Archive for 4/8/2003

The AP reports that the FED is in "uncharted territory" and is trying out "experimental moves" to stimulated the economy. How? Basically, by "lending massive amounts of money directly to commercial banks to make sure that financial markets do not freeze up."

I’m not sure if the public is so clueless about economics that they are afraid question Greenspan’s policy, or whether they are deluding themselves into going along with the Fed’s hysteria about a "deflationary cycle" but it is clear that the only solution the Fed has to offer to the depression we are now in is inflation. The "solution" also happens to be the catalyst that caused the depression in the first place. The Fed hopes to jumpstart the economy by making (virtually) interest-free money available to investors, but since there are few solid investment opportunities out there (otherwise we wouldn’t be in a depression) the funds are likely to go high-risk, politically nimble, but non-viable enterprises that will collapse just in time to wreck the real recovery. In other words, the seed of the next depression are being planted in this one. The real risk is not a "deflationary cycle" but the redistribution and uncertainty caused by the Fed’s inflationary policies.

If the government really wants to help the economy, it should do the only thing in can do for business – create a business friendly environment by moving towards real capitalism. This means ending the witch-hunt of CEO’s, ending government handouts and subsidies, lowering trade restrictions, ending anti-trust, and protecting all forms of property rights. Until entrepreneurs are not sure whether they will reap the rewards of their labor or have it stolen by some government looter or given to a competitor, they will not risk hard-earned money the investments needed for real economic growth. (Update: Frank Shostak agrees.)

Meanwhile, Japanese entrepreneur Sachio Semmoto, the founder and CEO of eAccess, one of the most successful DSL suppliers in that country is planning to offer voice over IP service, undercutting traditional phone service, and according to MSNBC, "perhaps yet another blow to the already shaky Japanese economy."

The columnist here makes the classic mistake of thinking that an improvement in technology causes workers to lose jobs by making labor more efficient. He sees Japanese telecoms firing workers because internet VOIP service can do it cheaper and with less labor. What he doesn’t see is that consumers suddenly have more money to spend on things other than phone bills, that fired telephone company workers are not only hired by the VOIP providers, but find new jobs thanks to the extra money made available by the increased efficiency of communication. The short-term loss of telephone companies is the long-term gain of everyone else.

Finally, the Supreme Court has decided that cross burning is not protected by the First Amendment because it is an "instrument of terror." This reminds me of sexual harassment law, which states that sexual harassment is anything that "feels" like harassment. Likewise, racism is now defined according to how it makes you feel, rather than actual threats or violence against certain groups. Non-objective law which based on whether you "feel" wronged, rather than the actual use (or plans to use) force is one example of the dangers of non understanding the initiation of force. Feminist groups are already planning to use the ruling against anti-abortion protesters who "intimidate" abortion clinic workers. Imagine the effect on free speech if any action that made someone "feel threatened" could suddenly land you in jail.

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