Late last week, the President unveiled a plan to give relief to Americans affected by high college costs while at the same time providing incentives to colleges and universities to contain tuition costs.  Key provisions of the plan include boosting federal spending on Perkin’s loans from $1 billion to $8 billion, keeping interest rates low for current student loan recipients, and doubling over the next five years the number of work-study jobs available to college students.  Further, the President’s plan would force institutions of higher learning to contain tuition costs or risk losing federal funding.

Now, this isn’t the first time since becoming president that Obama has upped the ante when it comes to spending on higher education.  In fact, he has more than doubled Pell Grant funding and spent billions more on college subsidies in his so-called “stimulus” act and Patient Protection and Affordable Care Act.

Given the fact that college tuitions continue to rise, you’d think that Mr. Obama would have learned that more money thrown at higher education doesn’t help college students.  The direct opposite happens.  Yes, college students take the money and go to school, but the end result is that many of them have debts they will never be able to get out from under.  In fact, student loan debt now exceeds credit card debt in America.  Additionally, since many high paying jobs have gone overseas, college graduates are finding it harder and harder to acquire positions that will give them any chance to pay down their debts.  Only about half of the jobs obtained by recent college graduates even require a college degree.

But more importantly, it is precisely because the government is spending billions every year to subsidize higher education that costs have gone through the roof.  Since 1980, congressional funding of college Pell grants has increased by 475 percent, after adjusting for inflation.  At the same time, the cost of tuition has skyrocketed by over 430 percent.  Economist Richard Vedder has pointed out that the same dynamic that causes health care costs to soar is also at work in higher education – third-party payments.  When someone else is footing the bill consumers are more willing to purchase the good or service provided.  The inhibition of cost is removed, demand increases, and tuition like medicine and medical care gets more costly.

What has been created by Washington’s policies is a financial bubble in higher education.  Like various bubbles in the stock market, dot.com industry, and housing before it, the federal government has pumped tons of cash into higher education, bidding up the price of the service.  We are at a point where the benefits of a college degree do not offset the high costs thereof.  At some point, when enough Americans realize it and stop being lured into the government’s financial trap, the demand for higher education will drop and with it the cost.  Of course, Uncle Sam will continue pumping even more money into the system to feverishly re-inflate the bubble.  That has been the track record of our government in the current financial bubble, there is no reason to believe it won’t do the same thing in higher education.

To solve the problem of high college costs, government must end its subsidization of the industry.  In the absence of the market determining interest rates, government should be raising rates for students not lowering them.  Government sponsored grants should be abolished altogether.  These two acts would decrease the demand for higher education causing its artificially high price to tumble back to reality.  Since there are few jobs requiring a college degree right now anyway, this seems like a good time to burst the bubble.

With thirty years of proof that government subsidization of higher education causes high tuition rates you’d think the last thing President Obama would propose is more spending on college education.  Or perhaps his ultimate goal is to buy votes from an unsuspecting, naïve electorate?

Article first published as Is Obama Attempting to Buy Votes from College Students?on Blogcritics.

The DailyPaul, Wikipedia, Reddit, and over 7,000 other high-traffic websites blacked themselves out or supported the protest of SOPA yesterday online.  The blackouts not only were a form of protest, but were meant to show Internet users how things could be if SOPA becomes law.

Apparently the tactic worked.  After being deluged with emails and phone calls many senators including co-sponsors of the measure, Marco Rubio of Florida, John Cornyn of Texas, and Orrin Hatch of Utah withdrew their support.  Rubio used the same medium used to protest the bill when he announced to his followers on facebook:

“Earlier this year, this bill passed the Senate Judiciary Committee unanimously and without controversy. Since then, we’ve heard legitimate concerns about the impact the bill could have on access to the Internet and about a potentially unreasonable expansion of the federal government’s power to impact the Internet.  Congress should listen and avoid rushing through a bill that could have many unintended consequences.”

At this point in time SOPA has been essentially tabled and had its most controversial parts removed.

A potentially disastrous bill that seemed to have a relatively easy path to passage in Congress was suddenly halted and potentially killed.  And we owe it all to Internet activism.  Like the invention of the printing press during the Renaissance, the Internet is the great equalizer between moneyed interests and common folks.  The printing press spread the message of the Protestant reformers breaking the stranglehold of the Catholic Church over Europe.  It proliferated Enlightenment ideas dealing with the relationship between people and their government which eventually ushered in a new era of liberalism, representative democracy, and free market capitalism.

The Internet of course has similar potential to transform our world today.  Young folks are in tune with what is happening in their world through it.  My 8^th graders in Qatar, who are usually a little behind the curve when it comes to current events, were keenly aware of the SOPA controversy because some of their popular sites were participating in the protest.  It was amazing to me how well read many of them were on the potential harm SOPA could do to the medium they rely on to function.

And there is no question that the Web has been an effective tool used by Ron Paul and his supporters to win over young voters.  It is a place where anti-establishment types can organize and spread information without interference from the corporate/state controlled mainstream media.  And that is the point here.  Any time real Americans can circumvent the bias of the Establishment media to deliver an important message they now can.  So, the Internet didn’t just protect itself yesterday, it protected all of us.

Look at the facts so far in this race.  Ron Paul is the only other candidate besides Mitt Romney to do well with two totally different bodies of voters.  In Iowa, both men garnered support from evangelical and socially conservative voters while in New Hampshire more socially moderate and fiscally conservative voters.  For his part, Paul got the most support of disaffected Democrats and Independents of any of the other Republicans running.  This trend bodes well for him since as many as 13 states hold open primaries and caucuses where his support outside of his own party will be a distinct advantage for him in those states.  Overall, in the first two contests in Iowa and New Hampshire Dr. Paul has collected 25,000 more votes than his nearest competitor Rick Santorum.

Besides broad support, financial backing also differentiates candidates from one another.  The Paul Campaign reported that it raised $13 million in the fourth quarter of 2011.  The only other Republican candidate to raise more was Mitt Romney.  The sum Paul has collected in donations has allowed him to not only purchase air time in South Carolina, but to jump ahead and spend money on direct mail in Louisiana, Nevada, Maine, Colorado, Washington, and North Dakota.  Additionally, a pro-Paul Super PAC Revolution PAC plans to spend millions more on the congressman’s quest for the presidency.  And recently the Santa Rita Super PAC which was just created on January 4 bought over $300,000 worth of ad time in South Carolina promoting Paul’s candidacy.

Then there are the recent poll results.  A CBS News poll released a day before the New Hampshire Primary found Romney and Paul to be the strongest Republican contenders against President Obama.  Romney leads the President 47 to 45 percent while Paul trails Obama by 45 to 46 percent.  But even more important to the moment, an American Research Group poll conducted over the last two days indicates that Congressman Paul is getting a massive bump from his strong showing in New Hampshire.  The good folks of the Palmetto State are now paying attention to the race because their turn to vote is coming up quickly.  In less than one week Paul’s support in SC has risen from 9 to 20 percent placing him third in that race.

To be sure, the campaign for the presidency is a long drawn out affair.  Staying power is essential.  After South Carolina, lower tier Republican candidates will begin to drop out or become irrelevant.  Two things will happen.  Their supporters’ votes and money will need a new candidate and all media attention will focus on Romney and Paul.  Given Paul’s appeal to a broad base of voters and conservatives’ mistrust of Mitt Romney, I like the Texas Congressman’s chances.  In fact, it is highly probable that he will deliver

many more inspiring, rallying cries for his ever growing base of fervent supporters.

Article first published as Ron Paul is Nibbling at Romney’s Heels on Blogcritics.

Of course, this opinion won’t be heard anywhere on the Establishment-run media.  Instead the talking heads and so-called journalists which grace our TV screens continue to babble on about how Ron Paul is a kook, crank, nut job, etc… incapable of winning the nomination.  Their portrayals of the Good Doctor are more a result of their fears about him actually winning and ending their cushy establishment lifestyles than it is about reality.  But, I digress.  To back up the claim that the race has come down to Paul and Romney here are the facts:  both lead the field in money and organization.  Additionally, Paul has picked up steam in recent polls since Iowa and has demographics on his side.

Money – The Ron Paul Campaign is reporting that they raised $13 million in the fourth quarter of 2011.  The only other Republican candidate to raise more was Mitt Romney.  The sum Paul has collected in donations has allowed him to not only purchase air time in New Hampshire and South Carolina, but to jump ahead and spent money on direct mail in Louisiana, Nevada, Maine, Colorado, Washington, and North Dakota.  The Congressman’s base of financial support is unshakeable and as he rises in the polls it will become much broader.

Organization – As the Establishment candidate and someone who has been running for president for the last six years, Mitt Romney has a solid campaign organization.  But what the media and pundits alike have ignored is the ability of the Paul campaign to organize a first rate political operation as well.  The fact that only Romney and Paul were able to abide by Virginia’s strict ballot access laws and get on the primary ballot in that state is a testament to the quality of their organizations and the mediocrity of the other campaigns’.

The Paul campaign has gone to great lengths in building a strong presence on the Republican State Central Committees across the country.  In Iowa alone his supporters comprise one-third of the members of that state’s Republican State Central Committee.  It is from this committee that actual delegate selection for the National Convention will be done.  Besides Iowa Paul has supporters in the next ten caucus states that are virtually unopposed for delegate seats.

But besides ample war chests and strong campaign organizations, recent polling and demographics indicate that the Republican field has been winnowed down to two contenders.  The next contest on the docket is the New Hampshire Primary.  Two polls last week indicated that the race in the Granite State is between Romney and Paul.  The New Suffolk University Poll had Paul gaining 6 points on Romney in one day.  While Paul stood at 18 percent support, no other candidate garnered more than 8 percent.  At about the same time, a new Washington Times/John Zogby Analytics Poll had Romney at 38 percent, Paul at 24 percent, and no other candidate had more than 11 percent.  It is true that national polls do indicate that Romney leads the race while Paul lags behind other candidates, but two points need to be made.  The Republican nominee will be chosen from more than 50 contests not one national ballot.  And most voters in states with contests in the future have not paid enough attention to the race to make an informed choice.  Thus, given the results in Iowa and current polling in New Hampshire Romney and Paul are the two front-runners going into New Hampshire voting this week.

Lastly, demographics will play a huge role in winning the Republican nomination.  In light of his past poll numbers Romney’s support in relation to other Republican candidates has been steady.  As one after the other anti-Romney candidates rose and fell from front-runner status only one other candidate has seen steady upward poll numbers – Ron Paul.  Santorum in Iowa was just the final shooting star of the lot.  Fortunately for him his star rose at exactly the right moment.  Had there been more time to dissect his record he too would have fallen back to the pack of also-rans.

But Paul’s support has been a slow steady trajectory upward because it is solid, unwavering support.  Besides Evangelical and conservative Republicans the Congressman garners the most support from disaffected Democrats and Independents of any of the other Republicans running.  Since as many as 13 states hold open primaries and caucuses his support outside of his own party will be a distinct advantage in those states.

At the end of the day, the Establishment media and talking heads will babble on about the comeback of Newt Gingrich or the surging Rick Santorum.  They will resort to any distraction to cover the truth.  The truth is that we have a two man race for the Republican nomination.  Because of money, organization, demographics, and recent polling numbers that race is between Mitt Romney and Ron Paul.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

Currently on the docket is the payroll tax cut extension. Passed in 2011, the payroll tax cut reduced a taxpayer’s contribution toward Social Security from 6.2 percent to 4.2 percent.  The goal of the legislation was to put more money in taxpayers’ hands in order to stimulate the economy.  The measure expires on December 31, 2011.

Now, the drama comes in because the Democratic controlled Senate approved a two month extension to the measure while the Republican controlled House rejected the Senate plan in favor of a one year extension.  Democrats are bent on their bill and Republicans on theirs with time quickly running out.  If an extension is not approved by December 31, 148 million Americans will see their taxes go up – at least that is the story coming out of the White House.

In the first place the name of the measure is a bit of a misnomer intended I am sure to confuse many taxpayers.  The payroll tax cut is not a cut to a worker’s income tax amount.  It is a reduction in the amount that workers pay into the so-called Social Security Trust Fund.  In other words, it is akin to paying less on a retirement annuity each month but still maintain eligibility for full retirement benefits under the original policy.  An annuity holder would never expect this allowance.  For the life of me, I can’t understand how the average taxpayer would – unless they have been confused.

Secondly, the propaganda pundits on the MSM are claiming that if the tax cut is not extended it will potentially push the U.S. economy into a recession.  Of course, that is the knee-jerk reaction of all Keynesians when it comes to government intervention in the economy.  They believe in the more the better with no regard for tomorrow since “in the long run we are all dead”.

And essentially this tax cut extension is a Keynesian spending program because the tax pays for an entitlement that has to be paid to retirees.  With a drop in tax revenues the government will have to print money in order to meet Social Security obligations.  Those obligations simply aren’t going away and have to be met.

The problem with more spending is that it doesn’t work to stimulate the economy out of recession.  Since January 2009 the federal government has spent $4.5 trillion. Unemployment is higher, food stamp rolls are at an all-time high, and many Americans are still losing their homes.  When is enough enough?

Lastly, how smart is it to cut funding for a program that is already bankrupt?  The Social Security Trust Fund already pays out more than it receives in tax revenues.  Future unfunded obligations for both Social Security and Medicare are over $50 trillion.  Given the program is not going to end anytime soon, putting it in even worse fiscal condition borders on the criminal.

The payroll tax cut is nothing more than another something for nothing proposition.  It has not helped the economy so far and an extension would further devastate the fragile balance sheet of Social Security and Medicare.  Once again Washington is offering the world – more free money, Social Security intact, no spending cuts, and a blind eye to trouble down the road.  It is amazing that Congress and the President can’t find a measly $100 billion to cut from the enormously bloated federal budget to pay for the plan.  With leadership like that in Washington it will be a miracle if the economy doesn’t eventually fall over a cliff.  But have no fear, I am sure Congress and the President will get together at the 11^th hour to produce the tax cut extension.

Article first published as We Can’t Afford the Payroll Tax Cut Extension on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

According to Gingrich’s official campaign website, the former Speaker of the House of Representatives is essentially proposing the same program that Reagan foisted on America in the 1980s.  The key elements of which are huge tax cuts and military spending.

In terms of taxes, Gingrich’s plan would lower individual tax rates, lower the corporate tax rate from 35 percent to 12.5 percent and eliminate the capital gains tax.  Any lover of small government should love these proposals, however Gingrich never addresses how he would pay for the tax cuts.  On his site, he proposes no specific spending cuts and claims he will balance the budget by “growing the economy” through tax cuts.

For his part, Ronald Reagan based his entire economic platform to get the economy moving again on tax cuts.  He also claimed that lowering taxes would grow the economy and balance the federal budget.  After eight years in office he managed to triple the federal debt.  The problem with Reagan wasn’t that he cut taxes (he also was the biggest tax raiser in history to that point) it was that he didn’t cut spending.  He proposed cuts when he ran for president, but didn’t follow through on his rhetoric.

At least Gingrich is not being dishonest about his intentions not to cut federal spending, but his overall policy will have the same effects as Reagan’s – an enormous increase in the national debt.  Given that our debt has already reached a critical point, we can ill afford a return to 80s style economics; thus we can ill afford a President Newt Gingrich.

Gingrich is also proposing Reaganesque militarism if he is elected president.  Of course that is the path we have been on since the 1980s anyway.  He has no intention of making any military cuts a part of debt reduction.  In fact, according to his campaign website, under President Gingrich the U.S. would continue to be the world’s military policeman:

“America’s foreign policy must begin by understanding who we are as a country.  We are, as Ronald Reagan said, the world’s “abiding alternative to tyranny.” Therefore, America’s foreign policy must be to ensure our own survival and protect those who share our values.”

So while he proposes to cut taxes drastically and offers no spending cuts, he also would seek to at the very least keep spending enormous amounts of money on military adventures that don’t contribute to our safety and security.  In fact, by defending Israel unconditionally his policy would make us much less safe.

There is no doubt that Ronald Reagan’s legacy is still very much with us today.  Indeed, Newt Gingrich has co-opted the Reagan governing plan as his own.  It is a simplistic plan that set us on the road to an astronomical national debt.  We are currently at a breaking point with that debt and all Newt Gingrich can do is propose more of the same?

“I didn’t overpromise. And I didn’t underestimate how tough this was gonna be…Reversing structural problems in our economy that have been building up for two decades — that was gonna take time. It was gonna take more than a year. It was gonna take more than two years. It was gonna take more than one term. Probably takes more than one president.”

It is uncommon, but I must admit that I totally agree with Obama.  However, my agreement with him is for a reason that he did not intend with his remark.  He was espousing the view that it would take many more years of Keynesian economic policies to dig ourselves out of the economic ditch.  I am saying his position is precisely why it will take many years to recover from the Great Recession.  Essentially history proves that Keynesian economic theory does not work.  In fact, it has been proven to make things worse.

An often forgotten (either intentional or not) economic depression took place in 1920.  It was in 1920 that the spending of Congress and the inflation of the dollar by the Federal Reserve in order to fight World War I finally caught up with the U.S. economy.  After the artificial boom brought on by government policy busted, unemployment increased from 4 percent to 12 percent.  At the same time, GNP contracted by 17 percent.  Relatively speaking, the depression of 1920 was as severe as any in U.S. history.

In those days America still believed in free market capitalism.  President Harding’s response was to slash the federal budget almost in half between 1920 and 1922.  He also reduced tax rates for all income groups and decreased the national debt by one-third.  Additionally, the Federal Reserve did not use its powers to increase the money supply to fight the contraction.

No, the federal government and the central bank’s response were to let the economy liquidate the mal-investments that had built up during the spending and inflating of the war years.  It wasn’t to try to “stimulate” the economy back to growth and the Federal Reserve did not attempt to re-inflate the economic bubble.

By 1922, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.  Recovery occurred within two years of the onset of depression and opened the gate for a decade of enormous economic growth.

Now fast forward to the Great Depression of 1929-1946.  The common myth is that Franklin Roosevelt brought us out of the Great Depression with his New Deal policies.  The New Deal represented the first time in our country’s history that the federal government attempted, in a robust way, to remedy an economic downturn with “stimulus” spending and other bureaucratic interventions.  Roosevelt’s program included make work schemes, industrial codes of fair competition, guaranteed trade union rights, the regulation of working standards, minimum price fixes on agriculture, petroleum and other products, and other assorted welfare programs.  Essentially Roosevelt had taken over the U.S. economy and then over time he found it necessary to raise excise taxes on business to pay for his schemes.

The result was a prolonged depression.  The New Deal did not allow the mal-investments of the previous boom to liquidate.  It discouraged entrepreneurs from investing and the artificially high prices it imposed squelched consumer demand.  It was such a failure that in 1939 Henry Morgenthau, Roosevelt’s confidant and Secretary of the Treasury, proclaimed:

“We have tried spending money. We are spending more than we have ever spent before and it does not work…We have never made good on our promises. … I say after eight years of this Administration we have just as much unemployment as when we started.…and an enormous debt to boot.”

And this is why Barack Obama was correct in his statement that it will take many more years to turn the economy around.  History proves that government intervention in an economic downtown only worsens the situation.  Since taking office in 2009, Obama has spent trillions through make work projects, Cash for Clunkers, First Time Homebuyers’ credits, extensions to unemployment benefits, and other schemes.  He reappointed Ben Bernanke to Chairman of the Federal Reserve precisely because he favors the Fed’s long term quantitative easing program which has pumped trillions more new cash into the economy.

What do we have to show for it? – an economy still in shambles 4 years after the downturn with real unemployment north of 16 percent, a lackluster GDP, 46 million Americans on Food Stamps, and $4.3 trillion more in debt.  Obama is right, it will take years to undo the damage caused by his policies.  The question is, why doesn’t Timothy Geithner have the same honesty that Henry Morgenthau Jr. did?

Article first published as Obama is Correct But for the Wrong Reason on Blogcritics.

Now it could be argued that the record gun sales are a result of more Americans all of sudden taking an interest in hunting or gun collecting.  But this explanation seems far-fetched as these two things are not normally associated with fad behavior.  Furthermore, the recent surge in gun sales is part of a larger trend in gun ownership.   According to the Gallup Organization, 47 percent of Americans report they keep a gun on their properties.  This is up 15 percent from a year ago and the highest Gallup has reported since 1993.

Make no mistake about it, the massive increase in firearm purchases has everything to do with the miserable shape America is in socially.  For one thing, as the economy continues to deteriorate with rising price inflation and chronic high levels of unemployment, Americans know that it is only a matter of time before they could become the victims of crime.

Americans also understand that social unrest like has been seen in Europe is possible in the U.S.  Even though it has been relatively peaceful, the Occupy Wall Street Movement is seen by many as a harbinger of things to come.  Given that there are many Americans who feel betrayed, disenfranchised, and totally frustrated by a system that has taken their sustenance in order to bailout those that produced the Financial Crisis of 2008 and the resulting prolonged depression, it is possible that as a society we could be one financial shock away from social upheaval.  This may sound paranoid, but given the recent surge in gun sales I may not be alone in my thinking.

So while robust retail sales on Black Friday is being construed as a hopeful sign for the economy, the surge in gun sales on the same day is an indication that many Americans don’t feel the optimism.  Things are bad everywhere and they are going to get a lot worse before they get better.  Black Friday gun sales are proof that this commentator is not alone in his prognostication.

Nixon’s plan to impose his will on the economy ended in utter failure.  For instance, his price ceiling on red meat did not stabilize the price of beef, it kept rising.  What it did do was put many small plants out of business because they found themselves selling on smaller and smaller margins.  No amount of price controls could remedy the overall price inflation of the 1970s.  It wasn’t until the double-digit interest rates of the early 1980s that it finally subsided.

The President’s economic advisors should have known better.  Besides many instances throughout history where price controls have caused much more harm than good, all they had to do was study rent control effects in New York City since World War II.  Again, the effects of price controls have been an utter failure.  While stabilizing prices at the proscribed government level, rent price controls negatively affect the very low-income renters they are meant to help.  Because landlords are required to rent their properties at below market prices, they provide inferior dwellings in short supplies.  While a 7 percent vacancy rate is considered normal and non-rent control cities like Dallas, Houston, and Phoenix often have vacancy rates about 15 percent, New York City has not had a vacancy rate above 5 percent since World War II.  Any way you look at it, government price controls distort the market and cause much more harm than good.

The reason is because they abrogate the important relationship between supply and demand.  Economics 101 tells us when government mandates a price for a product that is above market value a surplus results.  Since the 1920s, government farm price supports have caused prolonged surpluses in agricultural goods.  Conversely, when government mandates a price below market value shortages arise because consumers are willing to buy more than what suppliers are willing to provide.  At the end of the day, price supports always disrupts the link between supply and demand that the market relies upon to run efficiently.

Even most mainstream economists agree that government price controls are bad because they cause dislocations in the economy.  However, what’s funny is they don’t see how the actions of the Federal Reserve Bank are essentially price controls of our money that also cause much more harm than good.  When the Fed sets interest rates, buys and sell assets, monetizes federal debt, or simply creates money or credit out of thin air it is setting a price level for the cost of money either directly (interest rates) or through the supply of money in circulation.  In other words, mortal men and women are fixing the price of money not the market.

The result of monetary price fixing by the Fed has been no less damaging than government’s price fixing of goods.  It is responsible for a continuous cycle of booms and busts in our economy.  The scenario that is repeated time and again is as follows:  usually in response to a downturn, a sluggish economy, or a crisis, the Fed sets interest rates artificially low; a cheap and abundant money supply promotes mal-investment into unproven enterprises like the dot.com bubble of the 1990s; a cheap and abundant money supply also promotes irresponsible investment and speculation like the housing bubble of the 2000s.  The fake boom ends when bank credit expansion ends.  That is to say, the bust begins when adequate returns on investments can no longer be found at prevailing interest rates.  What is then needed is a liquidation of all the mal-investments made during the boom.  This is referred to as a recession.  The ensuing recession starts the cycle over again with the Fed lowering interest rates to stimulate growth.

The booms and busts caused by Fed price fixing of the dollar have serious consequences.  Besides the up and down economy, savings rates remain low because it doesn’t pay to put your money in a low-interest bearing bank account.  This in turn denies start-up capital to the markets.  The Fed then prints more money and its member institutions use fractional reserve banking to increase the money supply.  This accelerates general price inflation.  To put it in perspective, the dollar has lost over 95 percent of its value since the Fed began operations in 1914.  Much of that erosion has taken place since Nixon closed the gold window to foreign redemption in 1971.  The result has been a declining standard of living for most Americans and an ever widening gap between rich and poor.
What is needed is a free market approach to money where the market dictates the price of a dollar, not central bankers.  Thus, the Federal Reserve should be abolished and with it the practice of fractional reserve banking.  In its place should be a 100 percent gold convertible currency.  Since market forces push the market to equilibrium, boom and bust cycles would become a lot less pronounced.  A gold backed dollar would protect savings and investments from the ravages of price inflation and provide an ample pool of capital for entrepreneurship.  At the end of the day, Washington abandoned product price controls because they failed to end the price inflation of the 1970s.  Now, it should abandon monetary price controls because they have failed to give us a prosperous economy.

Now that, that policy hasn’t worked we are facing a massive debt crisis, with real unemployment north of 16 percent and price inflation eating away at the standard of living in America.

If that is not bad enough, last week it was reported that bailout beneficiaries and mortgage guarantors Freddie Mac and Fannie Mae asked the federal government for more bailout funds.  Freddie asked for $6 billion more bringing that GSE’s total bailout figure to $72.2 billion.  Fannie asked for $7.8 billion more bringing its total Treasury draw to over $120 billion.

The main reason why Freddie and Fannie are still losing money and require more federal largess is because of the policies coming out of Washington.  Freddie reported $4.8 billion in derivative losses alone due to declining interest rates.  Fannie’s president and CEO, Michael Williams claims his firm’s woes are due to homeowners paying less interest on loans refinanced at historically low mortgage rates.  So while Washington brought on the original crisis that forced Freddie and Fannie into U.S. conservatorship, its response to that crisis has only made the financial conditions of those entities worse.

At the end of the day, Henry Hazlitt’s words from his famous book, Economics in One Lesson ring prophetic.

“The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.”

In both instances, Washington’s policies leading to the financial crisis of 2008 and its policies since have helped some groups ( i.e. bankers) and hurt others (Fannie and Freddie).  Since no mortal man can determine with precision how a given economic policy of government or a central bank will affect every group in a society it is best for government and central bankers to abstain from imposing their will on the economy.  Certainly we would be much better off now because our economy wouldn’t be in the mess that it is in.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina