Ben Stein on Obama's Treasury Pick

Aside from his skewering of Geithner for not being proactive enough in using government force to stop the present economic meltdown, Ben Stein actually has a fairly interesting take on Obama's nomination for Treasury Secretary:

If it were scientifically possible to create a man who is the exact opposite of "change" in the political and financial realm, which is what I recall Senator Obama talking about during the campaign, it would be Mr. Geithner... ...In no sense does this make Mr. Geithner anything less than a fine man and possibly a superb steward at 15th and Pennsylvania N.W. But it does raise some interesting questions about just what kind of "change" Mr. Obama has in mind in the economic world... ...Not that this is a big surprise: There is a permanent ruling class in this country, whatever they call themselves, no matter how they talk about change. They may not be very good at it, but there they are. "Meet the new boss," as the Who said, "same as the old boss."

I've heard similar sentiments in other forums as well. It seems, actually, that based on many of his picks for cabinet level positions and high-level advisors, that Obama may turn out to be far different from the way he was characterized by conservative comentators, and indeed, even the way he characterized himself. One of his picks, Christina Romer, made a name for herself by disputing the conventional wisdom (indeed, modern economic dogma) that the "monetary management" of the Federal Reserve has helped ease business and economic cycles since World War II. Of course, on the flipside, she also claims that the best way to end recession is to reduce interest rates and expand the money supply, a big Austrian no-n0. He has also picked the likes of Paul Volcker, inflation hawk and former Chairman of the Federal Reserve under Jimmy Carter and Ronald Reagan, Larry Summers, former Treasury Secretary under Bill Clinton, and as Ben Stein mentions, Timothy Geithner, all very much "establishment" type folks. None of them are "right wingers" or even free-market types, but neither are they a bunch of "Che Guevara's," as Ben Stein puts it, either. This is all turning out to be, well, a very conventional, centrist democratic group of folks. Not what I would have picked or what I would want, but if we must have a Democratic administration, it really could look a lot worse from a conservative's point of view. I haven't seen any Dennis Kucinich or Pelosi types named. There is a good case to be made that Obama will not actually be able to do much but worry over the economy in his time in the White House, however long that turns out to be, and that even on this issue his hands will pretty much be tied, as the US has entered so many long-term commitments and is so entrenched in maintaining the status quo that to try anything radical risks upsetting the entire applecart. So it may very well not matter at all what initiatives Obama would like to pursue; he's stuck inheriting such a tremendous mess (thanks again GW!) that it may turn out to be a do-nothing, treadmill-type Presidency while the whole cotton-picking mess gets sorted out. In other words: politically, it could be an awful lot worse. But then again, economically, maybe it will be. Oh, and I can't forget to mention: what Ben Stein has stated is precisely why I don't get too involved in national politics. It's a waste of time. It doesn't matter who you vote for or who the president is, things turn out looking remarkably like they always have. In other words, change never has been and never will be a top-down affair. We're not going to see the error of our ways, elect a Hindu vegetarian and as a result become a nation of Yoga experts, drastically reducing death due to heart disease. Change comes from the bottom up. America will have a new president, but nothing about America itself has changed. So it shouldn't surprise us that even a fresh face brings almost nothing new to the table, and we just end up with the same-old-same-old. If Obama were "too different," he wouldn't have lasted five minutes. If you wanna change the world, start small. Start at home. You wanna change the world, you gotta start with the culture. That's the key. That's the beginning. Everything else follows. Don't think big. Think small.

Sticking it to the other Ben

Ben Stein writes a piece for Yahoo!Finance begging for mo' money. It was hard picking a particular bit to blockquote, but this should do to summarize the tone of the piece:

Obviously, this is also a time for extreme monetary growth. As we economists would say, the velocity of money — that is, how often it changes hands — is falling rapidly. This means the Federal Reserve can pump up the quantity of money greatly to offset that fall without fear of inflation. There are the usual "pushing on a string" limits to how well this will work but it must be attempted.

The real issue choking the economy now is lack of lending and fear by the banks and other lenders. This must be met by explicit solvency guarantees from the central banks. There should be no pussyfooting around this. It's a matter of extreme urgency.

I have to say, I actually really like Ben Stein as a human being. He seems like a really great guy. The first book I ever bought about stock market investing was written by him, and I followed him for a long time on FoxNews and later on Yahoo!Finance. I still occasionally read up on his columns in the American Spectator, but needless to say, if you've read anything on this blog up to this point, you'll know how very much I now disagree with the man. What Ben Stein is suggesting is mass monetary inflation. He justifies the expansion of the money supply on the grounds that the CPI is down, therefore inflationary pressures are low and an increase of the money supply will not result in appreciable price increases. This is the same justification Alan Greenspan used as he inflated the money supply through the 90's and early 2000's, without significant price increases AT THAT TIME. Now look what we have! These two men (and, frankly, most economists) fail to understand that stable prices are actually inflationary. Prices should fall as a result of increases in efficiency and productivity over time, not remain stable. Ben Stein is one of those guys who has the best education that money can buy. He has learned exactly what is taught in school and is widely viewed by mainstream folks as an expert in economics. A perfectly mainstream education for a perfectly mainstream guy. The problem is that what is taught in school is mainstream Keynesianism and it is wrong. The reader simply must understand a few things about monetary expansion:

• Monetary expansion is inflationary regardless of its effect on price levels.
• Monetary expansion is redistributive in its effects. It is stealing by another name. It does not matter whether prices remain stable or not. Real purchasing power is transferred from holders of the old money to the recipients of the new money. The consequence is this is obvious, as I discussed earlier. (Anyone remember those strangely low savings rates these past years? Who in their right mind saves? Interest rates are too low, and if you don't spend your money, the government spends if for you!)
• Monetary expansion warps the price structure of the economy. This results in irrational investment, bubble activity, and a warped production structure that does not satisfy real needs in an optimal fashion.
• Monetary expansion erodes the most critical function of money: its ability to serve as an accounting system. Money's most important role is to allow resources to flow in an optimal fashion based on pricing structures. It is a "lubricant" of the economy, allowing rational resource exchange and flow to occur. It is NOT A MEASURE OF WEALTH! True wealth is contained in the goods and services produced in an economy. Money allows their exchange in a rational fashion to meet the needs of people. Hence, it acts as an accounting system to keep track of how things are best exchanged and make rational economic calculations for future plans. Monkeying with the money supply is disruptive to this process, screws up the accounting, and leads to irrational and destructive activities.

Of course, in a way, this is the whole point. The fact is, right now the economy is broken. The economy is broken because people have made very bad decisions with the allocation of their time and resources and made financial obligations they cannot possibly meet. Why? Some were just plain stupid, but mostly it is because the accounting system was screwed up back when they made the decisions due to an expanding money supply. Pricing was wrong. Irrational exchanges were made. The money supply stabilized in 2007, and the consequences of these decisions were revealed. "Papering over" the screw-ups with yet more money makes things look better once again, which is why everybody wants to do it except the Austrians. They are the only ones who seem to understand that things are not made better by more messed up accounting! The screw ups are not revealed, and things are not straightened out! The problem is NOT an accounting problem, it is a real problem of bad investment and wealth allocation created by previous bad accounting! Fudging the accounting with new money doesn't fix it, it kicks the can down the road for somebody else to take the loss! One thing that bothers Ben the most is the drastic fall in the stock market. He knows better than almost anybody else how many people's retirements depend on those stock prices. But the problem with the stock market is not that it has fallen. IT IS THAT IT WAS INFLATED IN THE FIRST PLACE! The stock market boom WAS BAD! It was a reflection of erroneous, unsustainable earnings and earnings growth as a result of monetary expansion, which was revealed when the money supply stabilized, again, in 2007, and it was no longer so easy to "make money," pardon the pun. Those prices were never justified. The "wealth" was not real. It was imaginary growth, now revealed for what it really was: a figment of our imaginations. We only imagined ourselves wealthy. In reality, we've been burning capital for some time and becoming poorer in the process. What we really need is to stop doing this and get on a constructive, sustainable path. Re-inflating the stock market and the economy will not do this. What is needed more than anything is accurate, market pricing, which will allow people to get their spending priorities right and make rational, constructive choices with their lives and their efforts to meet their individual needs. As it is, nobody knows which way is up, and everybody is begging for the government to make somebody else pay the price for the bad decisions which have already been made. This is not constructive. Nobody knows what to do, and valuable effort is being wasted as people are left spinning their wheels. Inflated house prices are bad. Inflated stock prices are bad. Inflated anything is bad. I would think that was clearly apparent in the whole "flate" part of the word, which suggests to me "not as it ought to be." But more than likely, Ben's advice will be taken. If the AMB is any indicator, it already has been. Expect more irrational business practices. Expect to get poorer.