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Hunter Lewis

About Hunter Lewis

Hunter Lewis is co-founder of AgainstCronyCapitalism.org. He is co-founder and former CEO of global investment firm Cambridge Associates, LLC and author of 9 books on moral philosophy, psychology, and economics, including the widely acclaimed Are the Rich Necessary? (“Highly provocative and highly pleasurable.”—New York Times) He has contributed to the New York Times, the Times of London, the Washing­ton Post, and the Atlantic Monthly, as well as numerous websites such as Breitbart.com, Forbes.com, Fox.com, RealClearMarkets.com, and Townhall.com. His most recent books are Crony Capitalism in America: 2008–2012, Free Prices Now! Fixing the Economy by Abolishing the Fed, and Where Keynes Went Wrong: And Why Governments Keep Creating Inflation, Bubbles, and Busts. He has served on boards and committees of fifteen leading not-for-profit organizations, including environmental, teaching, research, and cultural and global development organizations, as well as the World Bank.

James Grant Sets Stick of Dynamite to Bush/Obamanomics

In his new book, The Forgotten Depression, economic writer James Grant, editor of the prestigious Grant’s Interest Rate Observer, gives us the history of the depression of 1920-21.

It was a very deep depression, as deep as the one that succeeded in 1929. But in this case, the government did not intervene, and it was over in less than two years. Was this a coincidence? Grant does not think it was. He believes, as this writer does, that present government interventions have deepened our current economic malaise and are retarding a full recovery.

Economic orthodoxy, which is eagerly embraced by virtually all governments today, says that the remedy for economic slumps is for government to print more money, enable more debt, and directly spend more money. This is right out of the playbook of British economist John Maynard Keynes, who died 69 years ago.

The curious thing about Keynes’s ideas is that there is nothing even remotely scientific about them. There isn’t even logic or fact to support them.

One of Keynes’s assertions was that a slump without government intervention would just keep getting worse and worse. Yet a brilliant Keynesian disciple, Franco Modigliani, refuted that idea even before the master’s death in 1946.

In 1962, economist Milton Friedman said about Keynesian remedies: “I know of no… coherent or organized body of evidence justifying them…. [They] cannot be demonstrated to be true by logical considerations alone, [and] have never been documented by empirical evidence….” This statement remains as valid today as it was 53 years ago.

The usual argument contemporary Keynesians fall back on is that as bad as things are, they would be worse without their interventions. And surely, in the face of an economic crash, you wouldn’t suggest that the government do nothing, would you?

This kind of fact-free non-argument can be hard to rebut, but James Grant’s book is a powerful and fully documented rebuttal. In the case of the 1920 depression, the government did nothing, or if anything the opposite of what Keynesians would advise, for example by cutting its expenditure, and the patient revived quickly. In 1929 and again in 2008, the government did the opposite, and the patient either did not recover for more than a decade or has yet to recover.

Yes, the government did the opposite in 1929, despite what you were taught in school. The myth that President Hoover refused to intervene is just that: a myth. His interventions were not essentially different from those that followed from the Roosevelt administration. Popular British historian Paul Johnson explains this in his history of America, and the full record may be found in economist Murray Rothbard’s book on the Great Depression.

To understand why it is better not to intervene, one has to realize that most slumps are caused in the first place by two problems. First the government long ago intervened in the economy to create a financial system (the so-called fractional reserve system) which is inherently unstable. It then compounds the problem by creating far too much money, which enters the economy as debt, and which leads first to economic bubble and then to bust.

It should be obvious that a problem caused by too much government money creation, debt, and reckless spending cannot be solved by more of the same. These policies may make the patient feel better temporarily, just as another dose of heroin will stop withdrawal, but withdrawal is actually what the patient needs.

In the same way, when an economy crashes, it is because something is very wrong. The ensuing recession is not the problem; it is the cure. Bad debts and bad investments are liquidated so that a real recovery can follow. Assets do not disappear. Reckless investors lose them but prudent investors acquire them and make better use of them.

If the recession following the dot com crash of 2000 had not been stopped by the Greenspan Federal Reserve and the Bush administration, we would not have had the housing bubble and crash, and if that recession had not been stopped with massive stimulus, we might by now have a flourishing economy.

Recessions are indeed painful. But, like a fever, they are part of the cure. The cure, if left to run its own course, need not take a long time, as Grant’s history of the 1920 Depression shows.

This book is not only indispensable economic and American history. It is also, like all of Grant’s books, very pleasurable reading, full of colorful characters, wit, and the telling detail.

Bernanke Gets American History Wrong Too

The principal author of our current economic ills doesn’t seem to know history any better than monetary policy.

When the Obama administration announced that it was planning to replace Alexander Hamilton on the ten dollar bill with an unspecified woman, former Fed Chairman Ben Bernanke leapt into the fray. He said he was “appalled” by the decision since Hamilton “was without doubt the best and most foresighted economic policy maker in US history.” He proposed that Andrew Jackson be removed from the twenty dollar bill instead.

A New York Sun editorial on June 23 dryly noted that Hamilton was the author of the Coinage Act of 1792, which represents the very sound money that Bernanke has done everything in his power to destroy.  The Sun, however, tempered its criticism with the following comment: “We understand that there are serious persons who reckon Hamilton, who was notoriously partial to federal power, would not have opposed the idea of fiat paper money. This point has been marked for us by no less a scholar than the journalist and historian Myron Magnet…. Let us stipulate Mr. Magnet’s point.”

Let us not stipulate Magnet’s point, because it is incorrect. Hamilton condemned paper money not backed by gold or silver as an evil. Here is what Hamilton actually said: “The emitting of paper money by the authority of Government is wisely prohibited….Though paper emissions, under a general authority, might have some advantage…, yet they are of a nature so liable to abuse—and it may even be affirmed, so certain of being abused—that the wisdom of the Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient…. The stamping of paper is an operation so much easier than the laying of taxes, that a government, in the practice of paper emissions, would rarely fail…to indulge itself too far in the employment of that resource…even to [ the point of creating]…an absolute bubble.” [ Report to the House of Representatives, Dec 13, 1790]

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Bill Gates Is Concerned About Robots Taking Jobs

Has he considered that the Obama Administration, which he supports, has greatly fostered this trend? How? First by making workers so much more expensive by encouraging state minimum wage increases, by increasing the healthcare costs of a worker by about $3-5 dollars an hour, and by making overtime and related rules tighter and tighter. All this makes employees too expensive to hire. Second by encouraging the Federal Reserve to keep interest costs artificially low. Those giveaway interest rates encourage investment in robots to replace people.

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Is Keynes Misunderstood, Maligned By Critics?

In a September 11 Bloomberg article, economist Noah Smith claims that John Maynard Keynes, the architect of today’s government economic policies around the world, wasn’t a “‘socialist’” or even a “‘progressive.’” He did not favor “a command economy.”

Yes he “was in favor of some amount of wealth redistribution and government intervention into the economy.” But “Keynesian policies are fundamentally … about economic stability,… about smoothing out the fluctuations in the economy, reducing risk for everyone concerned.”

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Middle Class Joe?

Joe Biden, in a rousing Labor Day speech before Labor Union leaders, said that people in Washington call him “middle class Joe.”

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Mainstream Economist Noah Smith Freaks Out

What does it suggest when someone, writing in Bloomberg, calls his critics “9/11 truthers
…enslaved by… brain worms”?

It suggests that he is very worried. He not only thinks the barbarians are at the gate. He thinks that his cozy citadel might actually fall.

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