Real Energy Security by Alex Wysocki

In their policy analysis dated April 5, 2007, Eugene Gholz and Daryl G.
Press wrote that many Americans have lost confidence in our country’s
“energy security” over the past several years. 
Gholz and Press partly attribute this loss of confidence to the fact
that we have become a net importer of oil from unstable regions of the
world. Moreover, they are of the opinion that our military presence in
the Persian Gulf region actually exacerbates the problem of the lack of
energy security. I would have to take opposition to this point of view.
If we didn’t have a military presence there, the Islamist would
completely cut off the supply of oil to us. Either by sabotage or the
physical overtaking of the region. The market forces that they trumpet
that would determine the key factors that affect oil supply and
prices–would be stillborn.
The assistant professor Gholz [University of Texas] and the associate
professor Press [Dartmouth University] wrote that the best foreign
policy strategy for energy security is to rely on a combination of the
flexibility of markets and over-the-horizon military forces, which would
be used only under certain, very narrowly specified conditions. Once
again, I must disagree, this would be like locking the barn door after
the horses and cows are gone. The best way to attain energy
security–would be not to depend on foreign oil. With apologies to the
EPA and all those tree huggers I would start building refineries and
start the drilling for oil anywhere we can find it in the USA. 
The professors concluded that the coming decades may present serious
energy-related challenges to the world. {These are obviously liberal
professors, they have a one-world sensitivity} They also believe that
Global warming may require collective action on a global scale to reduce
emissions, a daunting task. {If as these professors believe that man can
effect the temperatures–let’s use that information to make it warmer in
the winter and cooler in the summer–that would cut down on the
consumption of oil.}. Energy independence for the USA is achievable if
we just ignore those prophets of doom–who only singsong the end of the
world. I still can’t believe the arrogance of those who claim that man
can destroy the world.

If the Fed Were Your Doctor

IF THE FED WERE YOUR DOCTOR

By Patrick Barron

There is much hand wringing and hair pulling right now over the fallout of the subprime lending crisis. How far will the rot in financial markets go? Which mortgage lenders will go under? Will the U.S. fall into a recession or even worse?

The mainstream economic press is foursquare behind the Federal Reserve Bank’s policy of pumping up the money supply. The lead editorial in Friday’s Wall Street Journal said of the Fed’s infusion of $62 billion into the banking system in the last two days that “Serving as lender of last resort in these conditions is the proper function of central banks.” In a longer companion essay ominously titled “Market Flaws Surface” three Wall Street Journal economic reporters cite perceived “market glitches” that can “transmit problems broadly” as justification for Fed intervention to drive back up (and therefore drive down the interest rate cost) the price of commercial paper. They report that “Commercial paper market rates have risen as far and as fast as they did after the September 11, 2001 attacks.” So here is America’s and probably the world’s leading financial newspaper putting its editorial reputation fully behind more central bank intervention. Too bad that it is wrong.

The concept of the proper role of central banks has taken only a hundred years or so to develop. The Bank of England was the modern world’s first central bank, devised as a scheme for the crown to spend money it did not have and did not dare tax or borrow from the British people. The American Federal Reserve Bank came into existence in 1913 and has gradually debased the American dollar, that had APPRECIATED at roughly four percent a year since the Civil War, to one twentieth of its 1913 value today. In the same time period medical science has made tremendous leaps. Medical science? What has that got to do with the current financial markets?

Place the Thermometer in Ice Water and Call Me in the Morning

We can all be glad that the government has not yet completely taken over healthcare. Because if that were the case, here is what the government would prescribe for your fever—take the thermometer out of your mouth and place it in a glass of ice water until it shows that your temperature has fallen to the normal range. Now you are cured. That is the medical analogy to the Fed’s insistence that it control financial market interest rates. If interest rates start to rise above a level desired by the Fed, then inject money into the economy until they fall back to the desired level. Now the market is cured. But the market is no more cured of its financial problems that would be your fever by placing the thermometer in a glass of ice water.

Interest Rates Reflect Real Market Decisions

What we are witnessing, and not for the first time, is the result of the politicization of the monetary system. It is the natural consequence of entrusting government with an absolute monopoly over the supply of fiat money. Governments treat fiat money, not as representing a medium of exchange in order to facilitate the proper allocation of scarce resources, but as a method for unlimited credit expansion. The very nature of fiat money is that it ignores the absolutely fundamental fact that resources are in scarce supply and must be used for the purposes most desired by people. A privately owned, commodity based money supply fulfills this vital societal function, because the commodity upon which the money is based is a scarce resource itself. But a fiat money is not a scarce resource so it cannot represent scarce resources. A fiat money commits the fundamental error of attempting to allocate scarce resources with a non-scarce financial medium. To compound the problem, the government uses its police power to outlaw any medium of exchange other than its own. This gives government the absolute power to confiscate our real resources for its political ends.

After the 9-11 attacks the Federal Reserve Bank drove interest rates down to almost zero, sending a false signal to the market that has resulted in the subprime lending bubble. To put it bluntly, the Fed encouraged lenders to grant loans to people to purchase assets that they could not afford. In its own words the Fed now is “providing liquidity to facilitate the orderly functioning of the financial markets.” Nonsense. It is bailing out the banks and attempting to prevent the necessary liquidation of malinvestment that the Fed itself caused. The more the Fed intervenes the longer this necessary market correction will take before equilibrium is restored to the financial markets.

This boom and bust cycle will continue until we return to a commodity based monetary system that prevents systematic malinvestment on the order of our present crisis, a crisis that need not have happened and would not have happened under a sound monetary system

How Progressives Rewrote the Constitution

How Progressives Rewrote the Constitution by Richard A. Epstein

Reviewed by Patrick Barron

For over thirty years Professor Richard Epstein of the University of Chicago has been an outspoken opponent of statism and all its trappings. Not only is statism anti-liberal, Professor Epstein has shown in previous books that it is antithetical to the very precepts it attempts to foster, namely opportunity and prosperity for all. In How Progressives Rewrote the Constitution (Cato Institute 2006), Professor Epstein traces the court cases that have produced this plague upon the land—the legal facet of the Progressive Movement that sought to destroy the clear meaning of our Constitution as one of limiting the federal government and replace it with an activist and more powerful and intrusive state. Little did the Progressives realize that they were the American version of Prince Otto von Bismarck’s socialist policies that bore fruit in National Socialist Germany and Marx/Engels Communism that rationalized the enslavement of continents and the murder of tens of millions.

The Progressives became the bridge between what Epstein calls the classical liberal philosophy of the “Old Court” and today’s “Living Constitution”. But first they had to surmount a century of Constitutional precedent that greatly restricted, although it did not prohibit, the federal government from meddling in the private economic and social affairs of Americans.

Why is this so important? Well, as Dr. Walter E. Williams recently told Philadelphia area audiences at lectures sponsored by the Intercollegiate Studies Institute in Greenville, Delaware, and earlier in the year by one hosted by The Wynnewood Institute, Wynnewood, PA, having a “Living Constitution” means we have no constitution at all. All Americans should be concerned about this development, because when one’s rights and liberties are not founded upon a written document which is intelligible to all, those rights and liberties are at risk of being interpreted away by a political elite. An example is the recent Kelo decision that reinterpreted the takings clause to encompass a public “purpose” and not the narrower public “use” doctrine that defined eminent domain since the founding of our country. (A public “purpose” can justify condemnation proceedings to force someone to sell his land to a private developer who will generate more tax revenue, whereas a public “use” can justify condemnation to take land for widening a highway, installing a sewer system, etc.)

In a better world, in a fairer world, Professor Epstein would be Chief Justice of the U. S. Supreme Court. He would strike down the Progressive-inspired precedents of the New Deal by showing that they were based upon faulty logic and a misreading of our Founders’ intentions and their very well documented explanations of the role of our federal government. (Earlier this year Professor Epstein delivered a well-received lecture for The Wynnewood Institute in which he explained how little high court office means to him. Early in his career at a large eastern university debate he challenged a popular new law that gave the government the power to intrude into our personal affairs. He was warned that by doing so he was spoiling his chances for a seat on a federal bench. He related how liberating was this knowledge, for now he did not have to weigh his every utterance for its political effect!) Here Professor Epstein shows that the legal framework that protected our persons and our property in the “Old Court” was much more nuanced and more deeply rooted in the human psyche than the shallow and inconsistent statist policies that followed the Progressive revolution in thought.

Professor Epstein explains that our Founders and the early Old Court struck down most state laws that attempted to regulate commerce not so much because they were adherents of Adam Smith’s “invisible hand” (most had not read The Wealth of Nations, which was published the year of our Declaration of Independence) but because they defended the federal government’s prerogative to regulate trade. It was still the common belief that it was advantageous for nations to engage in economic competition by subsidizing home industries and restricting the importation of foreign goods. Laissez Faire economics slowly demonstrated the fallacy of this Mercantilist theory in the nineteenth century. Nevertheless, the Old Court’s decisions to defend the federal government’s powers over foreign trade acted to promote free trade to a very large extent, although the Old Court followed no hard libertarian line.

Curiously, Professor Epstein attempts to distinguish classical liberalism from libertarianism. Early in the book (Chapter 2, Subchapter A titled “First Principles”) he states that private voluntary contracts are positive-sum games. But he then goes on to state that “whatever harm ordinary contracts of sale and hire wreak upon competitors (and it is real harm, no doubt) is more than offset by gains to the parties and consumers.” Having recently read Dr. Patrick Burke’s No Harm: Ethical Principles for a Free Market, I was convinced that no such harm followed from free exchange and was prepared to have Dr. Burke’s views, to which I fully subscribe, challenged by one of the world’s most respected political philosophers. But no explanation followed! I can only surmise that Professor Epstein’s definition of harm is somewhat different than Dr. Burke’s. In my opinion, Dr. Burke’s No Harm principle provides as solid a foundation as any society needs for denying any governmental infringement upon free exchange.

After FDR’s failure to pack the Supreme Court with his lackeys, a chastised and frightened 1937 Court suddenly began to read between the lines of the Constitution and find no inconsistency with New Deal programs that usurped State and Local power, much less the economic rights routed in Adam Smith and laissez faire theory which had liberated our nation of immigrants to build unprecedented and widely enjoyed wealth.

So the question Professor Epstein attempts to answer is how this happened. How did the Progressives kidnap the Constitution?

For those looking for an explanation of the social factors that bred Progressivism, the early leaders and organizers of the movement, and their very persuasive arguments over many decades, this book will not suffice. Professor Epstein is first and foremost a legal scholar, so this small book is a history of the main court cases that enshrined Progressivism in American law. I must confess that I was disappointed in this regard, but the book does deliver what its title implies. Furthermore, Professor Epstein makes many excellent points about the failures of the Progressive prescription for curing the many perceived ills of society.

For example, the Progressive program created “anti-social political ends” which called for correction but not elimination. But rather than correct previous errors, the intended correction created new problems. Agricultural price-fixing legislation attempted to help farmers but hurt workers. So pro-union legislation attempted to correct the injury to workers but only hurt farmers. Professor Epstein says, “Neither error cancels out the other. Rather, the two errors compound each other.”

Another interesting observation is that all government attempts to “protect” some interest merely shift undue market risk onto some other and less politically powerful group. Progressive-inspired labor legislation was aimed at helping the working man earn a higher wage. But gains for powerful unions, achieved through the coercive power of the state, came at the cost of higher unemployment and lower pay for non-union workers.

In conclusion, although this book is written as a legal review of case and, to a lesser extent, statute law, Professor Epstein clearly explains how the Progressive prescription for curing society’s shortcomings has caused untold harm to our polity. We live with their legal legacy today, which hamstrings the economy, intrudes unnecessarily into our private affairs, and makes ours the most litigious on earth.