Speak Out: Someone beards the fox in it's own den, and does not mince words

Posted by Robert* on Tue, May 1, 2012, at 9:09 AM:

As a general rule, I do not like long cut and pastes. They tend to run long and require a lot of effort to read and digest. Therefore, many people pass them by or interject their own opinion without taking the time to make the attempt to understand the message.

Robert Renzel, editor and publisher of the Economic Policy Journal, was invited to speak at the New York Federal Reserve Bank. He accepted and made one of the finest statements concerning present economic policy and the Fed that I have had the opportunity to read. He was plain-spoken; I find his opinions easy to understand. You may or may not agree with him but it is my belief that we all profit by understanding the views of experts. I hope you will take the time to read and consider his thoughts.

http://www.economicpolicyjournal.com/2012/04/my-speech-delivered-at-new-york-fed...

WEDNESDAY, APRIL 25, 2012

My Speech Delivered at the New York Federal Reserve Bank

At the invitation of the New York Federal Reserve Bank, I spoke and had lunch in the bank's Liberty Room. Below are my prepared remarks.

Thank you very much for inviting me to speak here at the New York Federal Reserve Bank.

Intellectual discourse is, of course, extraordinarily valuable in reaching truth. In this sense, I welcome the opportunity to discuss my views on the economy and monetary policy and how they may differ with those of you here at the Fed.

That said, I suspect my views are so different from those of you here today that my comments will be a complete failure in convincing you to do what I believe should be done, which is to close down the entire Federal Reserve System

My views, I suspect, differ from beginning to end. From the proper methodology to be used in the science of economics, to the manner in which the macro-economy functions, to the role of the Federal Reserve, and to the accomplishments of the Federal Reserve, I stand here confused as to how you see the world so differently than I do.

I simply do not understand most of the thinking that goes on here at the Fed and I do not understand how this thinking can go on when in my view it smacks up against reality.

Please allow me to begin with methodology, I hold the view developed by such great economic thinkers as Ludwig von Mises, Friedrich Hayek and Murray Rothbard that there are no constants in the science of economics similar to those in the physical sciences.

In the science of physics, we know that water freezes at 32 degrees. We can predict with immense accuracy exactly how far a rocket ship will travel filled with 500 gallons of fuel. There is preciseness because there are constants, which do not change and upon which equations can be constructed..

There are no such constants in the field of economics since the science of economics deals with human action, which can change at any time. If potato prices remain the same for 10 weeks, it does not mean they will be the same the following day. I defy anyone in this room to provide me with a constant in the field of economics that has the same unchanging constancy that exists in the fields of physics or chemistry.

And yet, in paper after paper here at the Federal Reserve, I see equations built as though constants do exist. It is as if one were to assume a constant relationship existed between interest rates here and in Russia and throughout the world, and create equations based on this belief and then attempt to trade based on these equations. That was tried and the result was the blow up of the fund Long Term Capital Management, a blow up that resulted in high level meetings in this very building.

It is as if traders assumed a given default rate was constant for subprime mortgage paper and traded on that belief. Only to see it blow up in their faces, as it did, again, with intense meetings being held in this very building.

Yet, the equations, assuming constants, continue to be published in papers throughout the Fed system. I scratch my head.

I also find curious the general belief in the Keynesian model of the economy that somehow results in the belief that demand drives the economy, rather than production. I look out at the world and see iPhones, iPads, microwave ovens, flat screen televisions, which suggest to me that it is production that boosts an economy. Without production of these things and millions of other items, where would we be? Yet, the Keynesians in this room will reply, "But you need demand to buy these products." And I will reply, "Do you not believe in supply and demand? Do you not believe that products once made will adjust to a market clearing price?"

Further , I will argue that the price of the factors of production will adjust to prices at the consumer level and that thus the markets at all levels will clear. Again do you believe in supply and demand or not?

I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy.

You will argue with me that prices are sticky on the downside, especially labor prices and therefore that you must pump money to get the economy going. And, I will look on in amazement as your fellow Keynesian brethren in the government create an environment of sticky non-downward bending wages.

The economist Robert Murphy reports that President Herbert Hoover continually pressured businessmen to not lower wages.[1]

He quoted Hoover in a speech delivered to a group of businessmen:

In this country there has been a concerted and determined effort on the part of government and business... to prevent any reduction in wages.

He then reports that FDR actually outdid Hoover by seeking to "raise wages rates rather than merely put a floor under them."

I ask you, with presidents actively conducting policies that attempt to defy supply and demand and prop up wages, are you really surprised that wages were sticky downward during the Great Depression?

In present day America, the government focus has changed a bit. In the new focus, the government attempts much more to prop up the unemployed by extended payments for not working. Is it really a surprise that unemployment is so high when you pay people not to work.? The 2010 Nobel Prize was awarded to economists for their studies which showed that, and I quote from the Nobel press release announcing the award:

One conclusion is that more generous unemployment benefits give rise to higher unemployment and longer search times.[2]

Don't you think it would make more sense to stop these policies which are a direct factor in causing unemployment, than to add to the mess and devalue the currency by printing more money?

I scratch my head that somehow your conclusions about unemployment are so different than mine and that you call for the printing of money to boost "demand". A call, I add, that since the founding of the Federal Reserve has resulted in an increase of the money supply by 12,230%.

I also must scratch my head at the view that the Federal Reserve should maintain a stable price level. What is wrong with having falling prices across the economy, like we now have in the computer sector, the flat screen television sector and the cell phone sector? Why, I ask, do you want stable prices? And, oh by the way, how's that stable price thing going for you here at the Fed?

Since the start of the Fed, prices have increased at the consumer level by 2,241% [3]. that's not me misspeaking, I will repeat, since the start of the Fed, prices have increased at the consumer level by 2,241%.

So you then might tell me that stable prices are only a secondary goal of the Federal Reserve and that your real goal is to prevent serious declines in the economy but, since the start of the Fed, there have been 18 recessions including the Great Depression and the most recent Great Recession. These downturns have resulted in stock market crashes, tens of millions of unemployed and untold business bankruptcies.

I scratch my head and wonder how you think the Fed is any type of success when all this has occurred.

I am especially confused, since Austrian business cycle theory (ABCT), developed by Mises, Hayek and Rothbard, has warned about all these things. According to ABCT, it is central bank money printing that causes the business cycle and, again you here at the Fed have certainly done that by increasing the money supply. Can you imagine the distortions in the economy caused by the Fed by this massive money printing?

According to ABCT, if you print money those sectors where the money goes will boom, stop printing and those sectors will crash. Fed printing tends to find its way to Wall Street and other capital goods sectors first, thus it is no surprise to Austrian school economists that the crashes are most dramatic in these sectors, such as the stock market and real estate sectors. The economist Murray Rothbard in his book America's Great Depression [4] went into painstaking detail outlining how the changes in money supply growth resulted in the Great Depression.

On a more personal level, as the recent crisis was developing here, I warned throughout the summer of 2008 of the impending crisis. On July 11, 2008 at EconomicPolicyJournal.com, I wrote[5]:

SUPER ALERT: Dramatic Slowdown In Money Supply Growth

After growing at near double digit rates for months, money growth has slowed dramatically. Annualized money growth over the last 3 months is only 5.2%. Over the last two months, there has been zero growth in the M2NSA money measure.

This is something that must be watched carefully. If such a dramatic slowdown continues, a severe recession is inevitable.

We have never seen such a dramatic change in money supply growth from a double digit climb to 5% growth. Does Bernanke have any clue as to what the hell he is doing?

On July 20, 2008, I wrote [6]:

I have previously noted that over the last two months money supply has been collapsing. M2NSA has gone from double digit growth to nearly zero growth .

A review of the credit situation appears worse. According to recent Fed data, for the 13 weeks ended June 25, bank credit (securities and loans) contracted at an annual rate of 7.9%.

There has been a minor blip up since June 25 in both credit growth and M2NSA, but the growth rates remain extremely slow.

If a dramatic turnaround in these numbers doesn't happen within the next few weeks, we are going to have to warn of a possible Great Depression style downturn.

Yet, just weeks before these warnings from me, Chairman Bernanke, while the money supply growth was crashing, had a decidedly much more optimistic outlook, In a speech on June 9, 2008, At the Federal Reserve Bank of Boston's 53rd Annual Economic Conference [7], he said:

I would like to provide a brief update on the outlook for the economy and policy, beginning with the prospects for growth. Despite the unwelcome rise in the unemployment rate that was reported last week, the recent incoming data, taken as a whole, have affected the outlook for economic activity and employment only modestly. Indeed, although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so. Over the remainder of 2008, the effects of monetary and fiscal stimulus, a gradual ebbing of the drag from residential construction, further progress in the repair of financial and credit markets, and still-solid demand from abroad should provide some offset to the headwinds that still face the economy.

I believe the Great Recession that followed is still fresh enough in our minds so it is not necessary to recount in detail as to whose forecast, mine or the chairman's, was more accurate.

I am also confused by many other policy making steps here at the Federal Reserve. There have been more changes in monetary policy direction during the Bernanke era then at any other time in the modern era of the Fed. Not under Arthur Burns, not under G. William Miller, not under Paul Volcker, not under Alan Greenspan have there been so many dramatically shifting Fed monetary policy moves. Under Chairman Bernanke there have been significant changes in direction of the money supply growth FIVE different times. Thus, for me, I am not at all surprised at the current stop and go economy. The current erratic monetary policy makes it exceedingly difficult for businessmen to make any long term plans. Indeed, in my own Daily Alert on the economy [8] I find it extremely difficult to give long term advice, when in short periods I have seen three month annualized M2 money growth go from near 20% to near zero, and then in another period see it go from 25% to 6% . [9]

I am also confused by many of the monetary programs instituted by Chairman Bernanke. For example, Operation Twist.

This is not the first time an Operation Twist was tried. an Operation Twist was tried in 1961, at the start of the Kennedy Administration [10] A paper [11] was written by three Federal Reserve economists in 2004 that, in part, examined the 1960's Operation Twist

Their conclusion (My bold):

A second well-known historical episode involving the attempted manipulation of the term structure was so-called Operation Twist. Launched in early 1961 by the incoming Kennedy Administration, Operation Twist was intended to raise short-term rates (thereby promoting capital inflows and supporting the dollar) while lowering, or at least not raising, long-term rates. (Modigliani and Sutch 1966).... The two main actions of Operation Twist were the use of Federal Reserve open market operations and Treasury debt management operations..Operation Twist is widely viewed today as having been a failure, largely due to classic work by Modigliani and Sutch....

However, Modigliani and Sutch also noted that Operation Twist was a relatively small operation, and, indeed, that over a slightly longer period the maturity of outstanding government debt rose significantly, rather than falling...Thus, Operation Twist does not seem to provide strong evidence in either direction as to the possible effects of changes in the composition of the central bank's balance sheet....

We believe that our findings go some way to refuting the strong hypothesis that nonstandard policy actions, including quantitative easing and targeted asset purchases, cannot be successful in a modern industrial economy. However, the effects of such policies remain quantitatively quite uncertain.

One of the authors of this 2004 paper was Federal Reserve Chairman Bernanke. Thus, I have to ask, what the hell is Chairman Bernanke doing implementing such a program, since it is his paper that states it was a failure according to Modigliani, and his paper implies that a larger test would be required to determine true performance.

I ask, is the Chairman using the United States economy as a lab with Americans as the lab rats to test his intellectual curiosity about such things as Operation Twist?

Further, I am very confused by the response of Chairman Bernanke to questioning by Congressman Ron Paul. To a seemingly near off the cuff question by Congressman Paul on Federal Reserve money provided to the Watergate burglars, Chairman Bernanke contacted the Inspector General's Office of the Federal Reserve and requested an investigation [12]. Yet, the congressman has regularly asked about the gold certificates held by the Federal Reserve [13] and whether the gold at Fort Knox backing up the certificates will be audited. Yet there have been no requests by the Chairman to the Treasury for an audit of the gold.This I find very odd. The Chairman calls for a major investigation of what can only be an historical point of interest but fails to seek out any confirmation on a point that would be of vital interest to many present day Americans.

In this very building, deep in the underground vaults, sits billions of dollars of gold, held by the Federal Reserve for foreign governments. The Federal Reserve gives regular tours of these vaults, even to school children. [14] Yet, America's gold is off limits to seemingly everyone and has never been properly audited. Doesn't that seem odd to you? If nothing else, does anyone at the Fed know the quality and fineness of the gold at Fort Knox?

In conclusion, it is my belief that from start to finish the Fed is a failure. I believe faulty methodology is used, I believe that the justification for the Fed, to bring price and economic stability, has never been a success. I repeat, prices since the start of the Fed have climbed by 2,241% and there have been over the same period 18 recessions. No one seems to care at the Fed about the gold supposedly backing up the gold certificates on the Fed balance sheet. The emperor has no clothes. Austrian Business cycle theorists are regularly ignored by the Fed, yet they have the best records with regard to spotting overall downturns, and further they specifically recognized the developing housing bubble. Let it not be forgotten that in 2004, two economists here at the New York Fed wrote a paper [15] denying there was a housing bubble. I responded to the paper [16] and wrote:

The faulty analysis by [these] Federal Reserve economists... may go down in financial history as the greatest forecasting error since Irving Fisher declared in 1929, just prior to the stock market crash, that stocks prices looked to be at a permanently high plateau.

Data released just yesterday, now show housing prices have crashed to 2002 levels. [17]

I will now give you more warnings about the economy.

The noose is tightening on your organization, vast amounts of money printing are now required to keep your manipulated economy afloat. It will ultimately result in huge price inflation, or, if you stop printing, another massive economic crash will occur. There is no other way out.

Again, thank you for inviting me. You have prepared food, so I will not be rude, I will stay and eat.

Let's have one good meal here. Let's make it a feast. Then I ask you, I plead with you, I beg you all, walk out of here with me, never to come back. It's the moral and ethical thing to do. Nothing good goes on in this place. Let's lock the doors and leave the building to the spiders, moths and four-legged rats.

Footnotes

[1] http://www.amazon.com/Politically-Incorrect-Guide-Depression-Guides/dp/159698096...

[2] http://www.nobelprize.org/nobel_prizes/economics/laureates/2010/press.html

[3] ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

[4] http://www.amazon.com/Americas-Great-Depression-Murray-Rothbard/dp/146793481X/re...

[5] http://www.economicpolicyjournal.com/2008/07/super-alert-dramatic-slowdown-in-mo...

[6] http://www.economicpolicyjournal.com/2008/07/alert-collapsing-credit.html

[7] http://www.federalreserve.gov/newsevents/speech/bernanke20080609a.htm

[8] http://www.economicpolicyjournal.com/2009/04/announcing-epj-quarterly-economic.h...

[9]http://www.economicpolicyjournal.com/2008/07/super-alert-dramatic-slowdown-in-money.html

[10] http://www.frbsf.org/publications/economics/letter/2011/el2011-13.html

[11] http://www.federalreserve.gov/pubs/feds/2004/200448/200448pap.pdf

[12] http://www.huffingtonpost.com/2012/04/03/federal-reserve-watergate-iraqi-weapons...

[13] http://www.federalreserve.gov/releases/h41/Current/

[14] http://www.newyorkfed.org/aboutthefed/visiting.html

[15] http://fednewyork.org/research/epr/04v10n3/0412mcca.pdf

[16] http://www.economicpolicyjournal.com/2012/02/checkmate-new-york-fed-as-totally.h...

[17] http://www.nytimes.com/2012/04/25/business/economy/survey-shows-us-home-prices-s...

Special thanks to the following, who helped me research and collect data for this paper: Stephen Davis, Bob English, Jon Lyons, Ash Navabi, Joseph Nelson, Nick Nero, Antony Zegers

Replies (31)

  • Robert*, This revisits a discussion about which drives the economy..supply or demand. Many said supply creates demand and many said demand leads to supply. Upon reconsidering, I think both sides were right as the writer points out there would be little demand for the high tech gadgets we have without them first produced and introduced to the consumer. On the other hand, more demand for any product is incentive for more production.

    The point of the article which is well made in IMHO that money supply manipulation fails anytime it is used.

    Can anyone give a good argument for why we need a federal reserve?

    Oh, and how do we know there is any gold in Fort Knox?

    -- Posted by Old John on Tue, May 1, 2012, at 10:40 AM
  • Robert*, This revisits a discussion about which drives the economy..supply or demand. Many said supply creates demand and many said demand leads to supply. Upon reconsidering, I think both sides were right as the writer points out there would be little demand for the high tech gadgets we have without them first produced and introduced to the consumer. On the other hand, more demand for any product is incentive for more production.

    The point of the article which is well made in IMHO that money supply manipulation fails anytime it is used.

    Can anyone give a good argument for why we need a federal reserve?

    Oh, and how do we know there is any gold in Fort Knox?

    -- Posted by Old John on Tue, May 1, 2012, at 10:40 AM
  • Thanks. An excellent read and more information to help in forming opinions. I like his "in your face" approach to calling all these stuffed shirt fed economists out on the failing of their policies. Sad thing is they all know it, but continue marching on blindly.

    Equally as sad is the youth today that support Obama over promises of more money and college loan breaks. There is no getting around the fact that they will pay for all of this "free money" in the future. I'm no 1%er but me and mine will survive any coming financial disaster - I've planned heavily and I'm not as dependent as many on the government money. But the youth's "hope and change" is dependent on more of this. Their future will be dismal without true change.

    -- Posted by not_sorry on Tue, May 1, 2012, at 11:16 AM
  • Thanks. An excellent read and more information to help in forming opinions. I like his "in your face" approach to calling all these stuffed shirt fed economists out on the failing of their policies. Sad thing is they all know it, but continue marching on blindly.

    Equally as sad is the youth today that support Obama over promises of more money and college loan breaks. There is no getting around the fact that they will pay for all of this "free money" in the future. I'm no 1%er but me and mine will survive any coming financial disaster - I've planned heavily and I'm not as dependent as many on the government money. But the youth's "hope and change" is dependent on more of this. Their future will be dismal without true change.

    -- Posted by not_sorry on Tue, May 1, 2012, at 11:19 AM
  • Rick, Forward has been used before. I'm surprised how blatantly open and under the nose of his supporters this president can be in flaunting his Marxist leanings.

    -- Posted by Old John on Tue, May 1, 2012, at 11:51 AM
  • Some of the speech is a bit strange. He starts out be admitting that economics is far from an exact science, then proceeds to describe how only he is correct and everyone else is wrong.

    He also states some businesses produce millions of products in the hopes of selling them. Then asks, "Do you not believe that products once made will adjust to a market clearing price?" I'm sure that a company will produce millions of flat screens that cost $5000 apiece, and then be happy to sell them at a "market clearing price." It is much more likely that they would produce a few, let the demand build up, and only them (post demand) produce many with economies of scale bringing the price down. But remember demand proceeded supply.

    It's also ironic that the same supply and demand applies to alternative fuels and energy.

    I may be wrong, but it seem that in a 3001 word (including 17 numbers) speech, he would not have to oversimplify issues.

    -- Posted by commonsensematters on Tue, May 1, 2012, at 1:32 PM
  • But remember demand proceeded supply. -- Posted by commonsensematters on Tue, May 1, 2012, at 1:32 PM

    Really? What was the "demand" for airplanes before they were invented? Cell phones? The internet? We invent, produce and then test the market to see if there is demand. And of course price figures in on that as well.

    It's also ironic that the same supply and demand applies to alternative fuels and energy. -- Posted by commonsensematters on Tue, May 1, 2012, at 1:32 PM

    Finally we agree on something. The same supply and demand does apply to alternative. So why do you support the subsidizing (to the tune of BILLIONS in taxpayer money) windmills, electric cars and solar energy when nobody wants to pay for them? There is no demand (or near none) with them when the price is considered. Glad you have finally come around!

    -- Posted by not_sorry on Tue, May 1, 2012, at 1:38 PM
  • "I'm sure that a company will produce millions of flat screens that cost $5000 apiece, and then be happy to sell them at a "market clearing price."

    Depends on the product. For some products, it simply does not make sense to make them in small batches. The cost of setting up the fixtures, purchasing of materials, and establishing fabrication, assembly, and finishing lines simply cannot be justified for fewer than a hundred or even a thousand units, depending on what is being manufactured.

    It simply does not make sense to gear up for ten units, when you can make a thousand for a few dollars more. Castings, mouldings, etc., all require substantial setup time and cost, which simply cannot be justified for small runs.

    -- Posted by Shapley Hunter on Tue, May 1, 2012, at 1:59 PM
  • When politicians subsidize (at a high cost) products or services which are available on the market at a lower cost all those politicians are doing is wasting taxpayers' dollars. Our economy runs on dollars just as my car runs on gasoline. If we waste tax dollars 'stimulating' the economy now, we risk placing ourselves in the position of being broke and without credit when real opportunity is available.

    Our national debt now exceeds the GNP (the entire annual output of the nation's economy). We are borrowing forty cents of every dollar the federal government spends. When we have trouble finding buyers for our debt, the Fed prints money so that we can purchase our debt from ourselves. And the administration's forecast is that this will continue for the foreseeable future! We are building a financial house of cards which ultimately must collapse. Although much damage has been done already, it is time that we stop the madness.

    Another problem is this; if the Republicans win the election and continue to grow the government, merely substituting their favorite spending programs for those of the Democrats, we have not solved the problem. It is time to shrink the government, truly cut government programs, and return power; spending, and taxing authority to the states. Politicians, those who feed at the public trough, and the entire lobbyist industry will say that this can not be done. But those who built the Titanic claimed it was unsinkable. They were wrong and those who claim we as a nation are 'too big to fail' are also wrong!

    -- Posted by Robert* on Tue, May 1, 2012, at 2:28 PM
  • Another problem is this; if the Republicans win the election and continue to grow the government, merely substituting their favorite spending programs for those of the Democrats, we have not solved the problem. -- Posted by Robert* on Tue, May 1, 2012, at 2:28 PM

    Truer words were never spoken.

    -- Posted by not_sorry on Tue, May 1, 2012, at 2:56 PM
  • Chairman Bernanke says the "job" of the Fed is to keep inflation low and employment high, correct?

    Failing on both counts.

    How much longer will the citizens of this country put up with this chicanery? Shackled to fiat currency, having their purchasing power looted every day in every way. It defies belief. The inbred cabal of banking wizards, running our economy straight into the ground. Everlasting shame on them.

    "Justice Demands Sound Money! Audit the Fed!"

    -- Posted by Givemeliberty on Tue, May 1, 2012, at 2:56 PM
  • Common, I too raised an eyebrow when I read that part. But then he said "I scratch my head that somehow most of you on some academic level believe in the theory of supply and demand and how market setting prices result, but yet you deny them in your macro thinking about the economy."

    I don't think he was setting a concrete rule for how TVs are produced and sold, but rather comparing that logic to producing more money supply and expecting results other than ajustment to market clearing price.

    Manipulating the money supply doesn't work out in the long run.

    Not sure which way the supply and demand theories of today would pan out using Henry Ford's increased wages for his employees to sell them more product.

    -- Posted by Old John on Tue, May 1, 2012, at 3:10 PM
  • Rick,

    Dang it.... I was formulating my plan, right up to the time you metioned prison.

    -- Posted by Have_Wheels_Will_Travel on Tue, May 1, 2012, at 3:34 PM
  • Rick,

    I read your list of things not to throw money at three times. You will get no argument from me on any of them or a host of others yet unmentioned.

    I bet you could make a really decent sized list if you went throught the 3000 pages of Obamacare, page by page.

    -- Posted by Have_Wheels_Will_Travel on Tue, May 1, 2012, at 4:36 PM
  • -- Posted by Rick.... on Tue, May 1, 2012, at 5:12 PM

    Rick,

    Only choice I see is giving Romney a chance to try it, because the current situation is not tolerable.

    If Romney only talks the talk... like Obama, and does not walk the walk... kick his behind out in four years also. I'm tired of giving bad politicians the maximum time in office allowed by law, just because it is traditional.

    My opinion, they either work for us... or we throw them out at the earliest time possible.

    -- Posted by Have_Wheels_Will_Travel on Tue, May 1, 2012, at 5:33 PM
  • 'Not sure which way the supply and demand theories of today would pan out using Henry Ford's increased wages for his employees to sell them more product'

    OJ,

    As I understand it, Henry Ford realized that his automobile company would not be successful in the long run unless he could create enough demand to help him lower costs. By raising the rate of pay for his employees, he made it possible for them to purchase the product they manufactured. This allowed him manufacture on a greater scale, use that scale to decrease the cost of each automobile, and build loyalty among his employees. This loyalty helped him to increase efficiency in his factories.

    Henry Ford understood that the automobile which began as a rich man's luxury could be developed into every man's vehicle of choice. By doing so he created demand and lowered his costs. He paved the way for televisions, air conditioners, computers, and other technological advances which created new markets and lowered the costs of production.

    That which at first could be afforded by only the richest members of society soon became a part of every American household.

    -- Posted by Robert* on Tue, May 1, 2012, at 5:43 PM
  • Robert*, I'm not sure I understand the creating demand part. Mr. Ford, by increasing wages made it easier for his employees to purchase but a lot of his employees spent the pay raise otherwise and for most part were satisfied with what they had.

    I may be totally wrong headed on this but I'm thinking that was a bit akin to stimulas spending.

    I need more educating! :)

    -- Posted by Old John on Tue, May 1, 2012, at 9:30 PM
  • The sad thing is even the manipulated economy is visibly faltering.

    -- Posted by We Regret To Inform U on Wed, May 2, 2012, at 2:28 AM
  • OJ,

    http://www.econedlink.org/lessons/index.php?lid=692&type=student

    'Up to this point, the lesson had focused primarily on mass production, but mass consumption was just as important to Henry Ford. His $5 day forced other employers in the auto industry and other industries to follow his lead to attract and keep workers. As a result, wages for many U.S. workers increased.

    The increase in wages increased consumer demand for automobiles. The demand curve shifted right as more consumers were willing and able to buy cars

    http://www.greatachievements.org/?id=3873

    Although not all of his employees chose to purchase a Model T, enough of them did to increase the demand for the vehicle. And those who did not the first year did so in following years. And the money spent by his employees at other merchants increased the prosperity of the entire area; again producing new customers for the Model T.

    The difference between this and a government 'stimulus' is that Henry Ford did this with a profit motive in mind. This was not a temporary stimulus which created a bubble of demand which burst when the stimulus program ended. Henry Ford made an educated decision which worked out and transformed the entire American economy. He knew that if he made the Model T affordable to a larger market, he could sell more for less, and make a larger profit by selling on volume.

    By shortening the work day from eight hours to nine days he made it possible to work three shifts in his factories and make more efficient use of his equipment. This again increased production and lowered costs!

    -- Posted by Robert* on Wed, May 2, 2012, at 5:09 AM
  • but I would say the numbers are speaking for themselves.... -- Posted by Theorist on Wed, May 2, 2012, at 7:57 AM

    At a cost of 10's of BILLIONS of taxpayer dollars and loans. I think the calculations on that come to hundreds of thousands of dollars per each job. Will Obama save me if I lose my job with hundreds of thousands of dollars?

    It's all about buying votes. I don't understand why educated people think that borrowing money to pay later somehow "saves" jobs or this country. Remember this thinking when it all collapses. Remember, too, the huge cuts in pensions, social security and medical care in Greece and they have less debt per person than the US does.

    -- Posted by not_sorry on Wed, May 2, 2012, at 8:31 AM
  • Now, I am certainly no expert...but I would say the numbers are speaking for themselves....

    -- Posted by Theorist on Wed, May 2, 2012, at 7:57 AM

    Be careful when you quote statistics. The numbers can be made to say what you desire them to say. Don't forget that it is the government that decides what figures to use and which to ignore. It does no good to compare unemployment figures today with unemployment figures in the 1930's. Politicians have learned how to skew the figures! And Theorist is smart enough to realize this.

    -- Posted by Robert* on Wed, May 2, 2012, at 9:07 AM
  • Robert*, Thanks for your response and the links.

    -- Posted by Old John on Wed, May 2, 2012, at 9:44 AM
  • Pass the stimulous and unemployment will not go above 8%.... Who said that anyway, oh I remember, it was B. Hussein Obama, was it not?

    -- Posted by Have_Wheels_Will_Travel on Wed, May 2, 2012, at 9:55 AM
  • The bailout began in 2008, and unemployment continued to climb until August of 2009. In June of 2009, GM declared bankruptcy, a result the bailout was supposed to prevent. Within a month of reorganization permitted by the bankruptcy, unemployment began to fall.

    They may be crediting the bailout, but the bankruptcy appears to be the saving grace for GM - permitting them to shake off extant liabilities which they could not afford - bailout or no bailout.

    The pensions remain a time bomb for them, though they are shifting employees from the traditional pension plans into 401(k) plans, freezing the tradition plan, which they say is underfunded. Recent weak profits are harming their efforts to fund the pension plan. Hence the necessity for the move.

    http://money.cnn.com/2012/02/15/autos/gm_pension/index.htm

    -- Posted by Shapley Hunter on Wed, May 2, 2012, at 10:13 AM
  • "If GM would have gone bankrupt, its assets would have sold off to more efficient operated firms."

    They did go bankrupt. Their assets were 'sold off' to the 'New GM'. However, via the bailout, they pretty well ensured that the New GM would not be particularly more efficient than the old one, merely less burdened by creditors. The government used its leverage, via the bailout, to pre-arrange which creditors were protected and which were less so.

    -- Posted by Shapley Hunter on Wed, May 2, 2012, at 11:09 AM
  • "The bankruptcy court didn't allow open bids for GM's assets?"

    They filed under Chapter 11, which allows for reorganization rather than liquidation.

    In any case, the 'New GM' acquired the assets of the 'Old GM'.

    -- Posted by Shapley Hunter on Wed, May 2, 2012, at 1:29 PM
  • -- Posted by Rick.... on Thu, May 3, 2012, at 10:17 AM

    Kinda rained on Theorist's parade there... but I think she knew that to be the case, as well as the rest of us did.

    Be intesting to see how Common spins that information to make Obama look like the great job creator.

    -- Posted by Have_Wheels_Will_Travel on Thu, May 3, 2012, at 10:41 AM
  • I also read the reports on unemployment today. Quoting the announced figures for the month of April, 2012:

    8.1% unemployment.......That figure sounds good; and it has been trending lower for several months now.

    115,000 jobs created in the month of May. At least it is a positive number but we really need to at least double this figure and maintain that rate for several months.

    365,000 newly unemployed in the month of April, 2012. Approximately three persons lost their jobs for each person newly hired this month. Not a good figure. Total employment in this country is still falling! Fewer people on the tax rolls to carry the weight.

    522,000 people dropped out of the labor force. The total labor force is the sum of people employed and people actively seeking employment. As long as this trend continues, the percentage rate will sound good but our economy weakens!

    -- Posted by Robert* on Fri, May 4, 2012, at 8:42 AM
  • BC, By the time I looked up the Ludwig words I never heard of, I forgot what I was trying to understand.

    Am I wrong in understanding that goverment stiffle of free market was a big cause of the Roman Empire's wane?

    ~~~~~~~~~~~~

    I think it is claar what Ron Paul recommends regarding the Fed and I think I can imagine correctly what Barney Frank would propose.

    -- Posted by Old John on Fri, May 4, 2012, at 11:40 PM
  • Rick...let me explain this again...New Jobless claims are DOWN.

    -- Posted by Theorist on Thu, May 3, 2012, at 5:36 PM

    Gosh, that sounds like there are fewer companies left to go out of business. Let's take for example 1000 companies with 100 jobs each and the first year 1/2 of them close....that's a loss of 50,000 jobs that year. The next year there are only 500 companies left and they each have to cut back 1/2 of their work force...that's a loss of 25,000 jobs. and then this year another half of the remaining companies close...that's a loss of 12,000 jobs. Wow. fewer new unemployment claims...but now, there are hardly any jobs left at all. Interesting how that works.

    -- Posted by InReply on Sat, May 5, 2012, at 12:22 AM
  • BC, I take it the lesson to learn is a free people are a force to be recognized. Socialist republics, fascist regimes, communist ruled countries and other than free societies may be good at producing weapons and war but true prosperity comes from a free people.

    -- Posted by Old John on Sat, May 5, 2012, at 1:14 AM

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