Comments (16)

• Tim Kern

  Did anyone note that in the President's speech, after the House rejected the bailout, one of the reasons offered for the necessity of opening such a lending spigot was "to allow businesses to borrow for their day-to-day needs?"

  A business that needs to borrow to cover daily operations is in a whole lot of trouble, already!

  Lord, save us from more "experts!"

  Published: October 15, 2008 9:13 AM

• George

  Saving in an inflationary environment is costly, borrowing is logical.

  income taxes
  inflation
  risk

  You can avoid any two, it's the third which is hard to avoid.
  

  Published: October 15, 2008 10:10 AM

• Aaron

  Atleast the comedians have not drank the Keynesian Kool-Aid... very funny
  http://www.sinfest.net/archive_page.php?comicID=2959

  Published: October 15, 2008 10:53 AM

• Dayle Van Alstine

  The article is a timely reminder of the wisdom which is available to those whom have influence in our national economic policies. We can be sure that they are familiar with it. This is what makes our current situation so frustrating. Our economic policy leaders have decided that it is not expedient to follow the the wise counsel and impose the proper prescription.

  Our government, fortified and emboldened by a lazy and irresponsible citizenry, has no compunction about disregarding the wisdom and warnings provided by the observations of Messrs. Hazlitt, Mises, or Bastiat. When the ordinary people on the street do not recognize the responsibility they have to understand the consequences of purchasing things that they know they cannot afford; when the political elite reinforce such conduct by demanding that more credit be made available to such people; when financial leaders do not stand firm against such policies; when politicians are more concerned with acquiring and maintaining power and influence than doing what is best for the nation and its people, then we will all have to prepare to contend with the consequences of this folly.

  Hazlitt is right, of course; but we in the choir already know that. What to do? Share the wisdom in hopes of enlarging the choir; stay out of debt; develop a portable skill.

  Published: October 15, 2008 11:20 AM

• Enjoy Every Sandwich

  Our "leaders", if they don't already know the principles described in Hazlitt's book, would not be interested in learning them. Following the principles would reduce their power, and that they cannot abide.

  Published: October 15, 2008 11:39 AM

• Stanley Pinchak

  Enjoy Every Sandwich is quite right. The number of men who can follow the course of Cincinnatus is small indeed. We as the people must act on the consul of Étienne de La Boétie. We must remove our consent, refuse to subjugate our fellow man for the false promise of living on the backs of others. We end up as the associates of the tyrant do, subjects of tyrannical action ourselves, or worse when the administration changes. We weld our own bars. We forge the very chains which bind us.

  Rothbard calls for radicalism. A radical call for liberty. A radical denunciation of the state and its works. Until we heed this advise we remain prisoners in an open cage, terrified of the unknown just across the threshold. Stuck in a liminal state, abused by our own inaction, fearful of change. Servants willingly submitting to an unworthy master. A master who's hands we have placed around our throats.

  The emperor wears no clothes! The state must be itself subjugated. We must throw off the mental yoke, reach out and grasp freedom.

  Published: October 15, 2008 11:56 AM

• Greg Fisher

  The hoodlum breaks a window, it cost the economy a window. If he continues to break windows, he must be stopped before he underminds the economy. And if the shop keepers cannot pay to fix their windows, it would be in the best intersest of the society to help fix the windows to keep the shops open and contributing to society.
  Since the world is not static, things change. The unproductive farmer may become more productive with additional capital. Many times it is these people that come up with better ways of doing things and the economy advances.
  We need to understand the problem in order to form a solution and the role of society.

  
  

  Published: October 15, 2008 12:23 PM

• Michael A. Clem

  And if the shop keepers cannot pay to fix their windows, it would be in the best intersest of the society to help fix the windows to keep the shops open and contributing to society.
  
  If the shopkeepers cannot pay to fix the windows, where do you think the money to fix them is going to come from?? And why should the unproductive farmer become productive, when he's getting paid to remain unproductive? You fail to see the moral hazards of your proposed actions. The problem is that it is the government that is "breaking the windows", instead of some hoodlum, with their flawed policies and interventionism. We do indeed need to stop breaking the windows, but the bailout is like breaking more windows in the hopes that it will fix the other windows.

  Published: October 15, 2008 12:46 PM

• Eric

  The wise entrepreneur would foresee that the hoodlums out there like to break glass and so might invest in Plexiglas.

  Alternatively, the entrepreneur might invest in security services. Then only those that remain open for business (with non-broken windows) would continue to make profits. Others, with less business sense, would go bust - and society would benefit from having a smarter class of shop owners in business.

  However, if society bails out the shop owner as Greg suggests they should, then society would be subsidizing "mal" shop owner behavior. In addition, not only doesn't this solve the real problem, but it makes any real solution less likely to be discovered.

  Moreover, there'd be little incentive for the shop owner to upgrade his windows (or security or whatever else would solve the problem) even if he knew how to solve it. This is the moral hazard produced by bailouts.

  Therefore, the same theory that describes bailouts of industry X can be used to analyze the broken window fallacy.

  Published: October 15, 2008 4:57 PM

• Fephisto

  Colonel Klink! That's who Paulson looks like!

  Published: October 15, 2008 9:09 PM

• markm

  You state:

  "The argument that the government is somehow pumping new capital into the market is absurd. Government is actually borrowing the money from the capital markets that it is in turn injecting into the capital markets. There is no additional source of funding; there is only a diversion of funds from more-productive outlets to less-productive outlets, with government acting as the middleman."

  Maybe this is being said in some quarters but its equally being argued that the banks aren't lending at the moment so what the govt is trying to do is get that to happen. People may not lend to other private bodies/individuals right now but they may lend to central govt. So okay its not additional capital but at the moment its lying idle and the govt is getting it to circulate.

  I appreciate you will throw your hands up in horror at such Keynesianism but could someone tell me what is wrong with this argument please?
  

  Published: October 16, 2008 1:32 AM

• Travis

  It is amazing and depressing to see the depth of economic illiteracy amongst the men and women who are supposedly experts on markets. Yesterday on Squawkbox, Byron Wien made the incredibly ignorant claim that a "system operating on its own, independently in a free market way, isn't going to solve its problems. It's going to create problems, and the government has to intervene to solve them."
  Wien claims we are in and "era of interventionism." When were we not in an era of interventionism by governments? Do these guys really not understand what is going on, or are they so hooked on the Fed pumping them "liquidity" so they can churn their stock deals that they lack the integrity to be honest about the destructive role of intervention in our economy.

  Travis Cork
  Conway, SC
  
  

  Published: October 16, 2008 4:08 AM

• Equity = more credit

  "The argument that the government is somehow pumping new capital into the market is absurd. Government is actually borrowing the money from the capital markets that it is in turn injecting into the capital markets. There is no additional source of funding; there is only a diversion of funds from more-productive outlets to less-productive outlets, with government acting as the middleman."

  Isn't using the money for an equity stake going to increase the overall available credit due to the fractional reserve system? And who guarantees that the same banks will not both buy the bonds and get the equity?

  Published: October 16, 2008 6:04 AM

• Erick Tippett

  Mr. Kjar,

  In your article you suggest Henry Paulson add
  Henry Hazlitt's text on Economics to his reading
  list. Why do you assume that Mr. Paulson has
  not already read it and quite a few others no
  doubt? It occurred to me quite some time ago
  that this country is not run by idiots, but by crafty
  and obscenely arrogant pathological liars! Certainly
  you are aware that Mr. Greenspan, former head
  of the Federal Reserve Board, was once an associate of Ayn Rand who was herself a contemporary of Ludwig Von Mises. It should be obvious that Mr. Greenspan dumped his original ideals concerning economics as a young student of the Austrian School and sold his soul to the Keynesians in order to assure himself a career as a central banker here in this country. Mr. Greenspan is not alone; Bernanke (his successor), Paulson, and Cox are all quite familiar with various schools of economics.

  Unfortunately the 'powers that be' are supported by
  the American collective conscious, however uncon-
  sciously, which bares out the old metphysical law "as above so below". If this were not so, these
  criminal facists would have been extricated many
  decades ago! How sad it is that a so called modern
  democracy does not even have a substantive third
  party to offer some option to present choices for
  leadership in such critical times as these!

  Accordingly, I am inclined to agree with Adloph
  Hitler, "it is a wonderful thing for governments
  that people don't think!"

  Erick Tippett
  Chicago, Illinois
  

  Published: October 17, 2008 4:27 AM

• jomama

  Only the government can violate Hazlitt's logic and survive, because only government can socialize its losses through the tax system.

  ...but not forever.
  

  Published: October 17, 2008 5:41 AM

• Frank

  It seems to me that the market will always seek out capital. Therefore, capital, wherever it comes from, will attract productivity. So Paulson, like anyone else, is free to offer his services to Farmer A, Farmer B, the hoodlum, the Police, the Fed, etc. Only after factoring in every possible effect of all circumstances, can one make a wise investment of time or money.

  Published: October 20, 2008 3:51 AM