In recent years, threats from Islamic extremists have resulted in murder of those simply depicting Mohammed (forbidden by Islamic tradition, although not unknown to Islamic culture).

From a prominent woman who fled Islamic death threats:

“‘South Park’ and the Informal Fatwa”

In a profile of cowardice, Comedy Central responded to a recent death threat by censoring the image of Mohammed on South Park

You can “piss Christ,” bash Buddha, mock the Pope, but humor is apparently not in the hadith.

Read:

http://www.guardian.co.uk/tv-and-radio/2010/apr/22/south-park-censored-fatwa-muhammad

http://article.nationalreview.com/432601/self-censoring-isouth-parki/nina-shea

And here is the image (censored) that Comedy Central now allows:

http://en.wikipedia.org/wiki/File:SP-s10e04-censor.jpg

When Danish cartoonists published cartoons of Mohammed, Islamic extremists rampaged worldwide and killed 100 people. Those who published the cartoons in the “land of the free” (USA) lost their jobs or were forced to grovel with apologies. Others had to go into hiding.

Academics, of course, led the way by rotting out the foundations of any reasoned defense of a free and civil society.

“Hey, hey, ho, ho, Western Civ has got to go” was the chant during the culture wars. There isn’t much left of “Western Civ” or any civilization, unless it is Nihilism with cowardly fear (but not reverence) for Islam.

Case in point: Years ago, Yale University admitted “Yale Taliban”--the propaganda minister for the Taliban–despite the fact he had only a fourth-grade education. Then, when Yale University Press published a book on the cartoon controversy, they censored the images for fear of death threats.

Now it is another sniveling retreat in popular culture (South Park).

“Land of the free”? “Home of the brave?

More of the same.

Shame on you Comedy Central!

Henry Louis Gates, Jr. has never deserved his reputation on the right as a simplistic race-baiter. His book, Colored People: A Memoir, is proof enough of this point.

For this reason, and others, my sympathies were generally with Gates when he alleged abuse by the Cambridge Police Department. My main criticism of Gates was that he needlessly alienated potential support by failing to emphasize that many whites are also victims of this practice.

Gates, again, shows his willingness to think creatively in this piece for the New York Times:

But the sad truth is that the conquest and capture of Africans and their sale to Europeans was one of the main sources of foreign exchange for several African kingdoms for a very long time…..

Did these Africans know how harsh slavery was in the New World? Actually, many elite Africans visited Europe in that era, and they did so on slave ships following the prevailing winds through the New World. For example, when Antonio Manuel, Kongo’s ambassador to the Vatican, went to Europe in 1604, he first stopped in Bahia, Brazil, where he arranged to free a countryman who had been wrongfully enslaved….

Under these circumstances, it is difficult to claim that Africans were ignorant or innocent.

Given this remarkably messy history, the problem with reparations may not be so much whether they are a good idea or deciding who would get them; the larger question just might be from whom they would be extracted.

In 1971 George Stigler published his “Theory of Economic Regulation” in which he hypothesized that regulatory agencies tend to be “captured” by the organizations they are regulating, so that the regulated organizations benefit at the expense of the general public.

Stigler’s capture theory of regulation is playing itself out again in the financial market regulation that is currently being considered by Congress.

Peter Wallison gives a good accounting of that reform effort here, drawing heavily on Robert Higgs’s “crisis and leviathan” framework.  Wallison argues that this proposed financial reform is ideologically driven; a push for big government that is at best peripherally related to the causes of the recent financial crisis.

Wallison pins the blame for the financial meltdown squarely on the federal government, saying that two-thirds of mortgages were either guaranteed by the federal government or owned by government-controlled institutions like Fannie Mae and Freddie Mac.  This generated mortgages issued to people who could not pay them, which led to the mortgage market meltdown and financial crisis.

The proposed reform does nothing to address the problems that caused the crisis.  Instead, it proposes more regulations on an industry that is already one of the most heavily-regulated industries in the economy.

Wallison says the motivation behind those proposed regulations is an ideological one: to give government more control over the economy.

Wallison notes that Fannie Mae and Freddie Mac had advantages over other mortgage lenders because investors correctly perceived that the government would treat them as too big to fail.  They essentially were risk-free institutions, because any losses would be covered by the taxpayers.  He argues that the proposed financial reforms would create a whole new set of “too big to fail” institutions, with the same competitive advantages.  Big firms are favored by the proposed regulations; small firms will be at a competitive disadvantage.

These big firms, supported by the government, will in turn have to toe the government line.  Wallison says, “They will no longer be independent and innovative competitors, but government-controlled institutions. Each will have to pay more attention to what Washington wants them to do than to what competition would demand.”

Wallison argues, “Among other adverse effects, large companies would be favored over smaller ones, the U.S. financial-services industry would morph from a competitive and innovative system—with many large and small competitors—into a system dominated by large institutions that are virtual wards of the government, and successful financial firms would prosper through effective representation in the power corridors of Washington rather than competition in the marketplace.”

Here is an example of special interests already at work: Proposed regulations on derivatives would impose costs on Warren Buffett’s Berkshire Hathaway, and Buffett is lobbying Congress for a deal to keep his derivatives free of regulation.  Some firms would benefit; others would be held back by the regulatory noose.

We are seeing Stigler’s capture theory of regulation in action.  Even as new financial regulations are being written, they are being designed to benefit a few powerful interests at the expense of smaller competitors, and of the general public.  Meanwhile, they ignore the underlying causes of the problem that allegedly prompted the call for regulation.

Ultimately, the ideology of government economic planning is driving this reform, which completely ignores the sources of the recent problems suffered by financial markets.

Independent Institute Senior Fellow Robert Higgs debates James Galbraith (Professor of Economics, University of Texas; son of infamous, “liberal”, Keynesian economist John Kenneth Galbraith) on Antiwar Radio regarding the folly of government bailouts for insolvent banks, creation of the Glass-Steagall Act as a means to prevent FDIC insured banks from taking excessive risks, benefits and detriments of public and private regulation and oversight, problems of regulatory capture and revolving door politics, divergent opinions on the causes of the Great Depression and efficacy of the New Deal and the arguments for and against government spending on public infrastructure.

[audio:2010_04_20_higgs_galbraith.mp3]
Download audio file (53 minutes)

Also please see the following books by Dr. Higgs:

Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity

Crisis and Leviathan: Critical Episodes in the Growth of American Government

Neither Liberty Nor Safety: Fear, Ideology, and the Growth of Government

Against Leviathan: Government Power and a Free Society

The following  column on George Orwell’s advice to free students from bad academic writing is worth reading:

http://chronicle.com/article/Bad-WritingBad-Thinking/65031/?sid=ja&utm_source=ja&utm_medium=en

In two decades of teaching, I have worked with exceptionally bright undergraduates. Once they enter graduate school, however, they conform to the “smelly little orthodoxies” of theory and the jargon-ridden writing of their discipline. I’ve always despised jargon that deadens prose and will be passé by the time these young conformists hit old age. Future generations will have to decipher why words and phrases such as “subaltern,” “post-structuralist,” “late capitalism” meant to the scribbling class of early 21st century academics.

The advice Orwell gives is similar to advice Winston Churchill gave on good writing. This passage says it best (from Orwell, “Politics and the English Language”):

“Orwell leaves us with a list of simple rules:

* Never use a metaphor, simile, or other figure of speech which you are used to seeing in print.

* Never use a long word where a short one will do.

* If it is possible to cut a word out, always cut it out.

* Never use the passive where you can use the active.

* Never use a foreign phrase, a scientific word, or a jargon word if you can think of an everyday English equivalent.

* Break any of these rules sooner than say anything outright barbarous.

I am posting this advice for my own students and as a reminder to myself (fallen creature that I am).

The Fed’s very accommodating policies over the Bernanke era seem to be setting us up for inflation down the road.  To the general public this policy appears as low interest rates.  Low interest rates are produced by increases in the monetary base, which will lead to inflation as the economy recovers, unless the monetary base is contracted.

The problem is, every strategy to contract the monetary base would result in higher interest rates, something Bernanke doesn’t want.  So, expect inflation ahead.  While Bernanke says he has an “exit strategy,” I don’t see a viable one, and Bernanke hasn’t offered any details on his “exit strategy” plans.

So, I found this article interesting, because it appears there is some dissent even among the Fed’s highest-level policy makers.  The dissenters are led by Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, who argues the Fed needs to raise interest rates (which will limit the growth of the monetary base), and accelerate its sale of the mortgage-backed securities it has bought over the past few years.  I agree with Mr. Hoenig.

Dealing with the current recession, Mr. Bernanke, who is one of the world’s leading authorities on the Great Depression, says he understands the mistakes the Fed made during the Depression, which increased the Depression’s severity and length, and vows that we won’t make the same mistakes this time.  It does appear, however, that we will make different mistakes.

As if to demonstrate the Bastiat thesis in American human terms is this news of a Federal Air Marshal who (allegedly) raped an escort in between looking for terrorists on domestic air flights. After he (allegedly) misrepresented his government position, wielded his government-issued handgun, and raped the working girl, he then took back the [fiat] money he had paid her for the original transaction, which he had also misrepresented. Whether it is in state-sanctioned murder, or a general beat-down of local innocents, or a one-on-one violent exploitation because one side assumes a monopoly of both authority and violence, government is truly a gang of thieves, pirates and criminals — due not one iota of respect, awe, or even fear. Just disgust.

Professor Richard Timberlake, an Independent Institute research fellow and an economist who has written several books and dozens of journal articles about Federal Reserve monetary policies, sent us the following note today regarding my Lighthouse write-up of “Central Banks as Sources of Financial Instability,” George Selgin‘s superb article in the Spring 2010 issue of The Independent Review. Here, with Prof. Timberlake’s permission, is the note.

I have just read this issue of “The Lighthouse,” and have also read George Selgin’s article about central bank instability in The  Independent Review.

I feel obliged to point out that my book, Monetary Policy in the United States, (Univ. of Chicago Press, 1993) treats the instability of central banking at length. Chapter XVI, especially reviews and summarizes the development of central banking up to WW I, both in England in the United States.

I stress particularly that no central bank should be allowed any discretion. Congress should give the Fed a MANDATE to maintain absolute stability in the price level, and, perforce, in the value of the money unit. The precedent for this action is the policy initiated by Benjamin Strong, President of the NY Fed between 1922 and 1929 (see my article in the TIR, Winter 2007). Fed bureaucrats could perhaps squirm around this Rule, but would have to follow it generally because it is so easily verified — just look at a CPI. This rule would force them to abolish their “bailouts,” “stimulus” and “too big to fail” activities, and anything else that tended to involve them in real variables, such as “employment” or “growth,” about which they can do nothing.

The Stable Price Level Rule (SPLR) is the only way to harness a central bank. If we could get rid of the Fed, say, by a law that freezes the Monetary Base, we could provide a free market monetary system, perhaps with a gold standard as an option. (I cover this possibility in my book, too. See the last Chapter, Ch. 27, “What the Fed Cannot Do; What the Fed Can Do; What the Fed Should Do.”) Given political realities, however, Congress can force a SPRL Rule on the Fed. Alan Greenspan approved the idea while he was Chairman of the Fed Board, when it was initiated in Congress by Rep. Stephen Neal (DEM. N.C.). Several Fed Bank Presidents did, too. So it is politically possible.

I hope you will put this note where it can be read. I think it is important for a general understanding of the Fed, that someone treated these issues professionally. Let me know if you would like more.

This prompts me to ask Beacon readers two questions: (1) What would it take to get Congress to require the Fed to adopt a Stable Price Level Rule, such as the one Prof. Timberlake recommends? (2) What, if any, alternative reform(s) of the Federal Reserve do you believe would produce economic outcomes superior to what Timberlake proposes and would be politically possible?

(Offer your comments below. The person who, in my judgment, posts the most thoughtful answer to both questions by 3PM Pacific Time on Monday, April 26, will receive a free copy of Money and the Nation State, edited by Kevin Dowd and Richard Timberlake, and Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage, 1775-1821, by George Selgin. You can still post your comments after then, but that will be the deadline for the contest.)

With the Securities and Exchange Commission now accusing Goldman Sachs of fraud by selling investors mortgage-backed securities that eventually collapsed, one might wonder whether Goldman did, in fact, set up Abacus investments anticipating that it would lose money.

This article suggests there were divided opinions within Goldman.  Of course, companies don’t take any actions by themselves.  People in those companies make decisions and take actions.  But it appears that as a corporate entity, Goldman recognized that despite their securities being highly rated, they were risky, so they insured themselves against possible losses.

That must have seemed like a clever strategy at the time.  They had securities they recognized were more risky than their ratings indicated, so by insuring them they could shield themselves from any losses.  The problem was, they insured them with AIG, and when the mortgage market tanked, Goldman’s insurer went under too.

As it turns out, having your insurance company go bankrupt is not as much of a problem as it might first appear, if your firm’s former CEO is Secretary of the Treasury.  Goldman got $13 billion of the bailout money going to AIG, of which $6 billion was for their failed Abacus investments.  Now there are calls to revisit that bailout, and perhaps recover what two U.S. Congressmen are calling ill-gotten gains.

Did Goldman see the impending collapse of the mortgage market?  They did have enough foresight to insure their own investments against the possibility.

Property and Plunder
Frederic Bastiat (from pp. 6-7 of the FEE edition of The Law):

“Man can live and satisfy his wants only by ceaseless labor; by the ceaseless application of his faculties to natural resources. This process is the origin of property.

“But it is also true that a man may live and satisfy his wants by seizing and consuming the products of the labor of others. This process is the origin of plunder.

“Now since man is naturally inclined to avoid pain—and since labor is pain in itself—it follows that men will resort to plunder whenever plunder is easier than work. History shows this quite clearly. And under these conditions, neither religion nor morality can stop it.

“When, then, does plunder stop? It stops when it becomes more painful and more dangerous than labor. It is evident, then, that the proper purpose of law is to use the power of its collective force to stop this fatal tendency to plunder instead of to work. All the measures of the law should protect property and punish plunder.

“But, generally, the law is made by one man or one class of men. And since law cannot operate without the sanction and support of a dominating force, this force must be entrusted to those who make the laws.

“This fact, combined with the fatal tendency that exists in the heart of man to satisfy his wants with the least possible effort, explains the almost universal perversion of the law. Thus it is easy to understand how law, instead of checking injustice, becomes the invincible weapon of injustice. It is easy to understand why the law is used by the legislator to destroy in varying degrees among the rest of the people, their personal independence by slavery, their liberty by oppression, and their property by plunder. This is done for the benefit of the person who makes the law, and in proportion to the power that he holds.”