Bad Voters, Bad Leaders

It’s hard not to be dismayed at the choice in front of us. I will not get into a discussion about who, Barack Obama or John McCain, will be marginally worse as president. Your guess is as good as mine. Both know little about economics, both will continue to expand policies that will deepen the coming depression, both will meddle in the affairs of other countries, both will concentrate more dangerous power in the hands of the presidency, and both will violate their oath of office to “preserve, protect and defend the Constitution” almost as soon as they swear to it.

The marginally better of two bad choices is no choice at all. If given a choice of Dunkin Donuts or Krispy Kremes, I will eat neither. I am not interested in experimenting with which will wreck my health at a slower rate.

There is a growing consensus, no doubt fueled by our economic crisis, that George Bush will go down in history as one of our worst presidents. I agree with this consensus, but there is no need here to go over his litany of failures. Other writers can do that far better than I can; and no doubt, we can all learn from such assessments. But by themselves such assessments will change nothing, because they say nothing about the beliefs of Americans that have allowed such horrendous bipartisan leadership—from the likes of George Bush, Henry Paulson, Nancy Pelosi, and Barney Frank—to emerge in the first place. Neither Barack Obama nor John McCain will go down all of the same unconstitutional pathways as George Bush; but surely, they will find new ways to take us further from our founding principles.

Look inside, fellow Americans! These men and women who are our leaders reflect on the outside what we have become on the inside. As we go to the ballot box, we are still looking for the magician who can give us something for nothing. We are only at the very earliest stages of looking at our collective societal beliefs that have created this crisis; and thus, we are still far from any solutions. George Bush, Barack Obama, and John McCain are no more to blame for our economy than Dunkin Donuts and Krispy Kremes are for our waistlines.

One of my wiser students, whose father is a physician, e-mailed me this morning:

As my dad says to some patients, you have been drinking a six pack every evening for the last 10 years, you are overweight, smoke, out of shape, and now want a new liver and a new life, go home and look in the mirror and ask how you got here and if you can change yourself for the better without meds.  If you can’t, find another doctor.  It is hard and most people don’t want to have to do that.

This student went on to talk about how it’s the same with the economy. We want our problems to be solved, but we don’t want to change.

Today it was reported that, “An alliance of financial industry interests and consumer advocates on Wednesday asked federal regulators to allow lenders to reduce by as much as 40 percent the amount of credit card debt owed by deeply indebted consumers in a special program.”

We have become almost numb to such insanity. Nowhere in this report is the idea that some attempt be made to recover the ill-gotten gains of consumers’ reckless spending sprees. In today’s America, repossessing their plasma televisions would be cruel and unusual punishment.

An alliance of those on the dole—defense contractors, Wall Street, homeowners underwater with their equity, households in credit card debt, and constituencies far too numerous to mention—will always vote for some variation of more of the same. They will never vote for a Ron Paul type of candidate until they have had a change in their fundamental beliefs. That day is many years and much suffering away.

Have you heard the tale about the scorpion and the hippo? A scorpion is looking for a way to cross a wide river and asks the hippo if he can hop on his back. The hippo says, “I can’t allow you to do that, I’m afraid you’ll sting me.” The scorpion replies, “I would never do that; for if I do, I will drown too”. “Then hop on,” said the hippo. About halfway across the river, the scorpion stings the hippo. They both drown—no surprise here, that’s what scorpions do.

If your Congressman or Senators voted for the bailout, they have already shown themselves to be dangerous scorpions—if you vote for them on Tuesday, don’t blame them when they help to pass the next bailout.

What Really is Sustainable?

Today, the Bush administration announced that it has had talks with GM, Ford, and Chrysler about providing additional taxpayer money to the automakers beyond the $25 billion already announced.

Last week, Consumer Reports announced its annual automobile reliability rankings. The Chrysler Sebring was rated as Consumer Reports’ least reliable car and Chrysler’s offerings clustered at the bottom of Consumer Reports’ rankings. In contrast, Ford had almost caught up to Honda and Toyota in reliability.

Chrysler has made horrible cars for many years and would have failed long ago if the government had not bailed them out in 1979. That they are still in business takes away sales from Ford and GM and helps poison consumers’ views of the quality of American cars. Chrysler’s business model is simply not sustainable, nor is throwing more good money after bad.

The best thing for the American automobile industry would be reduced capacity and higher quality products. A bankruptcy at Chrysler would be a good first step. With GM angling to buy Chrysler and government bailouts on the horizon, of course, the inevitable will be postponed. In the meantime, the taxpayer will be bled some more.

Also today, the Fed announced that it will begin to buy commercial paper. Commercial paper is short-term debt that companies use to help finance their operations. The Fed said it will not cap the total amount it lends out; and at this point, who will be the recipients of more taxpayer handouts is unclear.

To illustrate why this is insanity, let’s take the examples of three retailers: Circuit City, Crutchfield, and Costco. Circuit City is an electronics retailer with a web presence. Crutchfield is a large electronics retailer who sells exclusively online. Costco is an upscale warehouse chain that sells electronics too, among other things. Circuit City will likely go bankrupt while Crutchfield and Costco are likely to survive and even thrive in the coming depression.

In 2007, Circuit City became famous for firing 3400 “overpaid” sales clerks. Now, who did Circuit City consider overpaid? They were sales clerks earning an average of $12-$15 an hour. Of course, Circuit City’s already poor service became even worse. All well and good, as long as consumers were spending their home-equity lines of credit and buying new, big-screen sets. As long as the economy was good, consumers were all too willing to add to their purchase an overpriced, extended warranty and fancy, high-profit connecting cables. Like subprime mortgages, this was an unsustainable business model. Like the subprime industry, Circuit City deserves to go out of business, without the Fed hindering this process.

Contrast Circuit City with Crutchfield. Here is what the CEO of Crutchfield recently had to say:

For many years, I have been concerned about the growing credit bubble. It was obvious to me that it was unsustainable and that an inevitable day of reckoning would come. To protect our customers, our employees, and my family from the disastrous consequences of a financial meltdown, I positioned Crutchfield to withstand the worst. We became very frugal with how we spent money. We did not pay outlandish executive salaries and bonuses. We did not build fancy facilities. We did not expand our retail store operations. And we did not buy other companies. Instead, we worked extremely hard to improve how we serve our customers, while we managed every aspect of our business with excellence. Furthermore, we paid off all of our debt and accumulated cash reserves.

Or, contrast Circuit City with Costco. Here is what the CEO of Costco, Jim Sinegal, recently had to say in response to why Costco pays their workers on average $17 an hour and covers 90% of the health care costs:

You have to recognize — and I don’t mean this in an acrimonious sense — that the people in that business are trying to make money between now and next Thursday. We’re trying to build a company that’s going to be here 50 and 60 years from now. We owe that to the communities where we do business. We owe that to our employees, that they can count on us for security. We have 140,000 employees and their families; that’s a significant number of people who count on us. We owe it to our suppliers. Think about the people who produce products for us — you could probably multiply our family of employees by three or four times. And we owe it to our customers to continue to offer good prices. Our presence in a community makes pricing better throughout that community because when you have a tough competitor in the marketplace, prices come down.

Crutchfield and Costco have sustainable business models—Circuit City does not. Sustainability has become a new, business buzz word. Bailouts hinder—rather than promote—sustainable business models.

Two Cheers and a Jeer

First the jeer: Congressman Barney Frank’s ignorance of the basic laws of economics is hard to beat and he is a “superstar” among the ignorant. Recently on CNBC he said:

I think at this point, there needs to be a focus on an immediate increase in spending and I think this is a time when deficit fear has to take a second seat. I do think this is a time for a kind of very important dose of Keynesianism. I believe later on there should be tax increases. Speaking personally, I think there are a lot of very rich people out there whom we can tax at a point down the road and recover some of this money.

Many, of very modest means, are going to be surprised in coming years when they are considered “rich.”

Andrew Lahde is a hedge fund manager who made an 866% gain last year by betting on the subprime mortgage collapse before shutting down his fund. In his farewell letter to his investors he contemptuously explains who was on the other side of his trades:

I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

Lahde is also giving us an explanation why many have been so viscerally opposed to the bailout. One function of the market is to separate those, including the rich and stupid, from their money when they make bad investments that damage the economy. Government’s role is not to bailout them out at the expense of everyone else. Until this year, America never had an aristocracy.

In his Wall Street Journal essay “The Confidence Game” James Grant explores among other things the “conceit” of central bankers who thought they could manage the economy. Grant writes:

But it wasn’t the vigilance of monetary policy that facilitated the construction of the tree house of leverage that is falling down on our heads today. On the contrary: Artificially low interest rates, imposed by the Federal Reserve itself, were one cause of the trouble. America’s privileged place in the monetary world was — oddly enough — another. No gold standard checked the emission of new dollar bills during the quarter-century on which the central bankers so pride themselves. And partly because there was no external check on monetary expansion, debt grew much faster than the income with which to service it. Since 1983, debt has expanded by 8.9% a year, GDP by 5.9%. The disparity in growth rates may not look like much, but it generated a powerful result over time. Over the 25 years, total debt — private and public, financial and non-financial — has risen by $45.1 trillion, GDP by only $10.9 trillion. You can almost infer the size of the gulf by the lopsided prosperity of the purveyors of debt. In 1983, banks, brokerage houses and other financial businesses contributed 15.8% to domestic corporate profits. It’s double that today.

Grant rightfully brings up the gold standard. When bringing back the gold standard is part of mainstream conversation, we may be close to the end of this crisis. That day is at least years, if not decades, away.

Ghosts of America’s Past

Today was a wonderful fall day in the White Mountains of New Hampshire, and we set out for the summit of Mt. Israel. We were in the mood for a long circuit hike; so instead of retracing our steps, we descended via a trail that led us into the backcountry; and then we returned to our car via Sandwich Notch Road.

Sandwich Notch Road runs about eight miles from Center Sandwich to Thornton, New Hampshire. This road is the only one of its kind in America. Both its location and character have been unchanged from the early 1800s, when it functioned as a critical part of the heavily traveled trade route from the seacoasts of New Hampshire and Maine to the mountains of New Hampshire and Vermont.

Sandwich Notch Road

At its peak, over 300 families lived along the road. Once there were farms, sawmills, stores, taverns, and schoolhouses. Now all that remains is a cemetery and old cellar holes. Where once was open space, now is the densely forested Sandwich Range Wilderness of the White Mountains National Forest.

Life was hard. The Halls lost Ada, age 7, and Willie, age 11, within a month of each other in 1869. This photo is from a cemetery, in the woods off Sandwich Notch Road, that is protected by the American Antiquities Act of 1906.

One of the surviving stone cellars of a home.

America’s First Billboard? The writing carved on an overhanging rock on the side of the road advertises a general store and reads: P. Wentworth 6mls 1838

A Quaker minister, Joseph Meader, spoke on fair-weather Sundays from the top of Pulpit Rock to his congregation which would assemble below.

What happened? After the Civil War young people began to leave for an easier and more prosperous life in the mills of Massachusetts. The forest began to encroach on the cleared land until nothing remained. The value of a homestead fell to zero.

Talk about an impact on the community—but, there was nobody to bail them out. Of course, this cycle of the birth and death of a community was played out all over America. It was played out as technological innovations and industrial changes favored some communities over others and as preferences of consumers changed, and it played out for reasons that can never be fully understood.

To try to prevent any of this would have been sheer insanity. The thought probably never crossed anyone’s mind.

It Can Happen Here

On a terrible day in the not-so-distant future, the stock market will close below the lows it made on October 10th. When it does, it will become apparent to many more Americans that transferring wealth from middle class taxpayers to wealthy bankers will not revive the economy.

I call that day terrible because when faith withers, what is left? America will be a faithless country—a country without faith in the fantasy that government and its anointed financial “experts” can engineer the economy; and most importantly, a country without faith in the founding principles that brought us liberty and prosperity.

Nature abhors a vacuum, and so does politics. Out of that faithlessness, populism with totalitarian tendencies will take root—a National Populism if you may. The mood is already angry, fearful, and bitter; and we have experienced only the first snowflakes of the long economic winter to come. The future politicians who prey on this anger, fear, and bitterness will reflect these emotions and channel them to their own advantage.

Barring some unforeseen circumstances, the next president of the United States will be Barack Obama; and for far too many of the faithless, he will be America’s first “dear leader.” No longer trusting the experts and never having believed in America’s principles, all that is left to the faithless is to create a cult of personality around a human being. This behavior is worthy of a totalitarian state—but not worthy of a free people.

Now, it is true that the Obama administration’s unconstitutional misdeeds are unlikely to exceed those of the Bush administration. But, as the economic situation continues to deteriorate and the social mood along with it does too, the growing populist movement will be more and more dangerous. Worshipping an individual human being gives rise to the most primitive of political systems.

Last week, I asked my family to view with me two YouTube videos. One was of California school children singing the praises of Obama, while the other was of Kansas City school children chanting for Obama. If you haven’t seen these chilling videos, both are only intermittingly available as they are removed as fast as they are posted.

My thirteen year old son was shaken by the videos. He turned white, almost started to cry, and he said: “Dad, this is just like the Hitler youth. These children don’t even understand what they are singing.”

Read none of this as an endorsement of McCain. Like Obama, McCain has run a campaign devoid of any articulated principles; and his shoot-from-the-hip style is ill–suited to American constitutional government. His campaign has begun to attract angry crowds that have been shouting “traitor” and “terrorist” at the mention of Obama’s name.

Why this anger? And, why this desire to worship a human being? Many want to believe that they are innocent victims. Others think a political savior can save them and their “innocence.”

Nobel laureate Friedrich Hayek wrote The Road to Serfdom in 1944, but his words echo today. In the following passage he helps us understand why people would believe that we can get out of our economic crisis without pain:

That people should wish to be relieved of the bitter choice which hard facts often impose upon them is not surprising. But few want to be relieved through having the choice made for them by others. People just wish that the choice should not be necessary at all. And they are only too ready to believe that the choice is not really necessary, that is imposed upon them merely by the particular economic system under which we live.

Let Hayek’s words sink in. The successful American politicians of the future will be those who increasingly blame the “system.”

And what will replace the “system”? It will be whatever politicians define as the “common good,” and these politicians will say that nothing should get in the way of that “common good.” Hayek provides many cautions as to why this leads to amoral totalitarianism:

The principle that the end justifies the means in individualistic ethics is regarded as the denial of all morals. In collectivist ethics, it becomes necessarily the supreme rule; there is literally nothing which the consistent collectivist must not be prepared to do if it serves “the good of the whole” because “the good of the whole” is to him the only criterion of what ought to be done.

It’s not hard to predict where this is going. The economic climate will worsen over time. When Barack Obama takes office, we will be in or on a cusp of an economic depression. With the Republicans discredited and the Democrats controlling both Congress and the presidency, the pressure will be enormous for government to do even more than what has already been tried.

Obama speaks frequently of hope. My hope for Obama is that he is a decent enough man so that he will never exploit the power that many Americans will be prepared to give him.

The Nightmare of Hyperinflation: Tales From Zimbabwe

For over eight years, Cathy Buckle has been courageously blogging from inside Zimbabwe as it has descended into a lawless state run by murderous gangsters calling themselves a government.

Her poignant posts are urgent reading; they teach us what horrific things human beings can do to other human beings; they remind us of how despots keep power and show us the terrible consequences to a nation that chooses hyperinflation.

There is no immediate danger of hyperinflation in the United States; a deflationary depression is the most likely scenario in front of us. Although government here is doing everything it can to prevent the transfer of assets from the reckless and imprudent to more prudent conservators of capital, to date, market forces have been far stronger than government intervention. Eventually though, if we continue down our current path of destabilizing the market process through massive injections of money, the terrible consequences of hyperinflation will visit us too. Many Americans see themselves as special, but no nation is exempt from the laws of economics.

Zimbabwe is in the southern hemisphere, and it is currently spring, Cathy writes:

It seems absurd to be writing about the weather and birds when we’ve got no food, fuel, or government and inflation’s hit 231 MILLION percent, but its these routines of nature that help take our minds off the insanity of life in Zimbabwe. It’s the time of year when there should be a frenzy of activity in preparation for the rains and food growing. Seed and fertilizer should be stacked up in sheds waiting to go out to the lands. Tractors should be ploughing and the lands readied but without the inputs it’s not happening.

Goods and services are non-existent and people are desperate, Cathy writes:

People are queuing outside banks from as early as 2 am in the morning in order to draw out their daily limit which is not even enough to buy a single packet of soup. No shops or businesses are accepting cheques anymore. Electronic transfers – known as RTGS’s – have been stopped by the Reserve bank in the last few days and so with no cash, no cheques and no transfers, we are grinding to a halt. For all the people who simply cannot fight their way to the front of bank queues, which are literally thousands strong , there is real hunger, suffering and despair. For others, there are vast fortunes being made in a frenzy of illegal deals.

This week I’ve met pensioners, hungry because they can’t pay for what little food there is by cheque and can’t get cash out of the bank. I’ve met middle aged men desperate because they can’t get enough money out the bank to buy food for their families. I’ve met people from rural areas who say that despite the propaganda being peddled every day in the State media, no food, seed or fertilizer has arrived in their villages yet. I’ve met nurses who say that despite news reports they still have no drugs for their patients. I’ve met shop owners whose businesses are collapsing as their employees are in queues at the banks, and so are their customers. I’ve met parents in total despair as their children are still not in school a month into the term because teachers are on strike.

But yet, as Cathy writes, the elite and their connected cronies continue to prosper:

This week Gideon Gono, the Governor of the Reserve Bank, swept into an underground car park in a dark limousine. A line of well dressed men clamoured forward to greet him and followed him to the waiting camera and microphone of ZBC TV. Speaking as if he was doing us some huge favour and with an ingratiating smile, Mr Gono announced that the maximum bank withdrawal limit for individuals was about to increase from one thousand to twenty thousand dollars a day. In real terms, as I write, this new limit is worth about 20 British pence. It’s impossible to believe that Mr Gono or any of Zimbabwe’s political elite are living on 20 pence a day and yet they offer no suggestion as to how ordinary people should survive.

For weeks we’ve been stuck in a living hell, queuing at banks for hours at a time day after day, to draw out enough of our own money to buy just one single loaf of bread – if we can find it. Riot police and dogs outside banks have become commonplace and so too have men selling money. They strut around brazenly, openly carrying huge bags of local coins that they are selling in exchange for US dollars or South African rand. Police don’t seem to be able to see them or the lines of black market currency dealers sitting on pavements everywhere and so the economic collapse continues to gallop ahead. Less than two months ago Mr Gono removed 10 zeroes from our currency and 7 of them are back already.

The nightmare that Zimbabwe is going through has been building for many years. Robert Mugabe has been a murderous thug since he became president of the country in 1980. His regime for many years was aided and abetted by western governments, including being honored by Queen Elizabeth in 1994 with the title of Knight Grand Cross. Life expectancy in Zimbabwe has fallen to 37 years for women and 34 years for men.

Throughout his murderous reign, Mugabe and his cronies have enriched themselves and partied on. In 2005, Cathy wrote of a birthday party for Mugabe:

An enormous white tent has been erected on the local football field and all week the town has been filling up with government dignitaries, entertainers, scores of police, security officials, youth brigade members and men in dark glasses and big hats. As I write this letter the birthday celebrations are underway and being broadcast live on television. Many thousands of people are in the tent: children in school uniform holding little flags, ministers and government dignitaries wearing red sashes and the usual large number of people who find it appropriate to wear clothes with President Mugabe’s face printed on the fabric. Lines of teenage girls, in youth brigade uniforms and with shaven heads started the day off with displays of karate kicks and punches and were later followed by speaker after speaker who came forward to praise the President and condemn anyone and everyone who is seen as an enemy. As a Marondera resident I couldn’t help but smile as I watched all the VIP’s and even local Marondera government officials, drinking bottled water. I guess they must have heard that our water has been very off for the last couple of weeks, often being distinctly discoloured and almost every day smelling and tasting foul.

When the party had been going on for four hours and after all the speeches had been made, the birthday cake emerged. Slices were cut and handed out to members of the family and then the television commentator made the most amazing statement. She said: “As you can see, Robert junior is actually eating the cake now whilst I am still hungry but it looks very delicious.” The words of the commentator would undoubtedly have been echoed by many of the thousands of people in the tent. There had been no sign of any refreshments being available for the spectators or children during the long hot morning and by this time it was obviously very hot as scores of people were fanning themselves with their little Zimbabwean flags.

According to the government media, donations to the value of one billion dollars were raised for the Marondera birthday party. I needed a dictionary to check how many zeros there are in a billion dollars and then my twelve year old son to show me how to use the calculator in my computer as a normal calculator cannot accommodate all those zeroes. We worked out that the money spent on the Presidential birthday party could have bought 285 thousand loaves of bread which would have been enough to give 6 slices of bread to every man, woman and child in Marondera. Oh well I guess we’ll just have to dream of delicious birthday cake.

What happened during the German hyperinflation in the 1920s is just so much textbook history to many people—and textbook history is something that many people ignore. To those who do not understand why hyperinflation must be avoided in America, please read Cathy Buckle. And make no mistake, no nation is a victim of hyperinflation; it is a calculated choice that the nation makes.

America’s Real Questions

If you viewed the town hall debate yesterday, you might have thought that everyone in America was six years old, demanding more toys from their parents for Christmas. Question after question began with the assumption that the problem (too much government) was the solution.

The myth of a town hall debate is that real people get to ask unfiltered questions. At the beginning of the debate, Tom Brokaw proudly announced that he had the sole power to choose the questions that he was going to ask. I find it impossible to believe that Brokaw did not receive some questions that challenged the prevailing Washington and media orthodoxy that government should be at once Robin Hood, Santa Claus, and Superman.

Ramrod straight, with a big and clear voice, Obama was the slicker, more believable, and likeable pitchman for bigger government. McCain looked tired; with his head pitched forward, he reminded me of a subdued Don Rickles—the microphone caught McCain sucking in air after every sentence. With both Obama and McCain promising a grab-bag of goodies, the public was sure to gravitate to the new guy as one who might deliver more.

Here are some questions I would have liked to have heard:

Economy: If the current bailout fails and confidence is thus shattered, what will you propose? What mistakes did the Federal Reserve make that led to this crisis, and what will you do to ensure that they can’t make the same mistakes again? Why do you believe that it is a good idea to bailout, with the money of prudent taxpayers, homeowners who borrowed more than they could afford?

Healthcare: What has been the government’s role in diminishing supply, restricting innovation, and encouraging excessive demand for healthcare services? Follow-up to Senator Obama: You say you believe that healthcare is a right; who has the obligation to pay for this right? Specifically, if an individual doesn’t exercise, eats junk food all day, smokes and drinks, do other taxpayers have the obligation to pay for their healthcare?

Energy: In light of the terrible consequences of ethanol subsidies, why do you think that government should be picking winners and losers in alternative energy? Follow-up to Senator McCain: You believe that nuclear power is safe and that more nuclear power plants should be built; then why are private insurers unwilling to insure nuclear power for but a fraction of the potential damages in an accident?

Foreign policy: Do you believe in George Washington’s wisdom that the government should engage in peaceful commerce with all nations, but not engage in entangling foreign alliances? How can the American empire continued to be funded, and if you can’t fund it what will you do to begin to dismantle it?

The debate was a sham. Both candidates understood that real questions would never be posed to them by the moderator. The fact that none of these types of questions are even on the table for dialogue reveals how far away we are from real change.

Tiger Dust

Steven Harrison in his book Doing Nothing tells this tale:

A man boarded a train for Delhi and sat across from the swami. The swami was uttering all sorts of incantations and taking dust from a bag and throwing it into the air. Unable to suppress his curiosity, the man finally asked the swami what he was doing. “I am protecting this railcar from tigers with my special tiger dust,” replied the swami. “But,” the man protested, “there aren’t any tigers within thousand miles of us!” And the swami said, “Effective, isn’t it?”

If only the economy was as easy to control as tigers!

Of course, Harrison is making a universal point about just how internally consistent our false belief systems can seem to each of us. For a moment, reflect on this: After all of the incorrect economic forecasts from Paulson, Bernanke, and Bush; after all of their interest rate cuts, tax rebates, bank bailouts, and bans on short-selling; why does the public still believe that the government’s “tiger dust” works?

Many have written essays about why the financial bailout was passed by Congress. Yes, it is true, as some point out, that the Congressional elite will protect the banking elite. Yes, it is also true that Americans have been surrendering their freedoms for many years already. No doubt, it is important to understand all of this and much more. But yet, the truth is that if Americans did not collectively believe in “tiger dust,” we would never be in the position we are in today.

This past week, fearing that parents may give their children adult cough and cold medicine, the FDA rejected a proposed ban on children’s cough and cold medicine. The ban was rejected even though the ineffectiveness and potential dangers of children’s cough and cold medicines was well-established. “When a treatment is ineffective, its risks — unless zero — always exceed its benefits,” said Dr. Michael Shannon of Children’s Hospital in Boston.

Puzzled? No, I am not accidentally mixing blog posts. The FDA action and the financial bailout have everything to do with each other.

Last year, when my children were in for their annual checkup from their pediatrician, my daughter noticed a child in the waiting room who was there to see the doctor for his sore throat. Admittedly, my daughter did not know the severity of the sore throat or the complete circumstances of the other child, but she did know that she had never seen a doctor for a sore throat. She was puzzled why a child would be at the doctor’s office for a sore throat. She wondered why the child’s parents didn’t know what to do for the child.

Again, for all we know, the other child in the waiting room may have had symptoms that warranted an office visit; but as we all know, there are far too many visits to doctors’ offices made for illnesses that the doctor can do nothing about. But there is a bias on the part of the parent—if their child is ill, they believe they must see the doctor; and they expect the doctor do something. It has been well observed that many doctors feel pressured to give useless antibiotics to children who have viruses.

Back to the potential ban on children’s cold medicine. There has been widespread publicity about the ineffectiveness and possible harm coming from these medications, yet the bias on the part of some parents is that they need to administer these drugs to their children. In other words, they must do something—unfortunately, in this case, the “something” is administering “tiger dust”. Last year, when I first wrote about the proposed ban on these medications, I offered advice on what a parent could do instead of administering these drugs. One parent found my advice to be “patronizing and unsympathetic.”

Does any of this sound familiar? We are told we must do something about the financial crisis. We are told that doing something is better than doing nothing. We are told we must act immediately or terrible consequences will happen. We are told that the healing mechanism of the market is not to be trusted. We are told that if we don’t do something about the financial crisis, we are “unsympathetic” to those who are suffering.

Clearly, as long we believe in “tiger dust,” the bias will be to treat the patient. Whether we are administering harmful medications that don’t work to a child or harmful bailouts that don’t work to an economy, at least we feel that we are doing something. If we are unsuccessful, who can fault us? At least we cared, we reason.

But clearly, our logic breaks down. When we believe in “tiger dust”, we are not open to real solutions. Whether those lasting solutions include building up a child’s immunological system so that his incidence of colds is reduced or eliminating the power of the Fed to create credit expansions, we are so busy treating symptoms with “tiger dust”, that we are blind to them. And being blind to real solutions has real consequences.

Ave, Caesar, morituri te salutant

I am struck over and over again by the self-proclaimed “responsible” journalists and politicians who tell us why it would be irresponsible to not pass a bailout. Their coin of the realm is fear; directed at a public that runs to a doctor at the first sign of a sniffle, fear worked tonight as the United States Senate voted for the bailout.

Here is a typical fear monger, James Stewart, writing in today’s Wall Street Journal:

If this crisis continues unchecked, millions of innocent people are going to be hurt, in weeks if not days. The ensuing financial chaos will inflict untold additional suffering. There was another time in history when Congress did nothing in the face of crisis, allowing banks to fail and the free market to exact the “brutal process of resizing” that some are now calling for. Herbert Hoover was president.

Stewart writes nonsense on many levels. On the first level, the current financial crisis will indeed “inflict untold additional suffering;” but with the financial bailout , the suffering will reach levels that we can’t even imagine; and the suffering will last far longer than we can imagine. This is because, contrary to what Stewart believes, Hoover was an interventionist president. Much like the politicians of today, Hoover tried to keep up the prices of falling assets; and in so doing, he turned a financial panic that would have run its course in a year or two into the Great Depression.

Franklin Roosevelt simply expanded on the interventionist policies that Hoover had begun. The great economist and historian Murray Rothbard explains:

Laissez-faire, then, was the policy dictated both by sound theory and by historical precedent. But in 1929, the sound course was rudely brushed aside. Led by President Hoover, the government embarked on what (Benjamin) Anderson has accurately called the “Hoover New Deal.” For if we define “New Deal” as an antidepression program marked by extensive governmental economic planning and intervention — including bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending (e.g., subsidies to unemployment and public works) — Herbert Clark Hoover must be considered the founder of the New Deal in America. Hoover, from the very start of the depression, set his course unerringly toward the violation of all the laissez-faire canons. As a consequence, he left office with the economy at the depths of an unprecedented depression, with no recovery in sight after three and a half years, and with unemployment at the terrible and unprecedented rate of 25 percent of the labor force.

So, in the face of the historic Senate vote, let’s be reminded what is really happening. This is no rescue which will save the common man; instead, as Robert Prechter writes, “the government is taking diseased livers out of its alcoholic buddies and shoving them into the public’s guts and vice versa.”

Or, perhaps you are squeamish and would prefer a non-medical metaphor. Lila Rajiva calls this bailout “economic treason.” Rajiva writes:

…this bill is nothing more than a loud crude Ave Caesar to the bankers…This bill was never about helping anyone but the same crowd who got us into this mess. It’s legislative chicanery that does little more than clear the board and shuffle the cards for the next round of government-backed gambling with financiers who hold the trumps (and Buffetts) and make jokers out of all of us.

Ave, Caesar, morituri te salutant means: “Hail, Caesar, those who are about to die salute you.” This greeting was spoken by gladiators to the emperor before each match. How many gladiators meant it and how many simply said it under coercion, we do not know. Many Romans did believe that their emperors were gods.

Today’s politicians will not benefit by this ancient superstition. The economy is about to receive mortal wounds, and many in the public feel nothing but contempt and anger toward our self-proclaimed emperors. Their contempt will reverberate for many years to come.