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Posts Tagged ‘Tom Sowell’

A number of economists have been warning about the Federal Reserve’s easy-money policy, but defenders of the central bank often ask, “if there’s an easy money policy, why isn’t that showing up in the form of higher prices?” Thomas Sowell has an answer to this question, explaining that people and businesses are sitting on cash because anti-business policies have dampened economic activity.

Not only has all the runaway spending and rapid escalation of the deficit to record levels failed to make any real headway in reducing unemployment, all this money pumped into the economy has also failed to produce inflation. The latter is a good thing in itself but its implications are sobering. How can you pour trillions of dollars into the economy and not even see the price level go up significantly? Economists have long known that it is not just the amount of money, but also the speed with which it circulates, that affects the price level. Last year the Wall Street Journal reported that the velocity of circulation of money in the American economy has plummeted to its lowest level in half a century. Money that people don’t spend does not cause inflation. It also does not stimulate the economy. The current issue of Bloomberg Businessweek has a feature article about businesses that are just holding on to huge sums of money. They say, for example, that the pharmaceutical company Pfizer is holding on to $26 billion. If so, there should not be any great mystery as to why they don’t invest it. With the Obama administration being on an anti-business kick, boasting of putting their foot on some business’ neck, and the president talking about putting his foot on another part of the anatomy, with Congress coming up with more and more red tape, more mandates and more heavy-handed interventions in businesses, would you risk $26 billion that you might not even be able to get back, much less make any money on the deal? Pfizer is not unique. Banks have cut back on lending, despite all the billions of dollars that were dumped into them in the name of “stimulus.” Consumers have also cut back on spending. For the first time, more gold is being bought as an investment to be held as a hedge against a currently non-existent inflation than is being bought by the makers of jewelry. There may not be any inflation now, but eventually that money is going to start moving, and so will the price level.

I do my best to avoid monetary policy issues and certainly am not an expert on the subject, so I asked a few people for their thoughts and was told that perhaps the strongest evidence for Sowell’s hypothesis comes from the Federal Reserve’s data on “Aggregate Reserves of Depository Institutions” – specifically the figures on excess reserves. This is the money that banks keep at the Federal Reserve voluntarily because they don’t have any better options. As you can see from the chart, excess reserves shot up during the financial crisis. But what’s important is that they did not come back down afterwards. Some people refer to this as “money on the sidelines” and Sowell clearly is worried that it will have an impact on the price level if banks start circulating it. That doesn’t sound like good news. On the other hand, it’s not exactly good news that banks are holding money at the Fed because there are not enough profitable opportunities.

What this really tells us is that the combination of easy money and big government isn’t working any better today than it did in the 1970s.

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In addition to noting that gun control tends to increase crime by reducing the cost of being a criminal (i.e., thugs are less likely to meet armed resistance), Tom Sowell also explains that people who don’t like the Constitution should amend the document rather than appointing ideologically-motivated Justices who ignore what it says.
…there is no obvious reason why issues like gun control should be ideological issues in the first place. It is ultimately an empirical question whether allowing ordinary citizens to have firearms will increase or decrease the amount of violence. Many people who are opposed to gun laws which place severe restrictions on ordinary citizens owning firearms have based themselves on the Second Amendment to the Constitution. But, while the Supreme Court must make the Second Amendment the basis of its rulings on gun control laws, there is no reason why the Second Amendment should be the last word for the voting public. If the end of gun control leads to a bloodbath of runaway shootings, then the Second Amendment can be repealed, just as other Constitutional Amendments have been repealed. Laws exist for people, not people for laws. There is no point arguing, as many people do, that it is difficult to amend the Constitution. The fact that it doesn’t happen very often doesn’t mean that it is difficult. The people may not want it to happen, even if the intelligentsia are itching to change it. …As for the merits or demerits of gun control laws themselves, a vast amount of evidence, both from the United States and from other countries, shows that keeping guns out of the hands of law-abiding citizens does not keep guns out of the hands of criminals. It is not uncommon for a tightening of gun control laws to be followed by an increase– not a decrease– in gun crimes, including murder. Conversely, there have been places and times where an increase in gun ownership has been followed by a reduction in crimes in general and murder in particular. Unfortunately, the media intelligentsia tend to favor gun control laws, so a lot of hard facts about the futility, or the counterproductive consequences of such laws, never reach the public through the media. We hear a lot about countries with stronger gun control laws than the United States that have lower murder rates. But we very seldom hear about countries with stronger gun control laws than the United States that have higher murder rates, such as Russia and Brazil.

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Tom Sowell deftly skewers the pretentious advice often given the college graduates about the supposed nobility of public service. As he sagely notes, it is the “greedy” pursuit of profit that raises living standards and improves the lives of the less fortunate:

Commencement speakers express great reverence for “public service,” as distinguished from narrow private “greed.” There is usually not the slightest sign of embarrassment at this self-serving celebration of the kinds of careers they have chosen– over and above the careers of others who merely provide us with the food we eat, the homes we live in, the clothes we wear and the medical care that saves our health and our lives. …Would you like to see more things become more affordable to more people? Then figure out more efficient ways of producing things or more efficient ways of getting those things from the producers to the consumers at a lower cost. That’s what a man named Sam Walton did when he created Wal-Mart, a boon to people with modest incomes and a bane to the elite intelligentsia. In the process, Sam Walton became rich. Was that the “greed” that you have heard your classmates and professors denounce so smugly? If so, it has been such “greed” that has repeatedly brought prices down and thereby brought the American standard of living up. …It was Thomas Edison who brought us electricity, not the Sierra Club. It was the Wright brothers who got us off the ground, not the Federal Aviation Administration. It was Henry Ford who ended the isolation of millions of Americans by making the automobile affordable, not Ralph Nader. Those who have helped the poor the most have not been those who have gone around loudly expressing “compassion” for the poor, but those who found ways to make industry more productive and distribution more efficient, so that the poor of today can afford things that the affluent of yesterday could only dream about.

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I’ve always been mystified by GOP politicians, pollsters, and consultants who argue that the GOP needs to support big government in order to win votes. The biggest victories for Republicans in living memory, after all, are the 1980 and 1994 landslides, when the GOP was most aggressive in promoting an anti-government message. The big-government, compassionate-conservative message of Bush, by contrast, led to electoral debacles in 2006 and 2008. Tom Sowell has been addressing the strange predilection of some Republicans to tack left. In his third column of the series, Sowell explains that the GOP should use an explicitly conservative message to appeal to black voters rather than foolishly assuming that a “me-too” platform will somehow work:

One of the things that is long overdue is some Republican re-thinking– or perhaps thinking for the first time– about the approach that they have been using, with consistently disastrous results, for trying to get the black vote. …There is no point today in Republicans continuing to try to win over the average black voter by acting like imitation Democrats. Those who like what the Democrats are doing are going to vote for real Democrats. …[Blacks] want their children to get a decent education, which they are unlikely to get so long as public schools are a monopoly run for the benefit of the teachers’ unions, instead of for the education of the children. Democrats are totally in hock to the teachers’ unions, which means that Republicans have a golden opportunity to go after the votes of black parents by connecting the dots and exposing one of the key reasons for bad education in inner cities and the bad consequences that follow. But when have you ever heard a Republican candidate get up and hammer the teachers’ unions for blocking every attempt to give parents– black or white– the choice of where to send their children? The teachers’ unions are going to be against the Republicans, whether Republicans hammer them or keep timidly quiet. Why not talk straight to black voters about the dire consequences of the pubic school monopoly that the teachers’ unions and the Democrats protect at all cost, even though many private schools– notably the KIPP schools in various states– have achieved remarkable success with low-income and minority youngsters?

In his fourth column in the series, Sowell makes the common-sense point that a squishy, moderate message winds up appealing to nobody. That doesn’t guarantee a lost election, to be sure. As Bush and Nixon showed, a milquetoast Republican can prevail if facing an incompetent Democrat in the right national climate, but those often turn out to be Pyrrhic victories since they often set the stage for big Democratic victories in the future. As Sowell notes, Reagan is the right model for the GOP:

A long-standing battle within the Republican Party, going back at least as far as the 1940s, is between those who want the party to clearly differentiate itself from the Democrats and those who seek a broader appeal by catering to a wider spectrum of social and ideological groups. The “smart money” advocates a “big tent” and deplores those who want a clearer adherence to the kinds of ideas espoused by Ronald Reagan. What the “smart money” fails to explain is how Reagan won two landslide presidential elections in a row. He certainly didn’t do it by trying to act like Democrats. That’s how the Republicans later turned off their own supporters, without gaining enough other voters to keep from being wiped out by the Democrats in two consecutive elections. …When you try to waffle and be all things to all people, you can end up being nothing to anybody. That is where the “smart money” crowd have gotten the Republicans in recent years.

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