Economist warning: Democracy may be bad for your wallet.

Our political leaders love to speak about democracy. It's a subject universally popular with the people. So politicians universally enjoy its use as a rhetorical wrench to sway the people to their ideas. I confess that I'm not fully immune to that rhetoric. GWB declared a secondary mission of our fighting in Iraq was to bring the blessings of democracy to its people. That's good, right?

I was thunderstruck today while reading Peter Schiff's book, Crash Proof, by a passage in which he argues that China is better off without democracy, and that democracy can actually be dangerous to the economic well being of the public. Here's an excerpt from the chapter I've just read:

What is of vital importance for economic success is economic freedom, meaning the protection of private property, the rule of law, and minimal regulation and taxation, not the right to vote. One could reasonably argue that with economic freedom, free elections are of secondary value, and without it, voting (suffrage) has no value. A choice between oppressors is tantamount to no choice at all. Remember, the old Soviet Union had elections and almost everybody voted, the alternative being frozen toes in Siberia.

The word democracy is used loosely these days, and it is useful to remember that one of the primary reasons for America’s early economic success was that our founding fathers recognized a distinction between democracy, which they understood as populist government with counterproductive implications for capitalism, and republican government, which stressed checks and balances, such as the Electoral College and staggered senatorial terms, designed to keep the evil forces of democracy at bay. James Madison, the father of the Constitution, writing in the Federalist Papers, said, “Democracies . . . have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death.” After the Constitution was ratified, Benjamin Franklin was asked, “What form of government have you given us, Mr. Franklin?” His answer: “A republic if you can keep it.” Perhaps if we could have kept it there would have been no need for me to write this book.

For those of you who incorrectly believe that the United States is supposed to be a democracy, just check the Constitution. The word democracy does not appear once. However, Article IV, Section IV, reads, “The United States shall guarantee to every State in this Union a Republican Form of Government.” If you are still unclear, just recite the “Pledge of Allegiance” and listen carefully to the words.

We all take our understanding of democracy pretty much for granted, I think. I believe many of us also have some rather deep-seated misconceptions (myself included) about the role of democracy in this country, and the virtues of efforts to spread it abroad.

Democracy alone is simply populism, and I think that most of us can agree that doing what's popular is not always going to be in our best interest.

Our founders seemed to grasp this notion, and took great pains to develop a system where the national government is prescribed an exclusive short list of very limited powers essential to nationhood, and everything else is left up to the States comprising the union. These States then had representation within the national government to come to agreement on national policy, but the individual was not so explicitly considered.

It was left to the States for the most part to decide how they should govern themselves, internally. The model was bottom-up. Your main civic impetus as an individual was to your local government. Your local government was represented in the state where the self-interest of the entire state was integrated, and the states then sent representatives to the national government to integrate and hammer out policy and action in the interest of the whole nation.

At some point in our past, and perhaps this has been a rather recent thing in our national history, we started to break down this bottom-up arrangement and replace it with a top-down one (Often by invoking notions of grassroots movement, how ironic!). In so doing effectively centralizing power at the federal level, and making state and local government less relevant. This is not what the framers intended.

The 17th amendment gives a good example of the transformation. It provides for the direct, popular election by the people of each state's Senate representation. It was ratified not all that long ago in 1913 (a recognized "progressive" era where, worldwide, experiments in socialism and fascism were developing). We take it for granted today that this is how our democracy republic is supposed to operate.

Before this, the legislature of each state had the power of choosing the state's senators, thereby recognizing the authority and importance of each state. The state legislature then could codify a popular election as its desired selection means, or it could specify some other process where it would choose for itself (recognizing the importance of your local representative to the state government). The federal government dealt primarily with states, not with individuals.

The 17th amendment takes the power invested in the government of the state, and transfers it to the people directly, with the (intended?) effect of causing the federal government to become stronger because the will of the people as expressed by the representatives making up their state government is set at odds with the will as expressed by their senators at the national level. The senate now has the ability to undermine the will of the States via the state legislatures.

The framers categorically rejected the notion set by the 17th amendment, as this amendment directly re-writes language they had set down in Article 1, Section 3.

The framers desired this segmented republican form, with its segregated branches of government, separating powers, generally making it very hard...but not impossible, to change things. In this way they imbued government with the flexibility to adapt over time, with sufficient rigidity to stand firm against passing fancies which would jeopardize the liberty of the public. They saw this as the best way to embody the assertions of the Declaration and allow the will of the people to be represented, prevent over-centralization of power, while at the same time give the states and then the nation the ability to decide upon difficult choices that frequently are very unpopular, but in the best-interests of the whole.

And this...is decidedly not democracy, but republicanism (and no, not the party either!). And, it has helped us to become our best as a nation, by allowing us generally to act in a manner that tends to be best for us in the long run.

The pure will of the people, on an individual basis, can be very shortsighted. You may be ignorant of all the salient facts, or struggle for the discipline to fore go some present pleasures for the opportunity for a greater future reward.

Like eating your vegetables and exercising and working hard to save money for the future, some decisions may not be popular, but the republican form served as a kind of mommy or conscience, compelling us to do what's for our own good.

Who doesn't want the most direct power possible? Democracy in the populist sense is an appeal by our politicians to our more base desires. In the process they accrue the power to themselves by using populist rhetoric against us as a whole. Dividing and conquering us as a nation by pitting our individual self-interests against one another. The framers understood that this could only result in a race the the bottom.

Their conception of a republic, decentralized in important ways, allowed for individual liberty to be guaranteed, allowing localities the most power to act in their best interests, while still allowing the national will to be felt and shape the nation's direction.

Peter Schiff's book, Crash Proof, was written in 2006 and published in 2007. It's so far been pretty spot on in predicting the economic fallout we've seen in 2008 and will likely see in the future. The logic is very sound and inescapable, in my opinion. If all else were to remain constant, only the timing is open to debate. I heartily recommend you pick up a copy and give it a read!

Make it your civic duty to read and consider its merits or demerits. Above all, think!

Wine Tastings at Happy Harry's

Jane and I in the back-half of 2008 were keen on trying to attend all the offered wine tastings at Happy Harry's south-end bottle shop in Grand Forks, North Dakota.

In the last two of the season, we decided to ditch the cumbersome clipboard and notebook, and record our impressions on my Cowon iAudio U3. This opened up the possibility of using these events as a soundseeing opportunity, as well as a record of our uncomplicated tasting notes.

I'm still post-processing the audio, but check back in before the end of January to have a look at our notes and a listen to event.

First Night 2009

Every new year's eve, my city of Grand Forks, North Dakota, holds a modest festival to ring in the new year. It's capped with a fireworks demonstration at the stroke of midnight, which is usually successful in bringing out the stout folks to brave the cold and watch some big booms!

Here's a bit of soundseeing of the 2009 demo for your listening pleasure.

(Recorded with a Cowon iAudio U3 and its internal condenser mic. The audio has about a 30 dB wide dynamic range to preserve the effect of the loud bangs relative to quieter speech and background sounds. Therefore it may be hard to make out the background in noisy listening environments.)

A bit of review on "The Mystery of Banking"

I recently finished Murray Rothbard's, "The Mystery of Banking."
That was such an eye-opening and exciting book (if you are the type of person who _can_ derive feelings of excitement from a book on economics)!

The overall aim of the book is to discredit the worth of the US Federal Reserve System, and fractional-reserve banking as facilitated by central banking in general.

In this, Rothbard puts forward some very well-reasoned and common sense practical arguments. I came away from the read with a new appreciation for economics as a field, and recognized now that the subject is perhaps overthought by most modern scholars. Economics isn't any sort of system so much as it's what results when groups of people act when influenced by just a few rather simple rules.

Anyway, Rothbard sets up his critique of the Fed and central banking by offering an easy-to-follow primer on some basic economics and history of money: how it developed, how people use it, how it is both supplied and demanded just like other products in an economy, and how those forces influence prices.

This first section of the book is crucial for non-economist folks to at least review. It assumes zero starting knowledge, and in short order will have you up to speed with a working knowledge of the mechanics of money. It also gives thorough treatment to the concepts it introduces. Once they become clear to you, it may start to feel redundant. I was able to skim over the final pages of this section. It begins historically, and you'll understand how a society gradually comes to the use of a modern coin-commodity money as its culture and technology and sheer size develop.

After the concepts primer, the following sections deal with how an evolved commodity money system is gradually influenced and ultimately usurped by government to transform into a fiat currency. This can only be done in complex societies where trust in institutions has been built up with the people for eons, or the culture will not ascribe value to the currency and merely recognize it for what it intrinsically is: valueless slips of paper (albeit with fun and artful printing).

A scholarly worth with detailed footnotes and citations, the book wonderfully fuses history with the theory to demonstrate and support concepts. The reader learns about the development of paper currency; its backing by hard money in gold and silver coin; and its use in banking to make hard money more convenient and secure.

The reader then is shown how the backing on paper currency, which makes it acceptable as money stand-in, is gradually removed via various mechanisms and interests until one is ultimately left with a money which a value "declared" by government, or fiat, rather than a thing with some intrinsic worth all on its own, the mere stand-in for hard money is declared to itself be the money, by fiat.

We then are shown how, after the conversion over to a fiat currency is complete, how now there exists possibilities for its value to be manipulated, and how these manipulative effects generally tend to harm society by subjecting it to booms of credit expansion, followed by busts as worthless credit is exposed and recessions and depressions result.

We by this point get to a crucial and cynical rub. Who benefits from a fiat currency? No one but government. Its unique properties offer levers of control which power-brokers may use to influence people and business. It also enables government to more readily pay for its operation. If all else fails, it may simply print more paper money and spend it. So long as the population continues to accept it. In this way fiat currency is the true source of inflation (along with fractional-reserve banking) and represents a hidden tax on populations as the purchasing power of their fiat paper slips is eroded.

The book does not necessarily advocate movement away from paper money or checkable deposit accounts, these do provide great security and flexibility benefits. Rothbard's concluding section does, however, advocate replacing the fiat nature of our currency with its former commodity backing in gold, re-imbueing true intrinsic worth to our dollar.

To this end, the book lays out a surprisingly straightforward plan to return our money to a gold-coin and bullion standard (note: not a gold exchange standard, which is very different). If implemented, we would wake up with the ability to go to our bank and redeem our paper dollars and checkable deposit amounts for a share of the real gold held in our treasury. This gold would be distributed to banks to back our deposits and to be offered in exchange for our paper notes.

Once done, our current paper money (in its current Federal Reserve Note form) would be redeemed for the gold and retired. The Federal Reserve System would then be liquidated and done away with. Our money would be gold on deposit with our local banks. Paper money could and probably would still exist, but as a type of gold certificate (like it had been before the Great Depression). Gold would be the real money, on deposit at a bank of our choosing (a competitive process) and used to back any contrived paper or card or electronic system we might develop to serve our desired for flexibility and convenience.

The point is that the heavy hand of government would once more be divorced from the value of money. We would be free to redeem our gold deposits and transfer them to another bank at any time and for any reason. Loan and deposit banking would again be separated. Fractional-reserve banking might not be outlawed (it would be difficult to enforce even if it was), but market competitive forces and depositor faith would keep banks honest about the redeemability of their gold reserves, lest customer fear of the irredeemability of their gold start a run and force a bank to reveal their insolvent standing.

The first section of the book shows you why such a state would be a good thing, if you don't see now the advantage. Among the claims by Rothbard is the notion that the business cycle is a side-effect of fiat money and fractional-reserve banking's ability to create new money out of thin air. Without this, all money has real worth, so business cannot be puffed up by "Monopoly" money for the relatively short boom periods when we ascribe this "thin-air" money the same temporary worth as money backed by real reserves. The waking up we do to the true valuelessness of this thin-air credit expansion is what drives the bust which follows.

After reading the book, my cynical nature cannot believe a time where we might ever return to hard money from government fiat money. Nothing short of a revolution and formation of a new nation could achieve this, in my view. Once government aquires the power to print a fiat money from its people, the vast new power this confers makes it a practical impossibility for government to then be asked to give up. It's like the "One Ring to Rule Them All".

To the government it is, "the precious." Even the honest reformers within government would come under grave pressure to keep the scope of their ideal reform strictly limited. What government voluntarily gives up its own power? The best we could hope for would be some sort of "custodial" relationship where government merely pledges not to use the power it will still have. That'd be like letting the alcoholic keep their Scotch bottle if he agrees never to take the cap off again. At some point he'd have himself a three-fingers of the delicious liquid, and he'd have a great excuse why.

"The Mystery of Banking," makes a great, entertaining, and enlightening introductory book to the Austrian School of Economics.

Duality of States

I am amazed sometimes by the duality of our nature, in ourselves and in our institutions.

This evening, after waking up to a stock market party with a clear Obama hangover, I catch the evening's Investor's Business Daily and read about California's measures.

California is universally known to the rest of the nation as the archetypal liberal state. After all, it's home to Hollywood and San Francisco. And while it's true that they fulfilled their role in renewing their liberal voice to the nation in yesterday's voting, internally it's a different voice.

Voters had previously voted in legislation which clarified and asserted the definition of marriage, as being between a man and a woman. It was a big issue at the time, and achieved significant popular support at the polls, and general detraction in the press.

Rebuffed by the apparent will of their fellow Californians, those affected by the statute mounted challenge, and ultimately the State's supreme court rule the new law contrary to the State's constitution, and struck it down. Rebuffing the rebuffers.

Last night, Californians dug in their heels and took their will a step further, voting passage of Proposition 8 to amend the California constitution such that the effect of that previously passed, then struck, statute can be finally the law of their land.

This was a rather conservative move, and so the development of this story from a state with outspoken liberal representation nationally, and a sure win for the New New Deal Obamanians. And they kept it up too, striking down two rather liberal alternative energy proposals.

Contrast this to my home state, North Dakota. Recognized as a state filled with common sense conservative thinking self-reliant rural stalwarts. You want steady hands on so many tillers? We're your people!

We in North Dakota generally send-up Republican presidents and tend to favor conservative principles in our internal government as well. We do favor Democrats for national representation, but more the blue-dog type. We're mostly farmers, and we're acting in our own self-interest to bring home the farming pork. Dems are usually good at this.

In a second major surprise to me, my fellow North Dakotans acted largely liberally at the polls. We did send up our electoral votes for McCain, and Gov. Hoeven and his Republican administrators received large reapproval to go back to work. But in four ballot measures which affect our internal politics, in contrast to liberal California, conservative North Dakota took a liberal tack.

We had a measure to deal with future oil-industry tax revenue in a fiscally responsible way, setting it aside in trust and trying to only spend the interest on that trust, in the knowledge that while the state's blessed with oil, as a nation we won't use it forever: defeated.

A measure to rebalance our tax revenue (which has been generating steady real surplusses of cash) and lower our personal and corporate income taxes: defeated (what sane conservative vetos a tax cut? Not a credit either, but a real rate reduction?).

A measure to establish a new government program devoted to campaigning against tobacco use: passed.

And a measure to take the independent and corporate-style running of our state's workforce safety and insurance program (which had been saving we taxpayers money), and bring it back under the direct control of the state: passed. (Folks I talk to largely blame this one on allegations of a culture of corruption within the non-government board overseeing WSI's operations.)

All actions rather unlike the reputation for conservatism we're outwardly known for to the rest of the nation.

It's a strange and interesting duality. You might say Californians now have a little taste of what it's like to be a North Dakotan, and the same is true for me of them.

Living The American Dream

As the last of the votes are counted tonight, it appears clear that we awake Wednesday, to an historic new era in America.

It is a truly cool thing to see it proven true (as I've always believed so) that race doesn't matter in America. Obama's election is resounding proof of this, and that's very heartening.

On that historic achievement of his election, I'd just like to cheer up the fact that Obama achieved this victory by his own merits and by winning the hearts and minds of the electorate. He did not have help from a contrived, government-sponsored multicultural initiative. He was not assisted through policies of affirmative-action, nor minority preference.

He got here on his own merits, his own effort, his own belief in our unique American ideal that this nation affords the same opportunities for all its citizens. We care more about what you're about and what you want to do, than what you look like or what life situation you've come from. He took that ideal and set about convincing enough of you that his ideas for leadership were what our government needed, and he achieved.

This is laudable and sweet, and that he now stands as proof of this ideal's reality cheers me up about the enduring promise of America.

I hope now too, that it's instructive to us to look to his example and others like him, and realize that we don't need crutches. People of parts of American society and culture can and do stand on their own. If we, their fellow Americans, like what they're about, we let them show us what they can do, we elect them, we hire them, we accept them on their merits. It's not about race or ethnicity or anything like that. Do not stand for any such mind pollution from here forward. It does not matter. And we can each embrace the freedom of that delicious realization. No crutches.

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Well if you've read my other posts or internet detritus or encountered me in real life, you know that my personal politics do not mesh with those of our new President-elect, or most progressive Democrats or even a number of popular Republicans.

I've been on my own journey of self-discovery, and am a student of history. The more I absorb and experience, the more refined my views become. I am a Libertarian with some conservative sentiments. My philosophy holds that individuals should succeed or fail on their own merits; that our nation's framers struggled mightily to grant us enormous freedom, and a duty to ourselves and our nation to learn about and protect them, accepting the solemn responsibilities upon which those freedoms rest, and without which they would evaporate.

In keeping with that, my philosophy holds that our government ought to mostly act as referee, handing down standards and enforcing a rule of law so that the free market can work and we can be held to account for our promises to one another.

We are about to take a striking turn, now, to the left in this nation. America is redefining herself. I think we've been down some of these roads before, but we're going to take them again, and this time perhaps travel further along them.

Our culture has been shifting. I am not sure we any longer support the notions of personal achievement and self-reliance as we once have. We were founded on those principles. The emphasis now is on the community; that no one may stand alone. We used to trust one another, with government as arbiter. We now mistrust one another, and see government as provider.

In this culture, we desire to be unburdened. We are willing to exchange freedom for leisure. Responsibility is exchanged for a calmed mind. Freedom means choice and making the best choices require effort, responsibility, education, and critical thinking. I think many of us would just like a rest, to be absolved from the heavy responsibilities and consequences that stem therefrom. Let someone else (government) shoulder the burden. Designate and delegate and set your mind at ease that your hard problems will be solved for you.

I think also that we've grown a (to me surreal) trust and faith in our government, begrudging as it seems to be. We lament it nostalgically on the one had, but then turn round a look to it in the next moment. We trust and have faith in our government to protect us from harms (real, imagined, large, small, practical, individual or societal), establish the solutions to our problems, because we don't trust each other through markets anymore.

In my philosophy, government is not the answer. It can be severely malicious and impersonal, but even when well-intentioned, its actions always have unintended consequences which often make matters worse, or create a new and separate problem elsewhere. But it seems our culture would rather roll the dice on an imperfect government, than hang on to its freedoms and free choice and place trust in ourselves and in individuals around us.

I believe that this way be dragons. My reading of history informs me that such is the easy choice. In our worldwide experience, more pain and less of everything is the result. America and the freedoms her citizens yet enjoy are a precious and unique thing, known scarcely to any other population and then only in fragments.

The culture will go where it thinks best, and it feels as though, whether the majority of individuals within the culture realize it, socialism and relying on society instead of onesself is the proper path.

If we try this path and realize we've made a mistake, will we have the power to go back? Will the institutions of government to which we abdicated and delegated our liberty, allow us to resume it?

I believe the Democrat philosophy in this country is once of progressivism a/k/a socialism (semantics are important to socialists as they must always battle to win your heart over from the natural order of things). The individual and her desires or needs are subordinate to the state and society as a whole, as viewed from the perspective of the government, not from the perspective of the people governed.

It's a philosophy of personal choices and freedoms replaced with government dicta, impressed upon you for your own good, as the government sees you (not as you might see yourself), and for the good of all (not as we might see each other). It may be easier to let government handle the tough and sticky issues, to rely upon it for the things which require courage and self-determination from you. But, when it's left for government to decide, how can government thereafter keep itself in check.

In my opinion, such is a misguided philosophy doomed to fail. Proven to have failed time and again, but so outwardly temping, alluring, addictive. We seem destined to keep flirting with it, experimenting with it, convinced that this time it can be different. It never is, has been, or will be.

Freedom is not free. American liberty is very hard work. It's also the most unique and rewarding gift. You can exchange it for "free" things, but such things always have a hidden cost which you will pay somehow. That cost is always more expensive than had you held onto your freedom and choice and achieved what you wanted on your own.

For socialism to work, eventually dissenting voices and ideas must be eliminated. In a system contrived and apart from what arises natually, dissent is corrosive to the unity and harmony required to make the system turn. People who ultimately do not submit willingly will need to be punished or set apart for the good of the whole, as viewed by the government. After inception, you can't simply allow people to do what they want.

Isn't this the very sort of tyranny our framers sought to protect us from?

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I believe in the simple truth of free markets. Restrictions, subsidies or other impediments or attempts to control the free market, by government or by other market participants, merely distort the outcomes generated by the market. Within that contrived structure, the market is still operating. It cannot be stopped, because it's not a thing to be accepted or rejected, but a law of nature, like gravity.

Apply the distortion of subsidy, and the free market will adjust to the new operating environment. Costs of various things will merely move about to positions they would not occupy had there been no external or contrived intervention.

As a quick example: if President-elect Obama's tax proposals he's campaigned on are enacted, the result will be new costs everyone will bear. To take what was earned by one group and give it to another, means the group which earned it has experienced a cost which didn't previously exist. If that's a successful small business now paying a higher income tax, it represents a cost which will be passed onto its customers in the form of higher prices. The business's customers will pay for the "wealth" which was taken and given to another group.

If that business was supplying a thing which served as an input to another business product or service, well, now its costs have increased (not to mention that that business itself may pay the same higher tax which the first business did)...the free market will continue to work with costs being passed along directly or indirectly toward the customers, the free market mechanisms natually finding a new equilibrium, and the thing which appeared to be "free" is still being purchased...but with less efficiency.

Take a look at your phone/cable bill (or utility bill in many locales) sometime. Study it carefully. These industries are rather heavily regulated. Government taxes them directly for the privilege of doing business or for certain regulatory services of the government, or indirectly by forcing them to operate in a manner which would not have come about in an unperturbed free market.

It may grant subsidy on certain firms at the expense of others. These all show up as increases in the costs for the firms to provide you with your services and are not eaten altruistically by the companies but passed on to you. So many special levies exist that many of them are called out directly on your bill, itemized in dollars and cents for you.

All business eventually comes down to the individual, no matter how large the business is, so one way or another, you will pay when companies are asked to.

Heck, even higher taxes on the wealthy are bourne mostly by you as individuals. The higher tax represents a higher cost on the part of the wealthy CEO to provide the work or services for which they are paid so highly. As a result of the tax, he will thus demand more from the business which employs him, increasing the cost of products and services to you or to other businesses, but ultimately...to you.

In conclusion, I ask all Americans to do me this favor: keep score. If you believe in the campaign ideals forwarded by President-elect Obama and supported him, so much the better. You folks keep score too. If, as his campaign suggests, and a new Democrat supermajority congress enables, we begin to implement socialist policies with expanded government services and new forms of tax and subsidy, everyone of us regardless of relative economic standing will become more impoverished. Everything else being equal, some may see themselves lifted into a higher class from a lower class, but my bet is that these folks will at the same time be able to afford less than before, or have fewer choices available than before.

America is about aspiring to be your best. Until you reach an arbitrary limit set upon you by your socialist government. Beyond this point, it declares that you did not earn the fruits of your hard work, and confiscates the excess to be distributed inefficiently and often corruptly (when has any subsidy not involved a dose of scandalous pork?) to someone who did nothing to earn it.

In the final analysis, socialism enslaves by defining limits to your success and achievement in life. It removes freedom and choices by fiat or by causing them to be artificially uneconomic. It serves by an iterative process to bring everyone down to the lowest common denominator.

That's not change to hope for. Keep score.

For Americans to "wake-up" from the glittering promises of the campaign, it may first take a nightmare.

All This Has Happened Before, And Will Happen Again

Reading Murray Rothbard's, "The Mystery of Banking" Originally written in the 80s and updated over a number of editions for the present.

One theme stands out, quoting from Battlestar Galactica's 4th season: "All this has happened before, and will happen again."

Get a load of this passage from the concluding section, p. 247:

After Fed inflation led to the boom of the 1920s and the bust of 1929, well-founded public distrust of all the banks, including the Fed, led to widespread demands for redemption of bank deposits in cash, and even of Federal Reserve notes in gold. The Fed tried frantically to inflate after the 1929 crash, including massive open market purchases and heavy loans to banks. These attempts succeeded in driving interest rates down, but they foundered on the rock of massive distrust of the banks. Furthermore, bank fears of runs as well as bankruptcies by their borrowers led them to pile up excess reserves in a manner not seen before or since the 1930s.

Wow! That's eerily familiar! Greenspan low rates lead to large influx of cheap money, helped along by over-charged lending. Fear of deposit safety and bank solvency leads to some high-profile bank runs. Fed is right now trying to massively inflate by open-market purchases, loans to banks via its discount window, and now the TARP program. While the public at-large may not fear their banks as much, the banks still fear the public's solvency and won't lend (despite Fed encouragements) as they seek to build up reserves (known to us right now by the buzzworthy phrase, "deleveraging").

Watch the M2 figures (or M3, if we had them).

http://en.wikipedia.org/wiki/Money_supply

As we work our way through our present economic challenges, an election draws near. What I've learned so far has shown me that in our Great Depression, we took a bad, but not untenable situation and made it worse through unsound policy decisions and the meddling of two succeeding presidents who saw problems they believed only government could and only government should solve.

Then, as now remarkably, the economies of the world's nations were fairly interdependent. Our problems were not solely of our own making, and world economic circumstances shaped our government's actions. It's interesting to me, however, that while most of the rest of the developed world experienced a shock and a recovery during this time, none were quite as terrible as our own.

What I hope to learn in the reading ahead is whether we made the problem worse through more government intervention. Could the wrath and anguish and hunger of our depression been blunted if our government had done nothing, instead of trying to micromanage the economy?

Back then, after Hoover we elected a socialist in President Franklin D. Roosevelt. Much was accomplished during his tenure as President. Chances are you live in a town with a bridge built through his Civilian Conservation Corps program.

FDR believed in the government as solution for society's ills. Government was going to fix our economic problems, confer upon you the "right" to a well paying job, guarantee your financial security in old-age via Social Security, and hosts of other ideas and programs. The American Dream became under FDR, the American Promise (as in social contract, not as in vision of potential).

Our government as we live under it today, saw its genesis under his administration. FDR is recorded in crackly audio as well as in writings as believing that our Constitution was a stale and outmoded document. He wanted to modernize it, and he saw it as his duty to help spur that change; spur the change in the relationship of government to the governed. For good or ill, our nation would never be quite the same again. And it's not.

It's fascinating to me to see that these things are tending to repeat themselves in my lifetime now. We're in the beginning stages of another major economic crises. We've just experienced the first (and possibly only) major shock to our stock markets (1929's crash was similar, in that it was over rather fast, but the Depression would follow along in its aftermath). We can see the government beginning to inflate its way out and recapitalize major financial instituions with billions of dollars newly printed.

It remains to be seen if our recession will proceed as in the past few, and gradually fade, or if, like the Depression, reaction and changing government policy help to fashion it into something more ominous and lasting.

Then, as now, we're at a Presidential crossroads. We tipped toward government as a safety net and hoped for change in the bold voice of FDR. In fear of our future we accepted his socialist experiment. As we went to war for a second time, the experiment faded, but didn't ever go completely away. A nation united in the ultimate victory over absolutism in WWII repatriated vast swaths of veterans who has just been to hell and survived. They thought they could do anything, and when they came home, they set out to act decisively on their dreams.

They succeeded, transforming America into a premiere economic superpower. FDR's crutches were no longer needed. But the impact has stayed with us. Our society has come to accept and take for granted some of the government programs which were experimental in FDR's time.

Now...we again are afraid and concerned about out economic future. We're tilting in that fear back toward socialism. Once again we "hope for change" in the person of Barack Obama, whose ideas are much the same as FDR's. Government is the answer. Our Constitution is a stale document in need of retooling for a modern world. In "spread(ing) the wealth around," we look to once again subvert the American Dream into an American Promise. I am not sure why we think it will work out any differently this time, than it did in FDR's time. Our choices are shaped by our environment and experiences. Is it simply that most of us just don't know any better; haven't had those experiences which would teach us the lessons of history?

For me, I still have an innate curiosity for discovering how the world works. I desire to try to be less ignorant, even if that means what I learn might weigh heavily on my spirit. I'd rather die in knowledge than live blissfully in ignorance.

I recommend this book to anyone interested in gaining a greater appreciation for how our economy, and our banks, Fed, and monetary policy function. You'll get an education that will illuminate the meaning behind actions the Fed takes and what's really going on behind the headlines and sound bites over major news broadcasts. It's been a real eye-opener for me during our latest banking/lending/stock market crisis.

What's more is that the Ludwig von Mises Institute has a PDF version available on their website, formatted nicely if you're one of those people lucky enough to have an e-paper reader. I've been reading on my laptop, which has been OK.

Nearly finished with "The Mystery of Banking," my next book will be Rothbard's "America's Great Depression." I'm hoping to get a little inside baseball on why our depression happened, why it was so damaging, and why it took so long to recover.

I am already learning that "progressive" policy had become the trend in the beginning of the 20th century. Such policy helped push us to participate in WWI (also helped along by J.P. Morgan & Co, who had its fingers deep into the war machine, and a war would help bail it out of failing railroad interests). Participation with Britain (through the Genoa Convention) in a faux gold bullion standard after the war led to inflationist money supply expansion throughout the 20s. It appears this heavy expansion of the money supply created the ripe conditions for the 1929 crash.

In any case, if you find financial topics interesting, these books are worth your time, as well as some time spent at the Ludwig von Mises Institute website, which represents the Austrian School of economic thought (which has a very different perspective from much of the Friedmanite and Keynesian ideas taught in most of our colleges).