Meyerson in Washington Post Op-Ed: Free Market Types Got it Wrong

Harold Meyerson in today's Washington Post said this:

The problem with contemporary economics, at least with the purer strain of free-market economics ... is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen.

So free market economics failed to predict, and failed to even consider the possibility of near collapse of the financial system? Actually, it's the exact opposite. There is a school of free market economics called Austrian economics, which is perhaps the "purest" strain of free market economics, that describes exactly the type of boom/bust phenomenon that our economy experienced. He could have done a simple google search for "who predicted financial crisis", and he could have found all kinds of articles and video links from "free market types" like Peter Schiff and Ron Paul. He may even want to go back and look at the rationale for awarding Friedrich von Hayek, another "free market type" the Nobel Prize in 1974. From NobelPrize.org:

"von Hayek showed how monetary expansion, accompanied by lending which exceeded the rate of voluntary saving, could lead to a misallocation of resources, particularly affecting the structure of capital. This type of business cycle theory with links to monetary expansion has fundamental features in common with the postwar monetary discussion."

I don't care so much that Meyerson agrees or disagrees with this theory, or free market economics in general. And it's true that many free market oriented economists failed to predict the financial crisis, and it's also true that the Austrian explanation of the business cycle has its critics, even among some free market economists . But nevertheless, he is clearly wrong when he says that free market economics failed to predict or even consider the financial crisis.

Meyerson even blames the practice of "mortgage securitization" on the free market. Of course, securitization of mortgage debt was something explicitly created by the government in 1970 and the government is still by far the most influential player in that market.

Maybe Meyerson needs a research assistant, or access to the Internet.

[Update]

Veronica de Rugy also has a great post on the Meyerson op-ed over at NRO. She asks "How can someone write a column on an issue he knows so little about?" One of Meyerson's arguments is that free market economists believe "that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything." Once again, it's the exact opposite. She points out that free market economists, specifically from the Austrian school, reject the use of mathematics in trying to model something as complex as the economy. She closes by saying:

Mr. Meyerson should read the Austrian Economists blog. Great economists such as Pete Boettke, Frederic Sautet, and Steven Horwitz make the case for freedom daily, with no math. He should also read their books and articles; all published in respected academics journals, without much math at all. And by the way, all of these economists have claimed for years that we were heading for disaster.

Making economics more intuitive

Are basic economic principles counterintuitive? Bryan Caplan over at Econlog.com says no, and that economics is just "poorly explained". To illustrate, he provides the following demonstration:

I'm going to present a few allegedly counter-intuitive economic propositions, then explain them at a 6th-grade level.

1. Counterintuitive claim: Free trade makes countries richer, even if the other countries have big advantages like cheaper labor or more advanced technology.

Intuitive version: We'd be better off if other countries gave us stuff for free. Isn't "really cheap" the next-best thing?

2. Counterintuitive claim: Strict labor market regulation is bad for workers.

Intuitive version: Employers don't like hiring people if it's hard to get rid of them. Suppose you had to marry anyone you asked out on a date!

3. Counterintuitive claim: Egalitarian socialism creates poverty... even starvation.

Intuitive version: If everyone gets the same share whether or not they work, you're asking people to work for free. People don't like working for free, especially when the work isn't very fun. (This is my response to Sumner's Great Leap Forward Challenge: "But how do we explain to school children that millions had to starve because of a policy that encouraged people to share?")

4. Counterintuitive claim: Prices are determined by supply and demand.

Intuitive version: If a good was free, consumers would want a lot, but producers wouldn't feel like making much. If the good costs trillions of dollars, producers would want to make a lot, but consumers wouldn't want to buy any. In between there's got to be a price where consumers want to buy as much as producers want to make.

Bread and Circuses Dept.

Obama to make in-person pitch for 2016 Olympics

WASHINGTON (AP)—President Barack Obama will travel to Denmark to support Chicago’s bid for the 2016 Summer Olympics, projecting the highest-ever White House profile in lobbying for the international event.

Aim High

Man sues BofA for "1,784 billion, trillion dollars"

NEW YORK (Reuters) – Dalton Chiscolm is unhappy about Bank of America's customer service -- really, really unhappy.

Chiscolm in August sued the largest U.S. bank and its board, demanding that "1,784 billion, trillion dollars" be deposited into his account the next day....

The sum also dwarfs the world's 2008 gross domestic product of $60 trillion, as estimated by the World Bank.

More health care back and forth

A friend wrote to me: "In a free market system there is too much room for deception, as long as profit drives these companies than people will get screwed. People shouldn't have to scramble for their lives when they get sick."

My response:

In a free market system, there is actually very little room for "deception". First of all, if an insurance company violated a contract, the customer should sue. That's what our common law system is designed to take care of. Second, if the insurance company is really deceiving their customers, eventually, those customers will catch on and they will leave to go to a competitor who is providing better value, better service and has made an effort to protect its reputation by doing right by its customers. The company that is deceiving their customers will be put out of business unless they change their ways. That is market discipline. It's incredibly powerful, but has been inhibited in health care because of the government created, cartel-like system we have now.

On the other hand, when the government screws people, there is no accountability. People cannot leave and go elsewhere. People cannot opt out. The government doesn't have to make a profit, and it doesn't have to worry about attracting customers. There is no market discipline. They can just put competitors out of business by charging an artificially low price, by regulating their competitors to death, or by forcing people into their system. They can screw people over and over again without any consequences.

So it's actually the exact opposite. The more we get away from a free market system, the more people will get screwed. The more we have a truly free market system, the more insurance companies and health care providers will have to be responsive to the customer.

Someone finally asks...

...if the President wants competition, why not allow the purchase of health insurance across state lines?


Hats off to Wolf Blitzer for asking the question.

I guess that question didn't make the cut for David Gregory's interview with the President on Sunday, but this one did!

Gregory: Hate to break it to you, but doesn't look so good for your White Sox here. So I want to know who is your pick to win the World Series?

Breitbart hints that next story will be about corruption at the NEA

After skillfully exposing Acorn and the mainstream media with the launch of biggovernment.com, Andrew Breitbart writes this morning:

At the very least, filmmaker James O'Keefe and actress Hannah Giles deserve a Pulitzer Prize for their expose of deep corruption and unspeakable immorality at the ACORN housing division. But more important, I won't rest until they receive a grant to continue their partisan artistry from the National Endowment for the Arts.

That's this week's mission.

Can't wait to see what's next...

[Update]
From www.bighollywood.com:

The government involvement here is what is truly stunning. Not only did the government sponsor a conference call specifically dedicated to recruiting artists to the Obama re-election and political strategy campaign – and not only did they co-sponsor the call with Obama partisan organizations — they list lobbying organizations on their website for United We Serve (Serve.gov). As Dana Loesch of BigGovernment.com reported, ACORN is included in the “non-partisan” organizations listed by Serve.gov, among the other participants like the AARP grassroots advocacy organization (which asks you to “Be a part of a team of grassroots advocates that encourage elected officials to address the issue of health care reform…”).

All of this – particularly the government-sponsored conference call itself – is in blatant violation of the Anti-Lobbying Act (19 U.S. Code §1913), which explicitly provides: “No part of the money appropriated by any enactment of Congress shall, in the absence of express authorization by Congress, be used directly or indirectly to pay for any personal service, advertisement, telegram, telephone, letter, printed or written matter, or other device, intended or designed to influence in any manner a Member of Congress, a jurisdiction, or an official of any government, to favor, adopt, or oppose by vote or otherwise, any legislation, law, ratification, policy, or appropriation, whether before or after the introduction of any bill, measure or resolution proposing such legislation, law, ratification, policy or appropriation …”

Violation of this law, in turn, violates 31 U.S. Code §1352, which bans use of “funds appropriated by any Act [from being] expended by the recipient of a Federal contract, grant, loan, or cooperative agreement to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any Federal action …”

What a marvelous idea!

Let's take an insane killer on a field trip to the county fair! Well, that's exactly what officials in Spokane, Washington did. No way you'll guess what happened next:

Killer escapes on trip to county fair

SPOKANE, Wash. - Authorities have put out a statewide alert for a mentally ill killer who escaped during a hospital field trip to a county fair, leading to fears that he'll become more unstable and potentially dangerous the longer he is on the loose with no medication.

Sgt. Dave Reagan of the Spokane County sheriff's office says Phillip Arnold Paul remained at large Friday and officials believe he's headed to Sunnyside, the town

where his parents live. Reagan said anyone spotting him should call 911 and not try to confront him.

Paul was committed after he was acquitted by reason of insanity in the 1987 slaying of an elderly woman in Sunnyside. He soaked the woman's body in gasoline to throw off search dogs and buried the remains in her flower garden. He reportedly said voices in his head told him she was a witch.

He was caught trying to escape four years later, and later knocked a deputy unconscious in the booking area following his detention.

Read the whole thing. Or don't. Regardless, until further notice you may want to put that trip to Spokane on hold.

Nadler Calls Acorn Bill Unconstitutional

Rep. Jerrold Nadler (D-NY) is claiming that any bill to defund Acorn is unconstitutional because it violates the Constitution’s prohibition against Bills of Attainder.

I am not a Constitutional scholar, but I believe the prohibition against Bills of Attainder is designed to maintain separation of powers between the legislative branch and the judicial branch by preventing Congress from declaring a person or organization guilty and punishing them accordingly.

Just a couple of thoughts:

First of all, this is a spending issue, and according to the Constitution, the Congress is in charge of all spending.

Second, I don't see how taking away a subsidy is a "punishment", at least in the legal sense. Congress is not declaring Acorn guilty, and is not claiming to have any power to put anyone in prison; they are just choosing not to fund Acorn with taxpayer dollars. As far as this Congressional action goes, Acorn is free to continue to operate as long as it can raise funds from other sources.

And where was the talk about Bills of Attainders when Congress was talking about taxing AIG bonuses up to 95%, or when Congress threatens to tax "excessive" profits from the oil companies?

And Now ABC Gets On Board

Over at The Corner, the National Review staff points to this report from ABC news entitled U.S. Taxpayers Fund Empty 'Airports to Nowhere'.