The economic crisis: the government is the problem not the solution
Monday, March 9, 2009
If the politicians and the media to believe, then the free market is the cause of the current economic crisis and only government intervention can save us.
In this article I will argue that reality is the opposite: the government is the problem not the solution.
Neither the political-economic system of the Netherlands, nor that of other EU member states, nor that of the United States, nor that of other major trading partners that affect our economic peaks and valleys can be defined as a free market.
What is a free market?
Wikipedia defines a free market as follows: "A free market is a market free of government intervention and regulation, in addition to the minimum task of maintaining the legal system and protection of property rights, and free of coercion and deception."
The political-economic systems of the Netherlands and its largest trading partners are far from a free market. To do this I include the following arguments:
The large public
The state consists of hundreds of thousands of officials and politicians, who are mainly concerned with the preservation of their financial position and dominance through the following vicious circle:
1. Officials and politicians cause problems through government intervention, especially by the market to distort. Examples include files, waiting lists for care, unemployment, housing, wine, urine, milk lakes, butter mountains, poor and expensive education, high absenteeism, et cetera.
2. By identifying these problems they seek the attention of the media.
3. This is taxpayers' money spent on finding a solution.
4. Then, always the same solution, namely that the state more tax money to spend, that is still more rules to make that the state still needs more powers and that more officers should be hired. In short, the state still needs more money and power. Then everything is good.
5. Ultimately, it is not good, but the problem worse or create other problems, or both. This we are back to square one, or to a point!
If a free market would be introduced, the government limited to protecting its citizens from criminals and invasions, and the government drastically reduced to the three tasks that the free market economist Adam Smith suggested: army, police and justice. All other government agencies would be abolished.
The high taxes
The above process led to an enormous growth of the tax burden. The Dutch government gave the OECD (a grouping of thirty countries for social and economic policy to discuss, so the government itself) 47% of national income in 2007. In the EU was 46%. In the United States, seen by many as the most capitalist country in the world, was that 37%. The hundreds of billions that have been given to, among other banks in the context of the financial crisis are not yet included. You will be forced half of the fruits of your labor - your property - to be under threat of violence, without any other damage inflicted refuses to reimburse you. By comparison, the late nineteenth century, when the night watchman state, the tax rate about 7%. Most taxes we know today, including income tax and VAT, there was not. That was not necessary because there was a small government with little money spent.
If a free market would be introduced, the public so little money that natural gas would likely be sufficient to enable it to finance spending. There is no tax to be levied. Netherlands in this respect an example, in Dubai, a country with relatively high economic freedom, limited government intervention and very low taxes. The national income of Dubai for 6% of oil revenues, most of which result in the state. Because the government spends relatively little money, this is almost sufficient to finance public expenditure. Dubai is therefore no taxes on income, profits, assets, capital, sales, inheritance or gifts. The country levies no tax or compulsory contributions. The economic growth in Dubai from 2000 to 2006 was 18%, and even in 2009, a growth of 6%. Likewise, it may be.
The jungle of rules
Officials are hired to make rules. Unfortunately they do so. Was it true that officials did nothing, they just cost money. Now it unprecedented damage to libraries full of rules to write. There seems no end to it. There never seem to have enough rules. For each rule is abolished, there must be at least ten others.
Every citizen is the law is. In other words, if you do not know the law is no excuse. But the jungle of rules is so great that nobody can know the rules. Even people that phone books from their heads to learn, the law does not know. Moreover, the rules are often in conflict with each other. You may be familiar with the story of the catering business of the fire told that his doors were open inwards. Then he mounted doors that opened outwards. Then did another officer to tell him that that could not, because it could be dangerous for passers-by. At the end he assembled sliding board, and he's got to stick with the solution.
If a free market would be introduced, we pretty much back to the Ten Commandments, and even a few can eliminate:
Thou shalt not kill.
Thou shalt not steal.
Thou shalt not abuse.
Thou shalt not threaten.
Thou shalt not cheat.
Thou shalt honor your agreements.
The above shows that the absurd to the Dutch system described as a free market. Since the state half of our money, and even millions of rows to us submit, the more obvious to speak of a mixed economy.
How government intervention caused recessions
The current economic crisis has been predicted years ago by free-market economists of the Austrian School, known by the work of economists Ludwig von Mises and Nobel Laureate Friedrich von Hayek. Economists of the Austrian School have found an explanation for the phenomenon of the business cycle, characterized by periods of boom (tree), followed by weak (bust). Their theory explains the creation of recessions and depressions, and thus the Great Depression of the 30s. I will try this theory to those of a short history of the money.
Until the twentieth century, mostly money from silver or gold coins, or notes backed by gold. This money was therefore an intrinsic value. Inflation was hard. Indeed, since the nineteenth century, the stock generally increased faster than the gold, the same could increasingly buy gold coin, falling prices: deflation. This form of deflation was a very healthy and desirable phenomenon. The indicative of an increasingly higher standard of living, which was caused by high economic growth, thanks to the relatively high economic freedom in the nineteenth century was made possible.
The creation of paper money and deposit money
When people went gold coins at banks, in exchange for notes and later in exchange for a balance on a bank account, there arose a problem. For many banks, the temptation is very large for unsecured notes to print and to give, or unsecured loans by an amount just to write on the bank of the debtor. In this way, banks could benefit from additional interest income, and as long as possible to prevent too many people at their notes or bank balances were ones in gold, banks were able to get away.
The emergence of inflation
For some banks, the temptation to increasing unsecured notes by pressing or unsecured loans so large that their reputation suffering below. If a bank run could leave people in the row were to demand their gold back. At that time course showed that the bank had too little gold, and was therefore insolvent. The injured customers bankers then dragged to court for fraud. The bank had, when the customers had returned the gold, bank notes issued which said that the note at any time could be redeemed for gold. The judges (public course), however, considered remarkable enough that there was no fraud, but only a bad claim. This was the gate of the dam. Almost all banks were doing at that moment to this form of fraud, known as Fractional-reserve banking. The result was inflation.
The emergence of central banks
Most banks were cautious with this new acquired privilege, because they realized that they were careful that no bank run would occur. Some banks, as already described, could not resist this temptation and were therefore in most cases fail. The 'conservative' banks were now the risk that their customers would be afraid that they exchange the banknotes to their gold could whistle, and safety were half their gold claim while still could.
The 'conservative' banks were therefore lobbying the government for the establishment of a central bank for central banks would determine how much unsecured money should be spent. So was that a 'careless' bank would cause a bank run and the game would ruin the' conservative 'banks. The government was obviously happy with this wish to come in this way its power over the financial world. Central banks have been so intertwined with the government that they should consider as public organizations.
Abolishing the gold standard
As known to politicians always like to make more money. Normally these taxes should be increased, and the parliament a law to take. Since central banks, is no more. The central bank simply printed money and the proceeds will directly or indirectly in public executions. "Inflation is the only form of tax can be imposed without legislation," said Nobel Prize winner Milton Friedman. This explains why, since inflation has been constant. Economists like John Maynard Keynes, who devised theories why inflation was good for the economy, were (and still have) by authorities hailed. While there are still one or other (weakened) form of a gold standard was the possibility of money to print limited. So it was decided that the gold standard should be abolished. First, all banks forced their gold to the central bank to bring. Thereafter, a number of steps the money increasingly disconnected from the cover in gold. Until finally no more gold to back and the gold (which originally was owned by depositors), so actually it was expropriated by the government. At the same time it was the last protection of citizens against inflation disappeared.
Inflation has a number of disadvantages. One is inflation. Because more money is circulated, is that before the money in circulation was less. This is particularly annoying for people who have saved for later, because their savings suddenly has less purchasing power. The government steals it actually part of the assets of the depositors, and distributes that groups that are by the public advantage. Savings are thus discouraged, leaving less to be invested in a free market would be the case.
Government Intervention in the price
Another disadvantage of inflation is that the interest rates distort. This is not even an unintended consequence of inflation, the government chooses deliberately to manipulate interest rates, mostly because interest rates artificially low to keep from the assumption that low interest rates would be good for economic growth. This is a misconception. Government Intervention in the price in all cases leads to economic problems. The structural deficits and surpluses are caused. Shortages are caused by government price artificially low. Because of the low price is less supply and more demand. Examples are the waiting lists for care, traffic congestion and housing. Surpluses are caused by government price artificially high. The question is will it decrease while the supply increases. Examples include butter mountains, milk lakes, ponds wine and unemployment.
In a free market, however, prices are established by the buyers and sellers agree. If a deficit is likely to occur, the price up and the production then again, just as long as demand and supply are equal. If a surplus is likely to occur, the price down and take the production off, just as long as demand and supply are equal.
Interest is no different. Interest is the price for the savings and borrow money. In a free market interest rates determined by time preference of the people who want to save or borrow. If people have a high time preference, they are willing to pay a high interest to have more money to lend, and are only willing to save as a high interest rate is received. If people have a low time preference, they are only willing to pay a low interest rate to borrow more and more they save, even if the rates are low. Just as the height of an important price information for a producer who must decide how much it will produce, the level of interest rates important information for investors who must decide where they invest. In a free market is this information reliable, because interest rates are formed by supply and demand and thus by the time preference of people who save or borrow. If the interest is low, a sign that many people are willing consumption at this time to make in exchange for consumption later. Therefore, investors invest less in the production of consumer goods, and thus relatively more in the production of capital goods. If the interest is high, it is a sign that few people are willing consumption at this time to make in exchange for consumption later. So investors should invest more in the production of consumer goods, and therefore relatively less in the production of capital goods.
Manipulation of interest rates
When the government manipulates interest rates, this information is not more reliable, and are wrong investments. If the government uncovered large amounts of money in circulation and banks on the basis of these loans which are not otherwise provided would be equally wrong investments. That these investments are wrong, it only later. In the meantime, seem all that new investment for growth concerns and talk of a boom or boom. A recession is nothing but a recovery period in which these bad investments are liquidated. This recovery is necessary: better looking than half the entire erred. When it becomes clear that poor investment decisions are taken, should not try the wrong direction to continue to fly, but to change and accept this cost. In other words, we will have to sit on the blisters or during a bust cycle.
The Great Depression
Since government intervention in financial markets with regular recessions been. Usually, the government is not happy so much, and went back the recession fairly quickly. A 'normal' recession in the 30s changed in the Great Depression. There are two reasons to call. In the first place, the United States, like many other countries, long a central bank introduced. This was the problem described above seriously strengthened. In the second place the government tried to combat the recession with a series of bad actions. If wages were kept artificially high, with mass unemployment as a result. It was the gold standard in many countries completely or partially abolished. International trade was undermined by protectionist measures, such as raising import duties. And the government was spending its very drastic increase in a futile attempt to economy 'boost'. The government, however, can not stimulate the economy! The government can only spend money by the first to take productive people. 'Public Investment' will therefore by definition at the expense of private investment. Instead of people themselves to decide which they spend their money, are civil servants and politicians that they belong. When people invest their own hard-earned money, they will do that carefully and deliberately. If politicians and officials, however, others may spend money, they have little incentive to make a careful way to deal with it. The result is a waste. Unfortunately, our politicians this lesson of the 30s is not shown, and seem therefore doomed to repeat the same mistakes.
The emergence of the credit crisis
The creation from nothing of unsecured money especially since 2001 such grotesque forms that banks often to fifty times more money to lend if they have reserves. In other words, their reserves have dropped to 2%, a situation which is out of hand was run. All this new money was fictitious capital: not caused by producing and saving, but to print money. This resulted in inefficient investments. The U.S. mortgage crisis is the best example. It is estimated that 1500 billion dollars extra to mortgage loans because of low interest rates that was caused by the Fed, the U.S. central bank, massive amounts of money out of nothing created. This created a bubble that has now been cracked.
Negative interest rates
Since 2001, the Fed created more than 70% of the money it has created in the 88 years that the Fed was that this is more than 2000 billion dollars. This happened with the explicit aim to lower interest rates than the interest that otherwise the free market was created. From 2001 to 2004 caused the Fed is in this way that the federal funds rate below 2%, and from July 2003 to June 2004 even around 1%. This decreased the interest banks pay to savers by the level of inflation, thus saving money instead of industry. This was done intentionally, with the aim to increase investment and consumer spending to increase, assuming that this form of intervention the economy is growing louder.
The Fed pursued thus a de facto negative return on invested capital. That they have received, but on a much larger scale than expected. What the Fed has achieved is a negative return in the form of a loss of much of the capital. Since the credit crisis began, the financial institutions around 500 billion dollar depreciated on mortgages and securities derived. If nothing changes, there is still some 1000 to 1500 billion dollars at. This huge loss of capital has ensured that banks can provide loans to companies that otherwise would have borrowed money. The policy of the Fed has thus led to money lent to people who were not creditworthy. This money can not be lent to companies that a lot of value and the capital needed to survive.
When the government loan guarantees, there is no reason for the lender to look at the creditworthiness of the borrower. He can not lose money by providing credit, how bad this decision turns out well. Many U.S. mortgages were guaranteed by the government on the basis of low demand, which increasingly were reduced.
Community Rein Vest Apartment Act
The U.S. federal government has a law, the Community Rein Vest Apartment Act, which forced banks to lend to people who were not creditworthy. Thus, these people buy homes that they otherwise could not buy. The borrowed money was often not of course be refunded, and the whole of cards in each other to collapse.
Why do politicians and the media to blame the free market?
This thorough analysis show that the free market, but government intervention has caused this financial crisis. How is it that the politicians and the media blame the free market?
The government is monopolizing education for more than a hundred years. The salary of almost all teachers, teachers and professors are paid by the government. Whose bread you eat, his word we speak. This government has bought the loyalty of all teachers, or others without being aware of them. The belief that a big government that many tax levies and a lot of money, good for us, with the paplepel potted. Most people are pliant to their 25th, then they are hardly open to new ideas. At this fluid period people by the government formed. In the period then do people who follow higher education is not to pay, but they get money. Not only teachers, but also the students are so influenced the public to see as a big brother who makes them.
Free market economists ignored
This process is particularly influenced education in science that can have great influence on future government policy, and therefore eminently general economy. Those who study global economy follows makes little or no knowledge of the work of free-market economists like Ludwig von Mises, George Reismanof Murray Roth Bard, and even with Nobel Prize winners like Milton Friedman, Friedrich von Hayek, Gary Becker, Vernon Smith and James Buchanan. Why is that? These economists bring a message, which politicians and other proponents of a big government does not like to hear: the size, power and spending of government must be very drastically reduced. The theories of economists like Keynes, who believe that the government much taxation, a lot of money to create and spend much money, our politicians, however, sound like music to the ears. It would come as no surprise that economists should Keynes as a very large impact on the public education monopoly.
The above free-market economists, notably Roth Bard and Reisman have me and the article affected. Who wants to know more about the ideas in this article, I recommend their books to read, or to start visiting the following websites:
Libertarisme - politiek gebaseerd op de filosofie van vrijheid Libertarianism.com
MeerVrijheid - Home Ludwig von Mises Institute - Homepage
Vrijspreker.nl George Reisman's Blog, Library of Liberty, and Course Syllabi
Libertarische Partij The Cato Institute
Welkom bij het Murray Rothbard Instituut Reason Foundation: Free Minds and Free Markets
About Toine Manders
Toine Manders, Director of the Hague Lawyers College. The HJC has specialized in tax planning, estate planning, asset protection and the establishment and management of companies and trusts for entrepreneurs, consultants and wealthy individuals.
He is also chairman of the Libert Aryan Party. The LP is seeking to limit economic freedom and unlimited personal freedom of the individual, and is in principle against state monopolies, taxation and regulation.
Source: more freedom