privacy but I feel this is very sad. We never lose our freedoms all at once, we lose them gradually. It’s like the frog in the warm water – we turn the heat up and eventually he croaks.

Daily Bell: Onto number three.

Mark Skousen: Given that you are deeply concerned about the high level of unemployment, would you favor elimination or at least reduction of the minimum wage law in order to boost employment among black male and teenagers in general?

President Obama does not answer …

Mark Skousen: Many economists believe there is a strong correlation between the rise in the federal minimum wage and teenage and minority unemployment rate in the United States. Are you aware that when the new minimum wage was imposed in the summer of 2009 during the first year of your administration, there was a significant increase of joblessness among teenage male blacks. Do you think there is any correlation? Can you deny it?

Daily Bell: The silence is deafening.

Mark Skousen: Was it really necessary to take 2,000 government employees on your recent trip to India and around the world costing tax payers millions of dollars? Is this appropriate at a time when there are record deficits and Americans suffering financial stress? Isn’t this an example of the Imperial Presidency?

President Obama does not answer …

Mark Skousen: This is how you get an image problem. You begin to be perceived as an imperial president, like one of these famous dictators, a Caesar type of person. What we need right now – in terms of attitude anyway – is a Jimmy Carter type. Carter may have been a failed president, but he understood something about humility. That seems totally lacking in your administration. It’s like the First Lady going on that expensive trip to Spain, going to all these ritzy places. It would be nice to see a president who maintained a low profile. It’s just a question of sending the wrong message at a time when Americans in general are struggling.

Daily Bell: Your points seem to be falling on the proverbial deaf ears.

Mark Skousen: We’ll give him another chance. Is it really necessary Mr. President to run a 1.3 trillion dollar deficit and threaten the bankruptcy of the United States and our AAA rating? Can’t you admit all this “stimulating” is ending up in bankruptcy rather than a healthy economy?

President Obama does not answer …

Mark Skousen: Since you went to the Chicago law school, certainly you were exposed to the great Chicago School of Economics and the free market economic perspectives of Milton Friedman, George Stigler and so forth. Are you aware Mr. President, that Friedman’s study of the Keynesian spending multiplier, in other words, the positive impact of federal deficit spending, is bound to have a multiplier of zero, in other words, no positive impact what so ever? The trillion or so you have spent on “stimulus” has been wasted. There are no shovel-ready projects, and if there were, they wouldn’t add net jobs.

Daily Bell: He’s ignoring you. Good to remind him about the Friedman study, though.

Mark Skousen: Last one. If Europe recovers with their low deficits and an expansionary monetary policy, will this not disprove the Keynesian model?

President Obama does not answer …

Mark Skousen: Europe is cutting back on government spending while engaged in monetary expansion. Here we will have a perfect natural test to see if the Friedman results will be reconfirmed. Of course, libertarians do not believe in managing the economy through central banking, but we are stuck with the system we have. Within the parameters of this system, monetary expansion is likely to be more effective than government spending, which just aggravates the problem. Don’t you understand that now after two years of failed economic policies?

Daily Bell: You were obviously over-optimistic in expecting responses.

Mark Skousen: (laughing). Somehow even if he were here, I don’t think we would have gotten any straight answers. But those are the questions he should be asked, among many others. Maybe one day at a town meeting, someone will get to ask them.

Daily Bell: OK, we’ve had our President Obama interview. Let’s turn the tables and ask you a few general questions. Quite a lot has happened since our last interview with you over a year ago. One of the most puzzling occurrences is the return in the US of discredited Keynesian economic policy – and with a vengeance. How did that happen?

Mark Skousen: Somehow President Obama chose the same policies that didn’t work in the 1930s and didn’t work in the 1970s. The United States has decided to spend its way out of recession and has adopted this typical Keynesian policy of running huge deficits. Europe is rejecting this sort of policy outright. Germany, and even the UK in its post-Brown recovery, are rejecting this notion and cutting back. My best example is Canada. In 1995, Canada had a fiscal crisis, runaway government spending of 53% of the economy and the Canadian dollar was collapsing. The Liberal Party of Canada, which got them into trouble in the first place, said enough is enough. There was a general consensus that Canada was moving in the wrong direction.

They fired a bunch of federal workers, and in two years eliminated the deficit, so the Canadian debt started declining. Then, even better, they had 11 straight years of surpluses. They also started cutting taxes; and they’ve had some pretty good success with their economy, even during a tough time worldwide. They still have some problems with their medical, single payer system but, overall, a supply side approach has proven successful in Canada. I would like to think that there are countries that are rejecting the standard Keynesian model. It’s hasn’t happened in the US, but I am hopeful that we will learn examples abroad.

Daily Bell: Let’s move to central banking and fiat money. Do you think we will ever return to a gold standard?

Mark Skousen: I have written a book called The Economics of a Pure Gold Standard. It was actually my dissertation of my PhD at George Washington University in 1977 and I was heavily under the influence of Murray Rothbard who favored a return to the gold standard.

Since then, I have argued that once you have gone off the gold standard it is very difficult to go back on it because it would cause a major redistribution of wealth to the gold holders who tend to be speculators and wealthier individuals. So there would be this redistribution problem that could be pretty serious, especially if gold has to go to $20,000 an ounce in order to really cover that.

I have often said the only way to return to a gold standard is with a major financial crisis, so you we are basically forced to do it. We may be headed in that direction but I think if we automatically did it that would create problems in itself. I like the idea of using gold as a tool. Supply-siders like using gold as an indicator of inflation; if we can control inflation and stabilize our inflation, the price of gold will come back down and that will be the best indicator that we can use. It is interesting that central bankers are net buyers of gold now rather than net sellers like they were. They are holding on because they know it’s the only asset that has any real value.

Daily Bell: What about the EU? Is it going to survive?

Mark Skousen: Robert Mundell, the free market economist, the father of the Euro, has made the case for its survival. I know there are a lot of skeptics out there but who wants to go back to all these individual currencies. It was madness and extremely inefficient when you moved from one country to another, losing money on every currency exchange. The euro has two great benefits: It encourages the free movement of goods and services and it increases competition. You can price everything in the euro and you can see what’s expensive and what’s not; that makes competition much more effective. You also have labour mobility you did not have before; you don’t require work permits, so you can work anywhere inside the EU.

England now has much better restaurants, as the French and Germans have moved there and brought palatable cuisine. You can move investments around as well. So I like the one currency, a United States of Europe concept if you like and from an economic point of view I think it is very good. It also, eventually, acts as a brake on these profligate governments. Yes, there are some problems with it right now but it’s basically sending a very strong message, you’ve got to get your act together because you are going to pay a heavy price. You can’t simply default; you are part of the European system so you can’t engage in these irresponsible spending, tax policies.

Daily Bell: Do you foresee a 3rd party in the United States ever?

Mark Skousen: A third party has never been effective in the United States. I think it is much smarter to work within the Democratic or the Republican Party to make change. All the laws favor the two party systems in the United States. They make it much more difficult for third parties to get on the ballot and really have any influence. Traditionally, third-parties have only been beneficial as a protest and forcing the major parties to make changes. If you go back to the Civil War era, the South was all Democratic because they hated the Republicans so much. Later on, that totally reversed itself; the electorate is fungible. Times change and so do opinions. I think Libertarians should infiltrate both political parties, not just the Republicans or the Tea Party.

Daily Bell: Do you think the US’s police and military will ever be turned against the people? In the current environment that is being suggested as a possibility.

Mark Skousen: It’s already happening. You have the FBI, a federal police force, virtually everywhere. It is just a monstrous agency and I speak for having been the son of an FBI Agent and the nephew of an FBI Agent; both my father and uncle were top FBI people. My father shot one of the top-ten most wanted men back in 1950. But that was back when the FBI had extremely limited roles to play. The FBI is involved with bank fraud and with almost everything else. You name it; it’s classic mission creep. It amazes me. It’s not just kidnapping and stuff like that.

And of course there is the army and now the army can come in whenever there is a natural disaster. The National Guard is called in as well. There’s so much power available, and the powers-that-be are increasingly showing a willingness to use it. It’s definitely something to be concerned about. Just take a look at the vast power the TSA has over travel. It’s beyond belief! The other thing I fear is the movement away from the fourth amendment of unreasonable searches. They have these roadblocks that they keep justifying. Every car that goes by, they can stop at these random checkpoints. They can literally just pull you over for no good reason. National ID cards are constantly being pushed as well. There are many examples of “real time” threats to the freedoms of American citizens these days.

Daily Bell: What about the US and China? Military issues in the future?

Mark Skousen: The Chinese are currently building up a huge military complex; I think they have 3 million troops or something. It’s a huge number; we’ll never know the exact number. But, certainly, they are increasing their technology capability and they are going to flex their muscles, much more so than North Korea or Iran. I think China is the elephant in the room as far as the military is concerned. They haven’t really gone after Taiwan, yet. It’s all saber rattling but that doesn’t mean it can’t turn into something more.

Have you ever seen the picture of how much water is surrounding the China sea and how much they consider is theirs? It’s not 200 miles – it just keeps going and going. I think there is some imperialism there. I think, in fact, it’s a very dangerous situation. The industrial sector has grown and it’s allowing them to spend more and more on their military objectives. There’s the potential for real conflict there.

Daily Bell: Strange times. What advice would you offer for the people to protect themselves financially?

Mark Skousen: I do think we should play the trends and when the market recovers we should take full advantage of that, I certainly have. In my newsletter I have taken advantage of the good times, the recovery that you see from time to time. A lot of the doomsday, gold bugs completely missed their recovery in the stock market. I like to play that because a lot of investors feel more comfortable with stocks I don’t recommend investing too much in commodities, which is a non-traditional investment area.

So my subscribers tend to be more traditional investors. What I try to do is introduce to them investing in commodities, gold and silver and so on, but only a 10% position, it’s an insurance policy against bad times, so that includes gold and silver. So I am always educating people that way. I encourage them to buy gold and silver coins and to aware of the bad news that can come down the road. But the majority of my investments are in foreign markets or in US markets and in dividend paying stocks and income producing investments and so forth.

We have had a very good track record the last few years with beating the market and doing well for them. But the tide can change and right now we are seeing a lot of problems developing. It’s funny how everybody feared that September and October which are traditionally tough months in the market and those did really well and now we are heading into December and now seeing all kinds of problems surface – the Irish debt situation, China raising interest rates, the North Koreans fighting the South Koreans; there’s a lot of geo-political events which are keeping the markets from going higher, despite the Federal Reserve’s efforts to inject all this liquidity.

So, I have always believed in that old biblical refrain: know the signs of the times. I’ve tried to follow that advice in my newsletter called “Forecasts and Strategies.” My philosophy basically is that problems come and go, but I have always been more of an optimist rather than not. There is an old saying on Wall Street: “bears make headlines and bulls make money.” The majority of time Americans are problem solvers; the sun eventually comes out again. Traditional bond and stock markets perform better. It would be sad commentary if we didn’t have that kind of situation. It would be like being a millionaire on a sinking ship. Who wants to be a millionaire on the Titanic? So, I am optimistic that we will get new leadership, reasonable policies and sound economics. It has happened in the past, as I mentioned. Canada is the most recent example and I would hope that it can happen again.

Daily Bell: That sounds like your book Econopower, do you want to talk about it?

Mark Skousen: Yes, the Korean edition. They paid me $100,000 in advance for Econopower. That book was about solving problems. Whatever problems are out there, economists can add to the solution. The South Koreans are very strong on economics and how to use them to their advantage. I have a chapter in the back that Robert Shiller of Yale University really liked and it’s called “Is US Economy Depression Proof?” I wrote this right before the financial crisis of 2008, in which I argued that it’s not depression proof and that we are vulnerable. We have a monetary system that is broken and it’s not really a good one and it needs to be fixed. Sure enough we had a financial crisis and the whole system came close to collapsing. The only thing that kept it from total collapse was massive government intervention again. The establishment had always argued that we were depression proof; that the system was the best of all worlds. Doesn’t seem to be the case, obviously.

Daily Bell: What else have you written lately?

Mark Skousen: I’ve written a textbook called Economic Logic. It’s always my hope that the US will get leaders with an understanding of real economics. President Obama needs a course on free market economics. Economic Logic takes a logical approach; it mixes business with economics. It starts with an income statement, a profit and loss statement, and then develops into supply and demand analysis.

I use the best of Austrian and Chicago economics and now it’s being used in a number of colleges and universities around the country. It’s encouraging. You will not change the politicians until you educate the people who elect them. It’s kind of my anti-Samuelson textbook. Samuelson was this Keynesian economist at MIT, who at the end of WWII wrote his economic text book that introduced Keynesian economics and this anti-savings mentality – this pro big government, welfare state, pro-progressive taxation kind of zeitgeist from which we still suffer. So we need a new textbook for the 21st century to reverse that trend and get us back to sound economics. The reality is free-market economics is not taught to children or even to older students. We need to start somewhere.

Daily Bell: What is out there for students who want to get a general idea about economics besides college text books?

Mark Skousen: There is a website run by Steve Marriotti called Network for Teaching Entrepreneurship (NFTE). They teach entrepreneurship and how to create your own businesses and business models. They have a text book that’s geared toward minorities. It’s a great program. I am hoping this can be another area where we can spread the word to students.

Daily Bell: Closing words?

Mark Skousen: Do not despair. Do not think that our current mess is irreversible, that our economy is headed for total destruction, which is a constant message from gold bugs and doomsayers. I am trying to counter that view and I am trying to do something through education. As you know, we have created FreedomFest and it’s not my conference alone, though I created it. It’s the “movement’s” conference. You bring together all the best and the brightest in Las Vegas, the world’s greatest libertarian city. We have this great celebration and learn from each other; we celebrate liberty; we warn each other about the dangers to liberty and we do business and make deals and walk away and say WOW, we can make a difference. So, come on down! It’s an open forum. We like new people and new speakers. We have Steve Forbes (Forbes Magazine) and John Mackey (CEO of Whole Foods) who both work tirelessly to spread the word. It’s a great opportunity to meet and greet and there are others out there who feel the same. So, go to www.FreedomFest.com and learn more. Hope to see you there.

Daily Bell: On that note, now would be an appropriate time to announce our first conference, scheduled for the last weekend in April in the Appenzell region of Switzerland. The conference is the being hosted by The Foundation for the Advancement of Free-Market Thinking and has several Platinum level sponsors, of which Appenzeller Business Press AG (publisher of the Daily Bell) is one. It will be a great European-based opportunity to provide similar opportunities for like-minded folks to gather with a view to seeking private solutions to the more egregious public problems facing us all. To date, several top thinkers have committed to speaking and we would like to include you in that group. Can we count on your support with our conference efforts and would you travel to Switzerland to share your views at the event?

Mark Skousen: I would be pleased to support your efforts and you can pencil me in to speak at your conference. Thank you for considering me.

Daily Bell: Thank you Mark, it has been a pleasure as always and we look forward to seeing you in April.

Mark Skousen: Thanks, same here.

Consumer Spending Doesn’t Drive the Economy, Investment Does

May 17, 2010 By Mark Skousen 3 Comments

The Freeman
Foundation for Economic Education
May 17, 2010

“Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.” –“Consumers Give Boost to Economy,” New York Times, May 1

Every quarter, when the government releases its latest GDP figures, we hear the familiar refrain:

“What the consumer does is vital for economic growth.”

“If the consumer starts saving and stops spending, we’re in big trouble.”

“Consumer spending accounts for 70 percent of the economy.”

The latter “fact” is repeated regularly in the news reports from the Associated Press, the Wall Street Journal, and the New York Times.

The truth is that consumer spending does not account for 70 percent of economic activity and is not the mainstay of the U. S. economy. Investment is! Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living. In the business cycle, production and investment lead the economy into and out of a recession; retail demand is the most stable component of economic activity.

Granted, personal consumption expenditures represent 70 percent of gross domestic product, but journalists should know from Econ 101 that GDP only measures the value of final output. It deliberately leaves out a big chunk of the economy — intermediate production or goods-in-process at the commodity, manufacturing, and wholesale stages — to avoid double counting. I calculated total spending (sales or receipts) in the economy at all stages to be more than double GDP (using gross business receipts compiled annually by the IRS). By this measure — which I have dubbed gross domestic expenditures, or GDE — consumption represents only about 30 percent of the economy, while business investment (including intermediate output) represents over 50 percent.

Thus the truth is just the opposite: Consumer spending is the effect, not the cause, of a productive healthy economy.

The Importance of Say’s Law

This truth prevails in the marketplace: It’s supply — not demand — that drives the economy. Savings, productivity, and technological advances are the keys to economic growth. This principle was discovered and developed by the brilliant French economist Jean-Baptiste Say in the early nineteenth century and is known as Say’s law. In fact, he invented the word “entrepreneur” to describe the primary catalyst of economic performance.

Is retail sales a leading economic indicator? Each month the Conference Board releases its Leading Economic Indicators for the United States and nine other countries. The ten U.S. leading indicators are:

manufacturers’ new orders
building permits
unemployment claims
average weekly manufacturing hours
real money supply
stock prices
the yield curve
new orders for nondefense capital goods
vender performance
index of consumer expectations

As you can see, almost all of the indicators are linked to the early stages of production and business activity.

Misleading Consumer Confidence Index

What about the Consumer Confidence Index that the media highlights every month? It turns out that the title is misleading. The questions asked consumers are more about business conditions than spending attitudes. Here are the questions consumers are asked to determine their “expectations”:

Are current business conditions good, bad, or normal?
Do you expect business conditions to be good, bad, or normal over the next six months?
Are jobs currently plentiful, not so plentiful, or hard to get?
Do you expect jobs to be more plentiful, not so plentiful, or hard to get over the next six months?
Do you plan to buy a new/used automobile/home/major appliance [note: these are all durable consumer goods, not unlike durable capital goods] within the next six months?
Are you planning a U.S. or foreign vacation within the next six months?

In other words, the much-touted “consumer” confidence index is more a forecast by consumers for business, employment, and durable goods than “retail sales” and consumer spending. It does not ask any questions about food, clothing, entertainment, and other short-term buying, because these expenditures seldom change from month to month.

The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to manufacturing, capital expenditures, corporate profits, and productivity gains.

Beware of Keynes’s Law

The reason we hear so much about the consumer is because the media and political pundits still live under the spell of Keynesian economics, which teaches that demand creates supply. Keynes’s law is just the opposite of Say’s law (supply creates demand). According to Keynesians, consumer spending drives the economy and saving is bad when the economy is in a short-term contraction.

In reality, increased savings can actually stimulate the economy, even if consumer spending is anemic. A recent study by the St. Louis Fed concluded that in the short run, “a higher saving rate in the current quarter is associated with faster (not slower) economic growth in the current and next few quarters” (Daniel L. Thornton, “Personal Saving and Economic Growth,” Economic Synopses, St. Louis Fed, December 17, 2009).

How is this possible? When people save more, interest rates fall and business can afford to replace their old equipment with new tools, spend more on research and development, or develop new production processes. So while consumer spending may stay low, business spending can pick up the slack. Remember, in a dynamic economy the decision by businesses to spend more investment funds and hire more workers is a function of both current consumer demand and future consumer demand. And don’t forget, during a recession corporate profits often recover first, without an increase in customer demand, because companies can boost profits by cutting costs and downsizing.

In the long run new business strategies and spending patterns increase productivity and lower prices to consumers, which in turns means the consumers’ purchasing power increases. As the St. Louis Fed concludes, “A higher saving rate does mean less consumption [in the short run], but it could also result in more capital investment and, ultimately, a higher rate of economic growth…. [T]he growth rate of real GDP has been higher on average when the personal saving rate is rising than when it is falling.”

Granted, the ultimate function of business activity and entrepreneurship is to fulfill the needs of consumers, and the most successful firms are those that satisfy their customers. But more important, who discovers the new, improved products that consumers desire? Who is the catalyst that determines the quantity, quality, and variety of goods and services? Did the consumer come up with the idea of personal computers, SUVs, fax machines, cell phones, the Internet, and the iPhone? No, these technological breakthroughs came from the genius of creative entrepreneurs and the savers/capitalists who funded their inventions.

Who’s to Blame for ObamaCare? Two Conservatives!

December 30, 2009 By admin 9 Comments

I wrote the following article for Human Events, but apparently it was too controversial and was removed after about 100 e-letters of commentary, both favorable and critical. Read here’s the original op-ed, uncensured.)

by Mark Skousen

This week the Senate grinches stole Christmas. The Obama Nation is getting Obama Care.

It’s easy to blame the sixty Democrats, as the Wall Street Journal does, for “the worse bill ever.” It solemnly declares: “These 60 Democrats are creating a future of epic increases in spending, taxes and command–and control regulation.”

True enough. But what’s the root cause of this disaster?

Sorry, friends, it’s not the Democrats, nor the American people who elected them.

The real culprits are two “conservative” Republicans who ran the show the previous eight years: George W. Bush, and his “master political strategist” Karl Rove. If it weren’t for these two fools in the White House, the Democrats wouldn’t have sixty Senators, including a professional comedian from Minnesota, to close off debate and ram down our throats a bill worse than Hillary Care.

The fact is that the Bush & Rove comedy act pushed through a litany of ruinous government policies that led to the lowest approval numbers in history:

–the undeclared and costly War in Iraq and its stepchild the unconstitutional Patriot Act.
–the monstrous No Child Left Behind Act that dramatically increased federal intervention in private education.
–the Prescription Drug Act that gave the American people another benefit-corrupted entitlement and unfunded liability.
–large and growing deficits and national debt (according to the Cato Institute, George W. Bush was the biggest spender since LBJ: http://www.cato-at-liberty.org/2009/12/19/george-w-bush-biggest-spender-since-lbj/)
–the worst financial crisis since the Great Depression, largely due to their failure to reform government-sponsored agencies Freddie Mac and Fannie Mae.

The supply-side tax cuts were probably the only major piece of economic legislation that Bush/Rove deserve credit for, but even then, they blundered in not making the tax cuts permanent. So now even if the Republicans take back Capitol Hill in the 2010 elections, all President Obama has to do is veto an extension of the Bush tax cuts, a voila, taxes will increase automatically.

In short, we are paying a heavy price for the “compassionate conservativism” of Bush/Rove.

Once Obama Care becomes law, like Medicare and other “Great Society” programs, it will never end. We will be stuck with national health care for the rest of our lives.

And how are Bush and Rove rewarded? Fortunately, we aren’t seeing much of George Bush, who is quietly in retirement in Texas.

The tragedy is Karl Rove, who has been rewarded by conservatives. He’s treated like a triumphant general on Fox News almost every night, and was signed on as a regular columnist in the prestigious Wall Street Journal.

Shame.

In liberty, AEIOU,
Mark Skousen

Will we survive Obamanomics?

March 5, 2009 By admin Leave a Comment

From the Gilroy Dispatch

Officially, President Obama’s $3.6 trillion budget is titled “A New Era of Responsibility.”

That’s false on two counts. It’s an era – not of responsibility, but of big-government taxation, spending, and regulation. And it’s not new. History is full of attempts to inflate the state to grow the economy. Virtually all have ended badly. As the recent sell-off reminds us, Wall Street’s verdict on Obamanomics has been quick and sharp.

The president’s budget is right in castigating the “troubled past” of the Bush administration, which spent money like a drunken sailor on education, healthcare, bailouts, and two seemingly endless wars in the greater Middle East, with virtually no regard for how to pay for a rapidly growing national debt.

But now we must confront the troubled future. Obama has adopted the big-spending policies of George W. Bush, with trillions more proposed for education, bailouts, and healthcare. He wants to sharply reduce (but not end) the American presence in Iraq. At the same time, he plans to deploy an additional 17,000 troops to Afghanistan, which may lead to an expanded quagmire there.

Hasn’t Obama read the bestseller “Three Cups of Tea: One Man’s Mission to Promote Peace … One School at a Time,” by Greg Mortenson and David Oliver Relin? A Pakistani general who talked with Mr. Mortenson aptly identified the real problem in Afghanistan: “The enemy is ignorance. The only way to defeat it is to build relationships with these people, to draw them into the modern world with education and business. Otherwise the fight will go on forever.”

In some ways, Obama’s plans are more grandiose than Bush’s. He wants to encourage green technology and energy independence, and move toward national healthcare. The cost is enormous. The deficit for this year alone is expected to reach $1.7 trillion.

To help pay for this, Obama proposes the largest tax increase in history. Some of this, such as new taxes on oil and gas companies, is explicit. Some of it, such as the new cap and trade program, is quite subtle. And some of it will “merely” repeal the Bush tax rates on high incomes. But all of it represents a tremendous muzzle on the economy at a time when it needs to be unleashed.

Even these huge tax hikes won’t be nearly sufficient to pay for the outlays. In fact, to pay for it in full, The Wall Street Journal pointed out, Uncle Sam would have to confiscate every penny earned by Americans making at least $75,000 a year.

What’s the future for Obamanomics? The stock market’s reaction doesn’t bode well. The Dow has fallen more than 18 percent since the last trading day of Bush’s term. Clearly, Wall Street thinks that Obama’s tax, spend, and regulate policies will be a disaster.

Despite the dire headlines, the world is not coming to an end, we are not headed into another Great Depression, and free-market capitalism has not breathed its last breath.

In my book, “The Big Three in Economics,” I found that the press has frequently and prematurely written the obituary of Adam Smith and his free-market philosophy, only to see a new and more vibrant global marketplace reemerge after being savagely attacked by Keynesians, Marxists, and assorted socialists. Market capitalism survived and prospered after the boom-bust industrial revolution of the 19th century, and the Great Depression and world wars of the 20th century. It will recover from the financial panic of 2008-09 and Obamanomics.

Adam Smith, the supreme defender of market capitalism, expressed this optimism well in 1776 when he wrote in “The Wealth of Nations”:

“The uniform, constant, and uninterrupted effort of every man to better his condition … is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

The ideas of Adam Smith and his modern followers will make a comeback. Already, pro-market forces are gathering in Congress to defeat Obama’s ambitious and highly socialistic agenda. Charities and nonprofits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free minds at FreedomFest, July 9-11, 2009, in Las Vegas.

Details: www.freedomfest.com.

Proof Is in the Dow

March 2, 2009 By admin Leave a Comment

From Human Events

“The Obama budget is nothing less than an attempt to end the ideas of Ronald Reagan.” — New York Times

Adam Smith, the father of free-market economics, once stated, “There is much ruin in a nation.” President Obama is out to prove it in his Newspeak program he calls “A New Era of Responsibility.” It should be called “A New Era of Irresponsibility.”

And there’s no better proof than the stock market’s reaction to Obamanomics, which is big-government Keynesianism at its worst. Since Obama took office, the Dow is down a whooping 15% — and that’s after the huge sell off in the market in 2008 by more than 30%.

And the market has continued to drop precipitously since Obama addressed Congress and announced his obscene $3.6 trillion budget for fiscal year 2010. This budget includes:

—the largest tax increase in history, including a monstrous tax on oil & gas (cap and trade) and the repeal of the Bush tax rates on incomes higher than $200,000 for individuals and $250,000 for couples. Contrary to Obama’s claim, over 65% of tax filers in this category are small business owners and investors.

—the highest level of federal spending since 1945, from today’s 21% of GDP to a whooping 27.7%. This includes new entitlements in health care and energy.

Clearly Wall Street has spoken: Obama’s tax, spend and regulate policies are a disaster for the nation.

And sadly Obama doesn’t get it.

What should investors do? Play it conservative. Be well-diversified in global stocks. Maintain a high cash position, look for bargain opportunities, and keep squirreling away gold and silver coins.

And do not despair. It is not time to head for the hills, although some wealthy friends are talking about moving to New Zealand, or the Bahamas. (One friend of mine has already taken the extreme step of renouncing his US citizenship!)

In writing “The Big Three in Economics” (click here to order), I found that Adam Smith and his “system of natural liberty” have come under attack on many occasions by his sworn enemies Keynesians, Marxists and socialists, and has often been left for dead, but always makes a comeback.

As Adam Smith declared in his 1776 classic “The Wealth of Nations,”

“The uniform, constant, and uninterrupted effort of every man to better his condition . . . is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government, and of the greatest errors of administration.”

In sum, the ideas of Adam Smith, and his modern followers, including Ronald Reagan, are far from dead. They are only in hibernation. The free-market giant will soon be awakened by our dire situation.

Hopefully pro-market forces in Congress (both Republicans and Democrats) will filibuster the Obama tax increases and budget excesses. Charities and non-profits are already up in arms about the proposed limits on tax deductions for wealthy donations for good causes.

I’m doing my part by holding the world’s largest gathering of free minds at FreedomFest, July 9-11, 2009, in Las Vegas, the focal point of liberty. For details, go to www.freedomfest.com. I hope you will join us.

I know I’m a dreamer but I’m not the only one.

Obamanomics Is Making Matters Worse

February 24, 2009 By admin Leave a Comment

From Human Events

Unfortunately, the [Keynesian] balance week is unbalanced. ~ Milton Friedman

We have outlived the short-run and are suffering from the long-run consequences of [Keynesian] policies. ~ Ludwig von Mises

Last week, Treasury Secretary Timothy Geithner announced another solution to the financial crisis — his new “Financial Stability Plan.” Since the announcement, Citigroup has fallen 51 percent, Bank of America is down 46 percent, and Wall Street had its worst week in 2009.

So much for the Financial “Stability” Plan.

As John Adams once said, “Facts are a stubborn thing.” The Obama model of Keynesian-style bailouts and massive deficits is simply failing to cure the growing financial crisis.

Despite all the bailouts President Obama has put forth — for the banks, the big 3 auto companies, and homeowners — the global economy is still reeling.

In fact, I would argue that Obamanomics (Keynesian economics in disguise) is counterproductive and making matters worse. That’s because business and Wall Street recognize that there is no free lunch — government spending is piling up huge debts that will need to be paid back, probably through the printing presses. And inflation — another evil — will come back with a vengeance.

Keynes is famous for the line, “In the long run, we are all dead.” And that’s what Wall Street fears — that financially we are all going to be killed by excessive debt.

Lack of confidence in Obama, Geitner and Bernanke is why gold is going through the roof now, and is approaching $1,000 an ounce. The U.S. Mint is having a hard time keeping up with demand for American eagle gold and silver coins.

The problem is Keynesian-style policy, the darling of the establishment politicos and media giants. Keynes has suddenly trumped Adam Smith. And that’s dangerous.

One day last week, I walked into the largest Barnes & Noble bookstore in New York and saw a big display table up front with all kinds of books on John Maynard Keynes and Keynesian economics. One book, The Return of Depression Economics, was written by Paul Krugman, the caustic New York Times columnist who just won the Nobel Prize.

Another book was called The Case for Big Government by Jeff Madrick, the editor of Challenge magazine. I can understand writing a book in support of good, efficient, strong, and productive government, but “big” alone? Most Americans prefer the motto “cheaper and better.”

The biggest surprise at Barnes & Noble was to see my own book, The Big Three in Economics, prominently displayed along side all the Keynesian and Marxist books. It has suddenly become my most successful book.

Mark Skousen with the Totem Pole of Economics

But mine was the only book there that took a dim view of Keynes and Marx and their solutions to the financial crisis (always more government, more taxes, and more regulations). For my money, Adam Smith and his followers (Ludwig von Mises, Friedrich Hayek, Milton Friedman, Murray Rothbard) deserve to be on top of the Totem Pole of Economics.

Unfortunately, Keynes is all the rage now. The British economist became famous in the 1930s for advocating going off the gold standard, running deficits and bailing out troubled banks with easy money as a way to end the Great Depression.
Today’s politicians, from George Bush to Barack Obama, have suddenly become Keynesians during this financial crisis, spending money they don’t have in a vain effort to right the ship. Even Newsweek has gone so far to say, “We are all socialists now.” Alan Greenspan, the ex-student of Ayn Rand, now favors nationalization of the big American banks Citibank and Bank of America.

Every investor and gold bug should know the enemy: Keynes, the advocate of big government and the welfare state, and Karl Marx, the radical who advocated outright state socialism and total central control of the means of production.
After World War I, Randolph Bourne observed, “War is the health of the state.” Today he might say, “A financial crisis is the health of the state.”

It looks like modern-day statists are getting their wish. We’re getting big government, good and hard. Adam Smith and Milton Friedman are out of favor, while John Maynard Keynes, the patron saint of bailouts, inflation, and the welfare state, is making a comeback with a vengeance.

The tentacles of the leviathan state are growing by leaps and bounds. In 2009, global governments will be the largest shareholders in commercial banks, reversing 20 years of retreat by the state. The costs of entitlements are exploding upwards, and Congress hasn’t had the courage to address future liabilities. Social Security and Medicare are government-sponsored Ponzi schemes that will make Bernie Madoff’s embezzlement look like a picnic.

The late management guru Peter Drucker said, “Government is better at creating problems than solving them.” In fact, wrote a cynical Ducker, government has gotten bigger, not stronger, and can only do three things well — taxation, inflation, and making war. According to Drucker, the state has become a “swollen monstrosity….Indeed, government is sick — and just at a time when we need a strong, healthy, and vigorous government.” (He said all this in 1969.) If you want to solve problems, he counseled, you must turn to business and the private sector.

But where does one get the straight scoop on Keynes, Marx, and their nemesis, Adam Smith and the followers of free-market capitalism?

I have no apologies for where I stand on the issue. In writing The Big Three, I commissioned a Florida woodcarver, James Sagui, to create “The Totem Pole of Economics.” (The Tolem Pole of Economics is shown on the back cover of the book.) Clearly, my hero is Adam Smith, the author of The Wealth of Nations, published in 1776, a declaration of economic independence.

Adam Smith, the 18th century philosopher, is on top of the Totem Pole for his advocacy of a revolutionary new doctrine which he called a “system of natural liberty,” what we might call laissez faire or free-market capitalism. He used the “invisible hand” to symbolized how the private actions of individual entrepreneurs would lead to the public good.

Today’s advocates of Smithian economics have real solutions to the crisis, as I’ve outlined in previous HUMAN EVENTS columns: suspend “mark to market” accounting rules, make the Bush tax cuts permanent, slash the corporate tax rate, and mostly importantly “do no harm.” Also, it wouldn’t hurt to take a look at the Canadian banking system, ranked #1 in the world in soundness (US is #40) for its conservative reserve requirements and nationwide branching. (Not a single Canadian bank has failed in either the Great Depression or now.)

Keynes is ranked below Adam Smith, because he supported big government and the welfare state as a way to stabilize the crisis-prone capitalist economy, the “middle ground” between laissez faire and totalitarian socialism. But as we have seen, Keynesian activism has led to much mischief in the world today, and countries that have adopted his bureaucratic, regulated mindset have witnessed “slow growth” and “stagflation” style economies.

And Marx is the “low man” on the Totem Pole. His radical solution, government ownership and control of the production, distribution and consumption of goods and services, would be, as Hayek says, “the road to serfdom.”

Adam Smith and his “system of natural liberty” have come under attack many times by his arch enemies, the Marxists and Keynesians. But Smithian economics has nine lives, and has always managed a comeback. With your help, Adam Smith will return.

Click here for a copy of The Big Three in Economics.

From Poverty to Riches: Is There a Magic Elixir?

July 1, 2002 By admin Leave a Comment

From The President’s Desk
Published in Ideas on Liberty
July 2002

by Mark Skousen

“The problem of making poor countries rich was much more difficult than we thought.”

—William Easterly, World Bank1

“If there is one formula for our success, it was that we were constantly studying how to make things work, or how to make them work better.”

—Lee Kuan Yew, former Prime Minister, Singapore2

William Easterly has spent his entire adult life working for the World Bank, living in the Third World, and helping poor countries develop into rich countries. You would think he would severely lecture the World Bank and his fellow economists about the dumb policies governments have pursued.

Instead, Easterly throws his hands in the air and offers no clues to the “elusive” quest for growth. He confirms a few economic truths, such as “incentives matter” and “government can kill growth,” but ultimately he thinks luck has as much to do with it as anything. “There are no magic elixirs,” he sighs. The almighty empirical evidence solemnly declares it. Foreign aid doesn’t work. Foreign investment doesn’t work. High savings don’t work. Investment in machinery doesn’t work. Education doesn’t work. Technology doesn’t work. Tax cuts don’t work. All have failed to live up to expectations. It’s time for the economist to be humbled: “It’s very, very hard to predict success in sports, music, and politics—as well as in economics.”3

Over the years I have witnessed a split in the economics profession. Some adhere to the view that we live in an Age of Ignorance; that we know very little about how the world economy really operates and what government policies should be pursued. They are in large measure armchair critics and doubting Thomases.4 Others believe we live in an Age of Enlightenment; that despite maddening uncertainties about the marketplace, we do know with some assurance how a freely competitive market economy works and we have learned a great deal about what governments should and should not do. It is sad commentary to see that despite his honesty, Easterly, a seasoned veteran in the war on world poverty, tends to fall into the former category. He certainly lost an opportunity to clear the air and reveal the root causes and cures of poverty.

Singapore’s Economic Miracle

Perhaps one reason Easterly’s story ends in tragedy is that he apparently spent too much time in failed economies and not enough time in successful ones. I notice that his book says almost nothing about Chile, the economic model of Latin America, or the Four Tigers—Hong Kong, Korea, Taiwan, and Singapore.

Contrast Easterly’s confused story with Lee Kuan Yew’s autobiographical account of Singapore. Lee became president of the tiny, poverty-stricken British colony after it was granted independence in 1965. In one generation, he oversaw its transformation into an Asian giant with the world’s number-one airline, best airport, busiest port of trade, and the world’s fourth-largest per capita real income.

How did this economic miracle happen?

First, Lee offered real leadership. He was a seminal figure in Asia who accomplished extraordinary things. He built an army from scratch, won over the unions, and destroyed the communists after the British left a vacuum. Despite strong opposition, he insisted on making English one of four official spoken languages, knowing it was fast becoming the language of international business. Singapore, like other Southeast Asian countries, was known for its nepotism, favoritism, and covert corruption; Lee cleaned up the courts, police, and immigration and customs offices. Today Singapore is ranked as the least corrupt country in Asia. Singapore was also dirty, so Lee began a “clean and green” campaign. Rivers, canals, and drains were cleaned up and millions of trees, palms, and shrubs were planted.

The Lee government tore down dilapidated shacks and replaced them with high-rise apartments. He imposed law and order by demanding severe sentences for murder and other crimes. Today Singapore ranks no. 1 in the world for security. To reduce traffic congestion, a huge problem in Asian cities, Singapore built an underground subway system, and imposed an electronic road-pricing program. Every vehicle has a “smart card” on its windshield, and the toll amount varies with the road used and the time of day. During rush hour, the price goes up. “Since the amount people pay now depends upon how much they use the roads, the optimum number of cars can be owned with the minimum of congestion.”5 A sound economic principle!

Lee rejected Soviet-style central planning and domestic heavy industry, although he did target certain industries for development. He focused on a two-pronged plan to advance Singapore: First, his government encouraged domestic industry to leap over their neighbors and link up with the developed world of America, Europe, and Japan, and tried to attract their manufacturers to produce in Singapore. Second, Lee wished to create a First World oasis in the Third World by establishing top standards in security, health, education, communications, and transportation, and a government offering a stable currency, low taxes, and free trade. Singapore would become a “base camp” for multinational corporations from around the world. And, after years of effort, it worked.

Under Lee’s brilliant leadership, Singapore has advanced far beyond anyone’s dreams. Yet we cannot ignore his mistakes—his paternalistic strong-arm tactics, his interventionist targeting of industries, his forced saving programs, his denial of a free press, and his excessive punishments for certain crimes. It will be interesting to see how Singapore performs, both as a people and economy, after Lee Kuan Yew is gone. We can only hope that economic freedom will lead to political liberty.

1. William Easterly, The Elusive Quest for Growth (Cambridge, Mass.: MIT Press, 2001), p. 291.
2. Lee Kuan Yew, From Third World to First: The Singapore Story, 1965–2000 (New York: Harper Collins, 2000), p. 687.
3. Easterly, p. 208. Despite Easterly’s failure to come to any clear conclusions, his book offers an honest and often entertaining appraisal of development literature.
4. See my columns, “Is This the Age of Ignorance—or Enlightenment?,” June 1994; “European Unemployment: The Age of Ignorance, Part II,” January 1995; and “The Age of Confusion,” August 1995.
5. Lee, p. 206.

Mark Skousen is president of FEE.

Where Are the Best Schools in Austrian Economics?

July 1, 2001 By admin Leave a Comment

Ideas On Liberty
Economics on Trial
July 2001

by Mark Skousen

“We must raise and train an army of fighters for freedom.”
—F. A. Hayek

Frequently students or parents approach me at investment or economics conferences with the question, “Can you recommend an undergraduate or graduate program in free-market economics?” With the explosive interest in a degree in economics, it’s imperative that students get a topnotch education.* In my experience, if students aren’t exposed early to the principles of Adam Smith and Ludwig von Mises, it is often difficult for them to shed the philosophies of John Maynard Keynes, Karl Marx, and other interventionsts later on.

Here in the United States most colleges and universities have a goodly number of “neoclassical” economists with a free-market bent. (There are a number of “free market” colleges and universities in Latin America, Europe, and Asia, a topic I shall pursue in a future column.) The American schools include the University of Virginia; the University of California, Los Angeles (UCLA); Florida State University; and the University of Chicago. However, anyone pursuing a degree in economics from these institutions will need to be well-versed in advanced mathematics in order to understand the professional language. As New York University Professor Mario Rizzo wrote me, “Contemporary economics has become a branch of applied mathematics.”

Graduate Schools in Austrian Economics

Fortunately, there’s a growing number of schools that specialize in Austrian economics. The best-known program is located at New York University, ranked as one of the top 20 economics departments in the country. The Austrian Economics Program, under the tutelage of Israel Kirzner, David Harper, and Rizzo, has been functioning at NYU since the days of Mises. The Austrian course work attracts students from around the world.

NYU also offers a weekly Austrian Economics Colloquium and an annual summer course held at FEE. (Go to www.econ.nyu.edu/dept/austrian.) However, it should be noted that the NYU program is small, and most of the teachers there are non-Austrian.

George Mason University (in northern Virginia) is also attracting undergraduate and graduate students who want to specialize in Austrian economics, although Professor Peter Boettke, who also edits The Review of Austrian Economics, says that “what makes GMU particularly attractive are its affiliated fields of Public Choice, history of thought, and constitutional economics.” Boettke and Karen Vaughn teach the Austrian theory of the market process; Richard Wagner offers a course in institutional economics; and Walter Williams serves as chairman of the department. (Go to www.gmu.edu/departments/economics.) The Institute for Humane Studies is also located at GMU (www.theihs.org).

Another graduate Austrian program that is gaining prominence is at Walsh College of Accountancy and Business Administration in Troy, Michigan (near Detroit). Walsh College (www.walshcol.edu) specializes in business degrees—in marketing, management, finance, and economics. Under the direction of Harry Veryser, the school now offers a two-year bachelor’s degree and a master’s degree in economics. The entire faculty consists of free-market economists, with a special emphasis on Austrian economics. Students are assigned books and readings by Mises, Hayek, Henry Hazlitt, Wilhelm Ropke, Paul Heyne, and me, among others. Walsh’s program is impressive.

The Expanding Austrian Universe

With the Ludwig von Mises Institute (www.mises.org) next door, Auburn University (www.auburn.edu/business/economics) has attracted a large number of students over the years. The most prominent Austrian economist on campus is Roger Garrison, author of the new advanced macro text Time and Money. Garrison teaches the main course in macroeconomics. (Leland Yeager, former Ludwig von Mises Professor of Economics at Auburn, is now retired.) Unfortunately, Auburn recently discontinued its Ph.D. program. There are a goodly number of colleges offering solid undergraduate courses. Two mainstays are Hillsdale College in Michigan and Grove City College, near Pittsburgh. Grove City College (www.gcc.edu) no longer has Hans Sennholz as chairman of the department, but Hans indicates that the school is still free-market oriented, and John Moore, the president, is an economist. Hillsdale College (www.hillsdale.edu/dept/economics) has several free-market professors, the most well-known being Richard Ebeling, who runs the annual Ludwig von Mises lecture series. Hillsdale also houses the Mises library.

I should also mention Northwood University, an associate- or full-degree business school with campuses in Midland, Michigan; West Palm Beach, Florida; and Cedar Hill, Texas. Founded by Gary Stauffer and Arthur Turner in 1958, Northwood stresses free-market and Austrian economics. (Go to www.northwood.edu.)

In California, there are two universities with an Austrian bent. Santa Clara University, under the guidance of Daniel Klein, offers the Civil Society Institute (www.scu.edu/csi), which involves a weekly colloquium, lectures series, and “coffeehouse” for libertarian ideas. Other prominent members of the faculty are Laurence Iannaccone, Henry Demmert, Fred Foldvary, and David Friedman. Charles Baird, labor economist and Ideas on Liberty columnist, is the co-chairman of the department at California State University at Hayward (www.sbe.csuhayward.edu) and director of the Smith Center for Private Enterprise Studies. According to Baird, half the tenure-track economists there are “unabashedly free-market.”

Lawrence H. White, a specialist in free banking, was recently appointed the first F A. Hayek Professor of Economic History at University of Missouri-St. Louis (www.umsl.edu/divisions/artscience/economics). According to his colleague David C. Rose, “a number of economists are either outright Austrian or are very sympathetic to the Austrian school and free market ideals.”

If you want year-round sunshine, you can always come to central Florida and take one of my courses in investments, history of thought, or Austrian economics at Rollins College in Winter Park, Florida (near Orlando). (See www.rollins.edu.)

Austriae est imperare orbi universo!

*See Jon E. Hilsenrath, “In Hot Pursuit of Economics Ph.D.s—Short Supply and Big Demand Mean Young Graduates Are Courted Like Royalty,” Wall Street Journal, February 20, 2001, p. B1.

Pulling Down the Keynesian Cross

June 1, 2001 By admin Leave a Comment

Ideas On Liberty
Economics on Trial
June 2001

by Mark Skousen

“The circle had come right round; it was as though Keynes had never been.”
-Robert Skidelsky1

“Textbooks have to be rewritten in the aftermath of each scientific revolution.”
-Thomas S. Kuhn2

In his third and final volume on John Maynard Keynes, Robert Skidelsky comes to the shocking conclusion that the Keynesian revolution was temporary, that Keynes’s General Theory was really only a “special” case, and that “free market liberalism” has ultimately triumphed. This is all the more amazing given that Lord Skidelsky has spent the past 20 years of his professional career studying Keynes and resides in Keynes’s old estate, Tilton House. Few scholars would have the guts to repudiate the theory of the man they adore.

It’s even tougher for old dogs to learn new tricks, and that refrain applies to Paul Samuelson, the “American Keynes” who introduced millions of students to the “new economics” of the master. He continues to hang his hat on the Keynesian cross, even as he publishes the 17th edition of his world-famous textbook. The pedagogical paradigm keeps shifting further toward the classical model of Adam Smith, and as each edition of Economics moves in that direction, Samuelson resists the change. He cites his mentor more than any other economist; only Keynes, not Adam Smith or Milton Friedman, is measured as a “many-sided genius.” His textbook still begins macroeconomics with the Keynesian model, even though most other textbook writers have adopted Greg Mankiw’s method of starting with the long-run classical model.3 According to Samuelson, Adam Smith’s invisible-hand doctrine-that laissez-faire behavior maximizes social welfare-“holds only under very limited conditions.”4 On the final page (755) of his massive textbook, he renders “two cheers to the market, but not three.”

Two Cheers for Hayek and Friedman

Having reviewed all 17 editions of Samuelson’s magnum opus, I conclude that his textbook has gradually shifted, albeit grudgingly, from one cheer to two cheers for the market. Much of this improvement is due to Yale’s Bill Nordhaus, his co-author since 1985. (He writes the entire text now, which Samuelson then reviews.)

What’s new about the latest edition? More free-market economists are cited, including Julian Simon, Ronald Coase, James Buchanan, Arthur Laffer, Robert Mundell, and Gary Becker. Samuelson and Nordhaus devote an entire page (41) to F.A. Hayek and Milton Friedman, “guardians of economic freedom.” They recommend Hayek’s The Road to Serfdom and Friedman’s Capitalism and Freedom, saying, “All thoughtful economists should study his arguments carefully.”

In chapter 2, “Markets and Government in a Modern Economy,” the authors highlight the benefits of globalization and the importance of property rights, noting that Russia and other former communist nations have suffered because of a failure to enforce “the legal framework.”

They also add an entire new page on the issue of lighthouses as public goods. For years Samuelson used the lighthouse as a prime example of market failure; only government could build and operate lighthouses. Several years ago I chided Samuelson for ignoring Ronald Coase’s famous essay, “The Lighthouse in Economics,” which proved that the Trinity House and other lighthouses in England were built and owned by private firms that imposed tolls on ships docking at nearby ports.5

Now, finally, Samuelson and Nordhaus have responded to Coase’s challenge in the 17th edition (pp. 37—38). They admit that privately operated lighthouses existed in England, but then point to the east coast of Florida as a case where “there were no lighthouses until 1825, and no private-sector lighthouses were ever built in this area.” According to Nordhaus, the only response to shipwrecks was a thriving private “wrecking” industry that charged high fees for “saving lives and cargo.” Nordhaus goes on to note that lighthouses have become obsolete, replaced by the satellite-based Global Positioning System, a service provided by the government.

In sum, the paradigm in economics has definitely shifted from Keynesianism to classical economics, but the case for complete laissez faire is still raging in the halls of academia.

1. Robert Skidelsky, John Maynard Keynes: Fighting for Britain, 1937-1946 (London: Macmillan, 2000), p. 506.
2. Thomas S. Kuhn, The Structure of Scientific Revolutions, 2d ed. (Chicago: University of Chicago Press, 1970), p. 137.
3. See N. Gregory Mankiw, Principles of Economics, 2d ed. (Ft. Worth, Tex.: Harcourt College Publishers, 2001). I still regard Roy J. Ruffin and Paul R.Gregory, Principles of Economics, 7th ed. (Boston: Addison Wesley Longman, 2001) as the best mainstream textbook on the market today.
4. Paul A. Samuelson and William D. Nordhaus, Economics, 17th ed. (New York: McGraw-Hill Higher Education, 2001), p. 325.
5. Mark Skousen, “The Perseverance of Paul Samuelson’s Economics,” Journal of Economic Perspectives, Spring 1997, p. 145. Coase’s article appeared in the Journal of Law and Economics, October 1974, pp.357-76.

Whatever Happened to the Egyptians?

June 1, 2001 By admin Leave a Comment

Forecasts & Strategies
Personal Snapshots
June 2001

By Mark Skousen

Governments are generally reluctant to admit mistakes and to change mistaken policies until much harm has been done. -P.T. Bauer and B.S. Yamey

In Whatever Happened to the Egyptians?, a popular book in Egypt, author Galan Amin raises a good question. Thousands of years ago, Egypt was the birthplace of one of the world’s greatest civilizations, with remarkable advances in architecture, astronomy, mathematics and economics, and the pharaohs ruled the world for centuries.

But today Egypt is a fallen nation. My family and I visited Egypt for the first time last month, and we were appalled. Arriving in Cairo to see the ancient pyramids, we also saw filthy canals, undrinkable water, dire poverty, noisy traffic, teeming millions, incessant vendors and dust everywhere (due to cement factories nearby).

I picked up a copy of a guidebook on what it’s like for a Westerner to live in Cairo. The author, Claire Francy, lists so many shortages that she urges foreign residents to bring the following with them: answering machines, major appliances, computers, modems, printers, telephones, fax machines, cosmetics, flashlights, pantyhose, wines, books in English, clothes and shoes. Yes, shoes. “In a city with nearly as many shoe stores as feet, it is almost impossible to find decent shoes.” Oh, the joys of import substitution laws!

And yet, Egypt has tremendous resources: oil, cotton, some of the best fertile land in the world along the Nile Valley, a first-rate irrigation system, the Suez Canal, and a huge labor force (nearly 70 million and the population is growing rapidly, despite the common practice of female circumcision, which leaves women without sexual feeling but not without children). Yet true unemployment is 20% and underemployment is endemic. Egypt suffers from a huge “brain drain,” with 2.5 million Egyptians working abroad. The nation has illiteracy rates of 66% among women and 37% among men. It imports half of its food. After Israel, this Arab-African nation is the highest recipient of U.S. foreign aid in the world.

Anti-Market Policies

What’s the cause of this demise? The culprit is socialist interventionism in the economy. As one economist states, “The Egyptian economy bears the legacy of economic policies dating from the 1950s which were motivated by concern for equity and assistance to the poor. These policies were characterized by price regulation, subsidization of consumer goods, a dominant public sector and state control.” When Gamal Nasser gained power in 1954, he established a “democratic socialist state” and nationalized everything under the sun (including the local beer company) and dramatically increased government control of the economy. Moreover, under a Napoleonic code, Egypt suffers from a regulatory nightmare of paperwork and bureaucracy.

Fortunately, Nasser’s replacement, Anwar Sadat, began a program of reducing the role of government. After his tragic assassination in 1981, his successor, Hosni Mubarak, has accelerated market policies of privatization and foreign investment, and eliminated price and exchange controls. Yet, even today, 36% of the labor force is employed by the government, and the economy continues to suffer from overregulation and controls.

Egypt has made substantial progress since 1990, when the Fraser Institute ranked it #88 in its Economic Freedom report. Today it is ranked #52. But clearly the Egyptian leaders have a long way to go to fulfill the Koran’s promise of “wealth and children” as the “adornments of this present life.”