Why the libertarian rich & their bankers love price controls – on money.

Summary: Marx believed that the inherent contradictions in capitalism would bring about its downfall. Events since the crash have revealed contradictions between the values and actions of the 1% and their bankers. But they’ve successfully managed these contradictions. That’s the operational genius of the pseudo-philosophy called libertarianism.  {1st of 2 posts today.}

The price system works so well, so efficiently, that we are not aware of it most of the time. We never realize how well it functions until it is prevented from functioning, and even then we seldom recognize the source of the trouble.

… Prices perform 3 functions in organizing economic activity: first, they transmit information; second, they provide an incentive to adopt those methods of production that are least costly and thereby use available resources for the most highly valued purposes; third, they determine who gets how much of the product — the distribution of income. These three functions are closely interrelated.

Milton Friedman, from Chapter 1 “The Power of the Market” in “Free to Choose” (1980)

Libertarian: more freedom, less government

Libertarians Ascendant

{political movements} “are a kind of ghost town into which anyone can move and declare himself sheriff”.
— Saul Bellow, quoted by Allan Bloom in “Closing of the American Mind”

Investors — whether professional or just rich (the top 1% own 42% of non-home financial assets; the top 10% own most of the rest) tend to some form of libertarianism. Typical of libertarians, their opinions vary — but with one firm tenet: markets should be free. After all, that’s the source of their wealth and income. Their allegiance to free markets has limits, however, when it comes to what they love most: money.

Since the crash the Federal Reserve has intervened in the US economy with actions unprecedented in their size and duration. They pegged the short-term interest rates to zero, and bought 20% ($2.5 Trillion) of the public Federal Debt plus $1.7 trillion of home mortgages. They have controlled the most important prices in an economy: the price of money, expressed through the prices of financial assets. (e.g., see this Citi survey of global credit managers).

 

Socialism for the rich

How we got here

“Every man is a revolutionist concerning the thing he understands.”
— George Bernard Shaw’s “The Revolutionist’s Handbook and Pocket Companion” (1903)

America hasn’t seen such government intervention since the 1970s, when we had wage-price controls (instituted by my favorite President when playing Name that Liberal), controls on oil prices (by Carter), and the money markets (Volcker pushing rates to the moon under the twin team of Carter-Reagan; like Hoover-FDR, what one started the other expanded). All of these had horrific effects on the economy. Perhaps the following quarter-century of prosperity resulted from lessons learned about allowing Washington’s economic generalissimos access to the national controls.

Every Belle Époque ends (e.g., the happy time from 1871-1914), in this case due to bankers’ buying the deregulation (liberation from the New Deal restraints) which of course resulted in them again bringing the economy to the brink of ruin. Harsh times force difficult choices that reveal one’s true values, and the investor classes choose to support the Fed’s interventions — no matter how ideologically unpalatable (their necessary support, without which the Fed could do little).

The Fed’s actions, along with massive bank bailouts and fiscal stimulus (which they also supported), succeeded. The economy stabilized and then resumed growing (albeit slowly). With low inflation (a joy for the credit class and burden to the rest).

We hear much whining about the heresy of the Fed’s actions while the wealth of the 1% and their bankers has skyrocketed, as they siphon off much of the recovery’s benefits — just as they skimmed off most of the gains from American’s increased productivity since the 1970s.

Singularity Eye

Conclusions

We spend too much time talking about people’s ideologies. We should instead focus on their actions. We don’t care what the 1% and their banker apparatchiks say; we care what they do. Their lovely words distract us while they pick our pockets.

As so many have shown, from economists such as Paul Krugman to polemicists like Charles Pierce, a core Republican policy since 1980 has been shifting the tax burden from the rich to the middle classes (aka, the level tax), justified by pixie dust theories about benefits (which the Reagan and Bush Jr tax cuts disproved) — and deregulate businesses, stripping us of any control over them. Those are their principles, however disguised.

They have been winning for a long time. They’re winning today. Eventually it will be an endgame, where we no longer have the ability to resist. Time is our enemy. Let’s keep our eyes open and act.

Appendix #1: About Libertarians

Political affiliations meant something to citizens of the Republic. To subjects — sheeple — of New America they’re a fashion statement.

Last year’s “hard core Republicans” become members of this year’s “Tea Party movement”. People too avant-garde to be just Dems and GOPs dress themselves up as “Libertarians”.  It’s an almost meaningless label, in that self-identified “libertarians” tend to have views quite similar to those of the general public — and don’t agree among themselves what the label means. For details see “In search of libertarians“, Pew Research, 25 August 2014.

Diocletian

Appendix #2:  Diocletian and the first known national price controls

In 302 the Roman emperor Diocletian commanded “there should be cheapness,” declaring, “Unprincipled greed appears wherever our armies … march. … Our law shall fix a measure and a limit to this greed.” The predictable result of Diocletian’s food price controls were black markets, hunger and food confiscation by his soldiers. Despite the disastrous history of price controls, politicians never manage to resist tampering with prices. That’s not a flattering observation of their learning abilities.

— Walter Williams (Prof Economics, George Mason U) in “Economics for the Citizen”

We don’t know much about the “Edict on Maximum Prices” (only fragments survive), but we know enough to say that this version of the story is not accurate. See this article for the rest of the story.

For More Information

Posts about libertarians:

  1. All you need to know about Ayn Rand, savior of modern conservatism.
  2. A modern conservative dresses up Mr. Potter to suit our libertarian fashions.
  3. Ron Paul’s exotic past tells us much about him, the GOP, libertarians – and about us.
  4. Choose your team: our election is a conflict between long-dead philosophers.
  5. The difference between Christianity & Libertarianism marks a line between America & the New America
  6. Why do we believe an armed society is a polite society?

 

20 thoughts on “Why the libertarian rich & their bankers love price controls – on money.

    1. Rob,

      I suggest you read the Pew survey, then the article more closely. You appear to have missed the point.

      BTW, there is no Pope of Libertarianism — defining the creed, throwing out heretics. To borrow Saul Bellow’s observation (said in a different context), political movements in America are “a kind of ghost town into which anyone can move and declare himself sheriff”. Hence the pereniall (and imo daft) debates about who is a “real” conservative, liberal, or libertarian. As if these terms have fixed meanings. Not only do they have only broad meanings, the meanings shift over time.

      The Pew survey clearly shows that’s true of Libertarianism. It’s also shown by its history. Ayn Rand did not consider herself a Libertarianism (about which she said harsh things), but became a patron saint of Libertarians.

  1. “As so many have shown, from economists such as Paul Krugman to polemicists like Charles Pierce, a core Republican policy since 1980 has been shifting the tax burden from the rich to the middle classes (aka, the level tax), justified by pixie dust theories about benefits (which the Reagan and Bush Jr tax cuts disproved) — and deregulate businesses, stripping us of any control over them. Those are their principles, however disguised.”

    Erm, I have some bad news. Both parties are controlled by our banking class. Republicans are worst but it’s a horse race at this point. So the people who caused the current mess are firmly in control over the putative array of paths forward to get us out. This is the TINA maneuver. There Is No Alternative. Because Ayn Rand. Because Milton Freedman. Because Shut Up.

    Krugman is guilty as well. He is the one saying because shut up to guys like Steve Keen. Or he’s willfully obtuse, which is even worse.

    Europe is showing us our future right now. Hypocrisy. A word invented by the Greeks. Ironic no?

    1. Peter,

      Your comment makes little sense, imo.

      “Both parties are controlled by our banking class”
      Yes. As I have written scores of times. What’s your point?

      “Because Ayn Rand. Because Milton Freedman. Because Shut Up.”
      Makes no sense at all, imo.

      “Krugman is guilty as well. He is the one saying because shut up to guys like Steve Keen. Or he’s willfully obtuse, which is even worse.”

      Krugman is an economist discussing the work of another economist. Academics disagree all the time; that’s what they do. Also — stand by for a shocker — you are not the Pope of Economics, able to rule who is right or wrong on these debates and insult those who disagree with you.

      “Europe is showing us our future right now. Hypocrisy. A word invented by the Greeks. Ironic no?”

      That’s the last sentence. From start to end nothing in this comment appears relevant to either the quote or the post. Perhaps you didn’t read the post but just picked a random paragraph and wrote some stuff about whatever you were thinking at that minute?

    2. As I understand the disagreement between Krugman and Keen, PK says banks have no important impact on macroeconomic events because they merely intermediate between savers and borrowers while Keen believes our current problems are largely caused by banks. Bankers like Krugman’s world view because how important can banking regulation be if banks have little impact on wages, prices, unemployment and other macro variables?
      Krugman dismisses Keen more than he deigns to disagree with him.
      I speak not as a self anointed Pope of economic discourse but as one who at least walks the walk as an industrialist and entrepreneur. It galls me to watch bankers alternate between claiming they are riski taking, job creating, value adders just like me and then claiming there is no need for their regulation because Krugman says they cannot possibly do macroeconomic harm.
      Banks currently have near zero cost of goods sold, they take very few risks, create very few jobs, add little economic value, and have wreaked staggering damage to the macro economy. I wish they’d stop claiming I’m just like them. I’m nothing like them.

    3. Peter,

      We’ve gone over this before, and its clear you don’t understand the nature of their highly technical debate. I find it odd in the extreme that laypeople believe they can decide who is correct in such debates in the physical and social sciences, except in the sense of arguing over beer.

      However it’s quite irrelevant to this post, which concerns beliefs and actions of the investment class (the rich and their financial managers).

    4. There is no debate. There was no debate. Steve Keen has made it clear that he is giving up on Krugman. There will be no debate between Keen and Krugman. That is the crux of our current problem.
      The Great Depression produced much debate. Keynes gained much traction by explaining what had happened. There was much regulatory reform that came out of this debate. Now there is one dominant paradym of neoclassicals who lose credibility with each failure by policy makers to reverse current adverse trends. This leads to parodies of debate, like the Dead Parrot Monty Python skit and so we get nowhere as various schools talk past each other. The public blanches.
      We are not out of the woods here yet and there should be vigorous debate about what went wrong in 2008 and why and what reforms are needed to avoid a repeat.

  2. There is only one problem with your story: you mixed up the various groups. Libertarians oppose the Federal Reserve, oppose a government-controlled money supply, and oppose government bailouts or stimulus programs. And they do so for the same reason you do: it’s welfare for the rich. Both Ron Paul and Rand Paul have repeatedly been trying to go after the Federal Reserve, only to be blocked by Democrats. David Koch ran on a presidential platform of abolishing the Federal Reserve.

    The people most staunchly in favor of those kinds of government handouts to the rich are, in fact, liberals, progressives, and Democrats. I used to be a progressive and a Democrat too until I actually got the facts: the Democrats talk a lot about crony capitalism and corporate welfare, but they are the biggest perpetrator of it.

    You don’t like corporate welfare and handouts to the rich? Leave the Democrats and become a libertarian.

    1. Mark932,

      Your criticism of this post makes no sense at all. Did you even read it? As for your assertions, most are quite false.

      1. The investment class loves the Fed, as it was created to and has always acted in their interest.
      2. Support for the Fed and its policies is not a partisan issue. Dislike for the Fed is concentrated on the extremes of Left and Right.
      3. Support for corporate handouts is a bipartisan game. To attribute this to only Democrats is VERY contrafactural, even delusional.
  3. OP–So your whole argument depends on deriding well-established Libertarianism as having ‘no Pope’ so you can make it into conservatism and excuse poor research?

    Sorry, no. I suggest you get informed and that link is a good start.

  4. Whenever I see somebody cite Somalia as an example of a libertarian country, I know there is at least a little problem with the analysis. While you are right that the range of libertarians is huge (there was a very humorous cartoon showing all these types of libertarians: anarcho-libertarians, etc.), Libertarians don’t long for Somalia or Mad-Max lifestyles.

    Many libertarians: Believe in Adam Smith economics; U.S. Constitution as the basis for laws (i.e. not Somalia), Milton Friedman’s ideas of the interaction of economic and political freedom; basic human dignity of the individual actor in the economy and society (e.g. traditional- should I say Judeo-Christian values).

    For example, Smith knew all about monopolies, law and order, fraud, etc. To say that capitalism is flawed and capitalists/free-market advocates are too stupid to have considered this is behind the curve by, oh, a couple of hundred years.

    The basic idea behind libertarians is to appeal to non-governmental solutions to problems, e.g. if you have a problem with lack of equal treatment under the law (e.g. US constitution addresses this), then reduce the legal advantages of the advantaged group- do NOT increase advantages for the dis-advantaged group (see same-sex marriage controversy- which could be fairly easily solved…)

    1. Eke iew,

      Yes, the range of Libertarians is large (as the surveys I cite show). So I do not understand the rest of your comment.

      The polls cited show that “Libertarianism” for the larger part people who so self-identify blurs into a label for center-right politics. The only commonality I see among them is that they favor policies that tend to benefit the 1%. Which is my point.

      The example of Bitcoin and the Silk Road show the more extreme variants have a large number of believers — since these are among the largest-scale attempts to implement libertarian theory. They are more Somalia-like then the gentler variants that you (and many others) appear to prefer.

    2. I guess we’ll have to disagree on this one. Dark Leviathan/Secret Internet, Somalia, and Bitcoin are all fringe activities of a pretty small number of people. I am glad they (at least Bitcoin and “secret internet”) exist, but I don’t think they are serious application of libertarian ideas. As even the website says- they are used by tech-obsessed libertarians (yet another hyphenated libertarian).

      Yes, you probably could say as a strictly “mathematical, financial matter” that many libertarian “policies” would benefit the 1%- as many or most free-market policies would. The point of libertarian policies is the dignity and ability of the 99% to be free and address their problems, take advantage of their opportunities in a better all around method than one determined more by the government. It’s really that simple. Libertarians really don’t care if the 1% get richer.

      Libertarians want themselves and everybody else to have more freedom. That’s the way you unleash the human capital in society and the economy.

      I also saw some of your articles on Ron Paul. I have to be careful about what I say about that, but suffice it to say that you have a lot of things right. i am in some position to know. Note- I did not vote for him or support him in the primaries, but I do find him an interesting foil in the debates. I am often glad he’s around just to bring in certain ideas. I don’t think he would be much of a president.

    3. wkeview,

      (1) “are all fringe activities of a pretty small number of people.”
      Yes, that’s my point. They’re the few (other than Somalian warlords) who actually attempt to put pure (i.e., political distinctive/unique libertarian policies) into practice.

      (2) “that many libertarian “policies” would benefit the 1% … Libertarians really don’t care if the 1% get richer.”
      Yes, we agree. That was the primary point of my post.

      (3) “The point of libertarian policies is the dignity and ability of the 99% to be free”

      That’s a completely delusional conflict with your statement #2 above. Much libertarian political discussions resembles those with communists in this respect: they presume an alternative Earth, quite unlike the one of our history — and are hence quite useless.

      (4) “I am often glad he’s around just to bring in certain ideas.”

      I’m sure you do. That’s my point.

      (5) “I don’t think he would be much of a president.”

      That Rand Paul is not a viable candidate for President is irrelevant to his significance. He serves to mainstream extreme views (e.g., racism: opposing the 1964 Civil Rights Act), pulling the window of discourse to the Right. There’s a long history of such influential candidates.

  5. “(3) “The point of libertarian policies is the dignity and ability of the 99% to be free”

    That’s a completely delusional conflict with your statement #2 above. Much libertarian political discussions resembles those with communists in this respect: they presume an alternative Earth, quite unlike the one of our history — and are hence quite useless.”

    OK, I’m glad you have us all figured out, but you are making a quite easily pointed out logical error based on a zero-sum/moral relativistic assumption. There is absolutely no economic fact that requires that the 1% give up anything in order that the 99% gain. In fact, if you really understand the “earth…of our history”, you will see that it is very important to allow this activity- to allow people to pursue their individual interests- even/especially the “oppressed” 99%. That’s where the creativity will come from. If the government helps them too much you get Europe (check the number of growth companies in Europe vs. the US- it’s not even close- precisely because of this).

    See the Gates foundation (not necessarily for their programs, but for their stats/information). The world is getting richer all the time; regardless of what the media are selling- income inequality is desirable, and over time in free economies will become more unequal- that’s acceptable as long as the bottom continues to be lifted- which it does; except in the planned/redistributionist economies.

    Another interesting debate is the whole idea of racism over time- when things are “right”, racism will be an economic negative. I believe that we are getting to the point where making laws about these “-isms” is counter-productive. In areas where people try this kind of stuff, I predict you will see people avoid their businesses. Those who are just in it to make money, and not be racist, sexist, etc., will do better. Hence the whole obsolescence of policing these matters. In 1964, not so. In 2015 we’re probably there. Let the racists rot in their own rotten world.

    1. wkeview,

      “I’m glad you have us all figured out”
      What? My statement was not about “you”, but about your assertions concerning the world. Don’t personalize this.

      “There is absolutely no economic fact that”

      This is what I meant by libertarians and communists referencing theoretical worlds instead of this one. Yes, its possible for everyone to gain. No, I didn’t state or imply that economic growth was a zero-sum game.

      I was pointing to fact that for the past 5 decades the differential growth of the wealth & income of the 1% has concentrated power in their hands, and the decay of the nation’s republican institutions. And this trend appears to be accelerating. (this does not mean that economic growth is zero sum; that’s imposing a “false dilemma”).

      That you reply by reference to theory instead of the real world “elephant in the room” is astonishing (to anyone who has not had these discussions before).

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