Matt Is All Over the Place

That's from www.wherethehellismatt.com, hope you enjoyed it if you haven't seen it already. I always get a good feeling watching that video (as well as little jealous he gets to travel to all those places). Another cool thing to check out are the comments by people who have danced with him.

The Times They Are a-Changin'

Wow, I just found a link to this article at the top of the Drudge Report. I only skimmed it but from what I can tell he's got some good stuff to say. I'm just a bit shocked to see an article at the top of one of the most popular news sites that agrees with so much of what I've been reading in my little known economics blogs (opposition to the bailout and the views of Austrian Economics in particular). Let the exposure begin.

The Housing Bubble in One Lesson

Yesterday I was at Borders and I picked up the book Economics in One Lesson. It's by Henry Hazlitt and the basic idea of the book is that there are a number of fallacies which have plagued much of economic thinking throughout the years. These in turn leads to misguided and harmful governmental policies. I should say that the book was written in 1946, and fortunately I believe some of the fallacies discussed have been accounted for in more modern Economics texts. However, the book is in no way irrelevant. I think many of the fallacies still are believed today by much of the general public. These fallacies are sold as truths everyday by politicians. Later I would like to post Hazlitt's lesson as well as what he says makes a good economist and a bad economist. But right now I want to quote some passages from chapter six, Credit Diverts Production. Here he explains how the government makes bad loans (a contributing factor to our current financial mess). He also goes on to point out the often overlooked fact that the money used for these bad loans could have been used somewhere else:

There is a decisive difference between the loans supplied by private lenders and the loans supplied by a government agency. Each private lender risks his own funds. (A banker, it is true, risks the funds of others that have been entrusted to him; but if money is lost he must either make good out of his own funds or be forced out of business.) When people risk their own funds they are usually careful in their investigations to determine the adequacy of the assets pledged and the business acumen and honesty of the borrower.

If the government operated by the same strict standards, there would be no good argument for its entering the field at all. Why do precisely what private agencies already do? But the government almost invariably operates by different standards. The whole argument for its entering the lending business, in fact, is that it will make loans to people who could not get them from private lenders. This is only another way of saying that the government lenders will take risks with other people's money (the taxpayers') that private lenders will not take with their own money. Sometimes, in fact, apologists will freely acknowledge that the percentage of losses will be higher on these government loans than on private loans.

And now my favorite part. Later in the chapter Hazlitt explains (in a simplified manner) our housing bubble 60 years before it happens. If you are familiar with Fannie Mae and Freddie Mac the accuracy will be chilling:

The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply, and that they are helping identified [recipient] B at the expense of some unidentified [recipient] A. Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend to eventually bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment.

More on all this later. But in the interest of keeping posts at a somewhat readable length, that's it for now.

First Post

Hey everyone, first blog post here. I am planning to post on a variety of topics, from updates on my personal life to economic/political issues to music and what not. Over the last half year or so I have become an avid blog surfer and have found a few that I like to read just about every day. This blog will serve as a way for me to link to those posts which I find the most though-provoking. Believe me, the blogs to which I provide links will be able to argue about things in the economic/political realm much more eloquently than I ever could. I hope you find some of the ideas as interesting and eye-opening as I do.

Today has been quite a day. I received an invitation packet in the mail today from the Peace Corps! I have been invited to serve in Honduras starting in February, in a Business Advising program. This is something I have wanted to do for over a year and it's a bit surreal now that it is all coming to fruition. I have 10 days to accept or decline the invitation. I'll probably post more on this later.

In other big news today, the House of Representatives voted against a $700 billion dollar bailout of the financial industry. This has been all over the news so I won't get into details, but I am pleased with the decision to reject the bailout. The financial industry was not exactly my specialty when studying economics in college, so as usual I turned to the blogs of economics professors to get a better understanding of the situation. I found plenty of reasons to oppose the bailout, and I've read a plethora of articles stating those reasons. Perhaps I will link to some of my favorites in another post. Anyhow, what sticks out to me about our current situation is that the opposition seems to be coming from everywhere: The average citizen who does not want their tax dollars to be used to clean up for the mistakes of people on Wall Street (a good way to summarize what we would be doing is "privatizing profits while socializing costs"). There are also many economists who oppose the bailout because it will create "moral hazard", a situation where firms realize that if the government is likely to bail them out in the future, they are able to take risks they would not under normal market conditions, knowing they have a safety net if they end up failing. Finally I have seen some convincing arguments from congressman Ron Paul and Austrian Economics, the economic school of thought with which he identifies. While I was hesitant to embrace the ideas of Austrian Economics at first (it goes against a lot of what I just spent 4 years learning in college, can you blame me?), after recent events it has become quite convincing to me. The argument of economists from this school of thought is that because the Federal Reserve has been printing money and artificially lowering interest rates, they have created a "false prosperity" for our nation. The false prosperity can only last so long, however, as has become much more obvious in recent weeks. (The abuse of the mortgage market through "government sponsored entities" is also part of the story of how we got to be in this situation, but that is for another time). A bailout would only prolong the correction that needs to take place to restore the market to more normal conditions. While there will be some painful shocks to our economy if the bailout does not pass, the argument is that the recession/depression will be longer and worse if the bailout does past. Based on the fact that Austrian Economists have tended to be much more accurate at predicting economic trends in the past, I am going to take their word for it on this one at this point.

I'll leave you with a link to commentary by Ron Paul on CNN.com (it's about time he got some media coverage, unfortunately it has taken a financial crisis to spark it). He gives a good summary of the current situation, how we got here, and why there should not be a bailout, from the Austrian point of view.