Liberty & Power: Group Blog
Thursday, April 1, 2004
IVAN ELAND: Restoring Power to the Emasculated Executive Branch?!
When the Bush-Cheney administration took power three years ago, it wanted to restore power to an executive branch that it believed had withered in influence. The White House is "spinning" its foot-dragging with respect to creating the 9/11 commission, allowing the commission to see the President's daily intelligence briefings, and allowing Condi Rice's public testimony under oath by saying that the President and Vice President didn't want to see presidential power eroded even further.
Do they really believe this line of reasoning or not? Either answer is troubling. If they don't, then it is a cynical rationale for not cooperating with a commission inquiry that could produce (and has already has produced) embarrassing facts. If they do, then I guess they haven't heard about the "imperial presidency." Many of the founders believed that the Congress and the states would be the most powerful players in the federal system. In reality, wars and crises associated with them over the years have increased the size, power and influence of the executive branch far beyond what the original Constitution had envisioned.
One of the most important examples of diminished congressional influence has been the erosion of the very important congressional war power. Since Harry Truman, presidents have taken us to war without a formal declaration. George W. Bush's father, George H.W. Bush, maintained that he needed no congressional authority at all to attack Iraq during the first Persian Gulf War but sought legislative branch approval only as a courtesy. Bill Clinton bombed Kosovo and threatened to invade Haiti with no congressional authorization at all.
So the Bush administration's expediency in submitting to the unrestricted questioning of its highest officials by an independent panel investigating the origins of the administration's "war on terror" does erode some of the executive's authority. And that erosion of already excessive presidential power is good for the republic.
Posted by Ivan Eland at 5:18 PM | Comments (0)
DAVID T. BEITO: The OAH and Speech Codes: An Opportunity
Ralph Luker has urged David Montgomery, chair of a new ad hoc committee on academic freedom for the Organization of American Historians, to "examine campus speech codes as threats to freedom and inquiry and speech in the current academic climate."
As someone who has not hesitated to use his academic freedom to criticize the war (normally considered a "leftist" cause), I would urge Montgomery to take this request seriously. This could be an excellent way to build bridges between conservatives, libertarians, liberals, and socialists and thus be better able to defend academic freedom for everyone. It would also be a wonderful advertisement for Joe and Jill Six Pack about the across-the-board consistency of the OAH. Posted by David T. Beito at 10:06 AM
| Comments (0) WILLIAM MARINA: The Global Bubble This is no April Fool's joke, but rather an addition to my earlier comments on pieces offered by Steven Horwitz. The huge inflationary/derivatives Bubble that I mentioned is Global in nature, not confined to the US. I have included the entire article below because it is available to only Subscribers of the FT. Downloads of the papers mentioned therein are $5 each from the NBER.
Financial Times March 30 2004
The Fed is forced to fuel a global boom
By Martin Wolf
You may think the Federal Reserve is the US central bank. But it is much more than that. It is the central bank of more than half the world. That explains much of what is happening in the world economy. Fed policies are driving the rest of the world quite as much as the US.
Today, the world's important economies are divided into those within a zone of fixed or quasi-fixed exchange rates against the US dollar and a zone of currencies that float relatively freely against it (see charts). In the 1960s, the European and Japanese currencies were tied to the US dollar via the system established at the Bretton Woods conference of 1944. Now, Asian currencies are tied, more or less informally, to the dollar.
This illuminating description of the global monetary regime was advanced by Michael Dooley of the University of California at Santa Cruz and David Folkerts Landau and Peter Garber of Deutsche Bank in a paper published last September.* They have followed it up with a new one.** The Asian tail, they argue, is wagging the US dog.
This new dollar zone can be divided into a US core, an inner circle and an outer circle. The inner circle contains currencies tied very closely to the US dollar. The outer circle includes currencies whose movement is constrained by large-scale intervention (see chart). The former group consists, above all, of China: the US and China are in effect one economy. The latter adds India, Indonesia, Russia, Singapore, South Korea, Taiwan and Japan. The inner circle generates 35 per cent of world gross domestic product, of which 31 per cent is inside the US, and contains 26 per cent of world population, of which 21 per cent is in China. The outer and inner circle generate 53 per cent of world GDP and contain 52 per cent of world population. Together, the US and Japan generate 42 per cent of world GDP, while China and India contain 38 per cent of world population.
What are the implications of the emergence of this dollar zone?
First, the Fed's aim is to expand the US economy until it reaches full employment. But to do so it must stimulate the whole of this vast dollar zone: a proportion of the extra spending that the US authorities generate spills directly over into imports and so expansion abroad; but dollar-zone economies are also stimulating their economies by keeping interest rates low and intervening heavily in foreign currency markets. Developing members of the dollar zone have easy access to advanced technology, high rates of capital formation and colossal supplies of underemployed labour. The US has a high rate of productivity growth and highly stretched consumers. Japan has suffered from years of deflation. For these reasons, the stimulus needed is enormous and the inflationary pressure that results is minimal.
Second, the US wants a currency depreciation, to keep as much of this stimulus as possible at home. Blocked by the actions of members of the dollar-zone currencies, it is all the more important for it to enjoy a depreciation against significant currencies outside the zone. The monetary policy the Fed is pursuing naturally generates that result.
Third, dollar short- and long-term interest rates remain much lower than one might normally expect. Short-term interest rates are low to generate the needed stimulus. But interest rates are also kept down by the reserve accumulations of dollar-zone central banks. At the end of last year, more than two-fifths of US Treasuries were held by the Fed or foreign official sources. This year, buying of US Treasuries by foreign official sources may reach another $750bn. The impact, argues the paper, is to keep real interest rates up to a percentage point below their historic norm.
Fourth, dollar-zone central banks cannot diversify out of the dollar and into, say, the euro without undermining their dollar peg. If they purchase euros, they must intervene to avoid an appreciation against the dollar. This will, again, support the dollar and the prices of US Treasury securities. But should they go ahead with diversification, upward pressure on the euro might become intolerable for the eurozone members, though be of little concern to anybody else.
Finally, it is perfectly possible for the foreign central banks to continue to buck the market indefinitely. The view that the market can always defeat central banks is half true and half utterly mistaken. It is impossible for a central bank to defend a currency that the market wishes to sell, but simple to defend one the market wishes to buy, provided it does not care about (or can manage) the monetary consequences. The Bank of Japan and the People's Bank of China can create infinite quantities of yen or renminbi should they wish to do so. At present, they do.
How might this saga end? To answer the question, we need to examine the motives of the participants: the US is able to enjoy low real interest rates and a large excess of spending over income; members of the dollar zone achieve more stable growth by subsidising manufactured exports and minimising vulnerability to volatile capital flows. The US might attack the policies of its dollar-zone partners if the administration found the political drawbacks of trade deficits greater than the advantages of low interest rates. Its partners might change their policies if they found the dangers of overheating, or US protectionism, greater than the advantages of competitive exchange rates.
In the meantime, as the more recent of the papers concludes, "the unwillingness to accept the inevitable downward slide in the US dollar, due to a massive labour surplus in much of Asia and cyclical fears in Japan, is leading to intervention flows that are unprecedented . . . We are experiencing an official sector effort to reverse global private capital flows on a scale that we have never seen, even at the end of Bretton Woods."
The Bretton Woods system was broken by US protection against imports and worldwide inflation. Either could recur. But timing is unpredictable. Meanwhile, efforts to expand the US economy are driving a global boom. Enjoy!
* An Essay on the Revised Bretton Woods System, Working Paper 9971, September 2003, www.nber.org; ** The Revised Bretton Woods System: The Effects of Periphery Intervention and Reserve Management on Interest Rates and Exchange Rates in Center Countries, Working Paper 10332, March 2004, Posted by William Marina at 8:51 AM
| Comments (0) CHRIS MATTHEW SCIABARRA: I Was Wrong! Okay, I admit it. I was wrong. I am now in favor of the War in Iraq and a full, open-ended Period of U.S. Occupation. I think the invasion was justified. Forget all that nonsense about nonexistent WMDs and nonexistent ties to Al Qaeda! What matters is that we are building a democracy in the heart of the Middle East, and a powerful military base from which to launch future campaigns against Islamo-fascists who threaten Our Way of Life. And bring on Patriot Act II! Let's dispense with civil liberties! And let's finally embrace censorship. Not just against Janet Jackson's breast and Howard Stern's rantings! The real enemy is this new liberal radio network. Bah!
Posted by Chris Matthew Sciabarra at 7:36 AM
| Comments (1) Wednesday, March 31, 2004 KEITH HALDERMAN: How the Iraqis Really Feel The following is the opening paragraph from a story that describes events that occurred two hours ago. “FALLUJAH, Iraq - In a scene reminiscent of Somalia, frenzied crowds dragged the burned, mutilated bodies of four American contractors through the streets of a town west of Baghdad on Wednesday and strung two of them up from a bridge after rebels ambushed their SUVs.” (my emphasis)
The key word in this description is crowds. Now the Bush administration has responded to the event this way: “The White House blamed terrorists and remnants of Saddam Hussein's former regime for the "horrific attacks" on the American contractors.” They completely ignore the word crowds. They cannot accept the fact that they are in command of a hated occupying army. They commission phony-baloney opinion polls proving that the Iraqi people think our being there is just peachy-keen. However, the reality about how the Iraqis view Americans is contained in the above article.
Posted by Keith Halderman at 9:04 PM
| Comments (0) JONATHAN J. BEAN: Seabiscuit and the Great Depression: It's Not About FDR, Stupid! As an instructor of a course entitled, "The Great Depression," I have the liberty to explore this fascinating decade in depth and detail (www.siu.edu/~histsiu/faculty/bean/DepressionSyllabus1.pdf ). I find distressful, however, the bastardized pro-New Deal version of history that is handed down by popular writers and Hollywood screenwriters since--well, since the New Deal propaganda machine revved up! On the latter, see Gary Dean Best, _The Critical Press and the New Deal: The Press Versus Presidential Power, 1933-1938_ (Praeger, 1993).
Part of this received wisdom--Big Business baaad, New Deal gooood--is handed down through the oft-required text _Grapes of Wrath_, written by John Steinbeck. For a libertarian critique of this socialistic novel (i.e., why it is good entertainment, but bad economic history), see Nicholas Varriano, "The Trouble with Steinbeck," _Liberty_, March 2004, 41-44.
Another irritating example of the New Deal gospel can be found in the entertaining, yet historically jarring movie _Seabiscuit_ (2003). The movie is about a private entrepreneur--a highly successful Ford dealer--who has lost his son through a tragic car accident and his wife through a resulting divorce. In his search to find a new life, he takes risks on men (a jockey and horse trainer) who are "down and out" but who have the untapped potential to turn the horse "Seabiscuit" into a legend. In short, the movie is all about risk-taking, individualism, taking chances, and the rough trade of horse-racing. Instead, the creators of this otherwise endearing, if sappy, movie periodically insert monologues from David McCullough ("The American Experience" voice) about how the New Deal saved poor figures like those in the New Deal. Thus, when the jockey (played by Tobey Maguire) dips into a bowl of tomato soup at his mentor's house, the film cuts to New Deal soup lines "giving hope to the masses." It is this kind of political drum-beating that gives Hollywood, and academia, their well-deserved reputations for statist liberalism, because the New Deal had nothing to do with the characters in _Seabiscuit_.
A more proper context would be the manic pop culture of the era, documented so well in Gary Dean Best's short survey _The Nickel and Dime Decade: American Pop Culture During the 1930s_. People paid to watch horse-racing, just as they did for roller derby, six-day bicycle races, dance marathons, flag-pole sitting, and so on. But doing right by history would not allow Hollywood producers to grind their political axes against the past and present.
Fortunately, I have the time (fifteen weeks) to inform students of the broader aspects of American culture during the 1930s. Many people experienced "hard times," during the Great Depression, but many did not (real wages actually _increased_ fifty percent, though this caused higher unemployment, one of the unintended consequences of New Deal labor policies). Moreover, there was so much more going on than the New Deal, including horse races won by individuals who were not turning each corner for the ol' WPA or CCC, Hollywood notwithstanding.
Posted by Jonathan J. Bean at 8:16 PM
| Comments (1) DAVID T. BEITO: Free Speech Outrage at UNC-Wilmington Ralph Luker and Erin O'Connor are keeping track of a very disturbing case at UNC-Wilmington. Administrators have prohibited conservative criminal justice professor Mike Adams from talking about his political views around while around his colleagues at work because they may make them "uncomfortable."
Posted by David T. Beito at 6:18 PM
| Comments (0) Tuesday, March 30, 2004 WILLIAM MARINA: More Statistics for the "Larger Picture" Steven Horwitz has dished up another pile of statistical data, M2, annual inflation rates and all that. I have become less than enthusiastic for many of the statistics generated for us by government economists. The total number of unemployed may be a "subjective call," but it sure hurts if you are among that number.
In the larger picture, of course, we all have taxes, and eventually death. There is plenty of blame to go around with respect to government's handling of the economy, with very little to praise.
Basically, I envisage two possible scenarios within the years I have remaining in my lifetime. One, is a continued decline in American economic and political freedoms much as Wendy McElroy described at the beginning of her comments mentioning the Index of Economic Freedom in which this country has in one year dropped from 6th to 10th.
A second is that the Big Bubble finally bursts as a result of the monetary policies we have discussed, and what has happened in the derivatives market in which no one really knows how many trillions are involved. Any statistical data on the latter, Steven, beyond the story covered in Frank Partnoy's F.I.A.S.C.O. and Infectious Greed.?
The two are not, of course, mutually exclusive, and one can imagine that the continuation of the former will, at some point. lead to the latter. In the meantime enjoy the bread and circuses provided by the New Roman Empire! Posted by William Marina at 11:45 PM
| Comments (0) STEVEN HORWITZ: Stagflation Once More
With all due respect to William's experiences, I simply don't believe the
data support the sort of negative picture of the economy that he and Wendy
are painting.
Again, I'm not a Pollyana here, and I can think of a whole bunch of ways the
Bush administration has made matters worse than they could be (e.g., out of
control spending, trade barriers, resources devoted to destruction here and
abroad), and I can think of lots of ways things could get worse down the road,
but the bigger picture right now isn't that bad. Responding to a couple of
specifics: The market basket that comprises the CPI does get adjusted from time to
time, but not nearly as quickly as individuals can react to price movements.
Additionally, in composition of the basket always lags behind the real consumption
choices of households. And yes, the Fed continues to increase the money supply. As someone whose
professional work has been one long sustained critique of the Fed, including
calling for closing its doors, I'm hardly a Fed fan. I've also written
a great deal on the costs of inflation. I also agree that increases in the
money supply during the 90s had much to do with the dot.com
run-up and collapse,
especially during the last few years. However, at the moment, the growth rates
in M2 are
not
particularly high. During the last quarter of 2003, M2 actually fell in absolute
terms. As of February 1, it was growing at an annual
rate of 4.19%, hardly
rampant inflation although higher than it probably should be. The claim that the job situation has led people to exit the labor force has
some truth to it. The number of people not
in the labor force is up by 1.8
million from last February to this February. Is that "many persons?" That's
a subjective call. Is there "considerable" unemployment? Again, a subjective
call. The current unemployment rate of 5.6% is more or less precisely what
it was during 1995 and early 1996, when that rate was considered "dangerously"
low. Economic data can't deny the reality of people's personal experiences of the
economy, but if we're going to talk about the economy as a whole, and particularly
if we're going to propose policy or assess credit/blame, then we need to get
beyond individual experiences to look at the larger picture.
Posted by Steven Horwitz at 10:22 PM | Comments (1)
WILLIAM MARINA: No, Steven, It's My Stagflation to Have to Deal With
I have several questions about the arguments offered by Steven Horwitz. If the inflation rate is really so low, one would think the government would be doing more to publicize this "wonderful" situation. The Bush Adm. has had no difficulty in repeating a great deal of questionable data with respect to Iraq as detailed in the latest Report offered by Congressman Henry Waxman.
My understanding is that there is no "fixed" basket, but that the government has shifted the mix with items which did reflect less of a cost increase than others.
Even if productivity is rising as suggested by Horwitz, lowering some commodity prices, the Federal Reserve continues to inflate the money supply. This has been a factor in rising stock prices, as in the 1920s, and especially with respect to home prices today much like, for example, the Florida land boom in that same decade.
At the same time with this flood of cash in the economy, there is considerable unemployment so that many persons are no longer actively looking for jobs, and with very low interest rates set by the Fed, a great deal of cash is seeking investment opportunities.
Today's Wall Street Journal had an interesting piece about the crisis in mobile home building and the large number of foreclosures. This is part of the whole Fannie May problem in which the Bush Adm. proposed a program of NO down payment for such homes. Surely, that would exacerbate the number of foreclosures among the 22 million Americans who now live in such manufactured homes. While we spend billions of dollars for nation-building and to bring democracy to Asia, our own people face a terrible employment and housing crisis.
With all of this conflicting economic data and controversy around, I can only reflect on my personal experiences of late.
I retired this year and we are selling a home in downtown Fort Lauderdale, FL. The price recommended by realtors, since this is a "hot" area with few properties available, is roughly four and a half times what we paid for it 15 years ago. The land alone now is apparently worth three times what we paid for the house and land together.
We also sold a triplex built and owned by Marina Const. Co., holding a note paying 7.25%. There is so much money out there searching for investments, that we have literally been besieged by mail, phone and email with investors seeking to purchase the note to the extent that we can bid one against the other. But in an environment flooded with cash, and low interest rates, where would I get a return like that, if I sold at, say, $ .95 cents on the dollar?
I'm sorry Steven, but with all due respect to your extensive financial data, I "perceive" from my recent experiences that we are in a period of Stagflation, and I need to make my investment decisions based on that assumption.
Posted by William Marina at 9:19 PM | Comments (0)
