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Milton J. Madison - An American Refugee Now Living in China, Where Liberty is Ascending

Federalism, Free Markets and the Liberty To Let One's Mind Wander. I Am Very Worried About the Fate of Liberty in the USA, Where Government is Taking people's Lives ____________________________________________________________________________________________ "Extremism in defense of liberty is no vice. Tolerance in the face of tyranny is no virtue." -Barry Goldwater-

Sunday, March 01, 2009

Capitalist or socialist.....

There is a widespread notion that one of the most primitive of modern ideological choices is whether a government shall be Keynesian or not . . . no present or future administration really has the non-Keynesian choice.

-J. Kenneth Galbraith-
We have been on the slippery slope of socialism for 70 years. The damage was done by FDR and this seed grew into a gigantic tree and as Galbraith points out its not weather-or-not governmental prescriptions are Keysian (code word for socialism) or not but to what degree that these prescriptions are used. In our lifetimes, there really hasn't been true capitalism since government has increasingly intervened in the live of Americans particularly economically.

However, I think that over time, as government needs to run faster-and-faster just to stay in place, markets will create severe adjustments to foil those central planned prescriptions. Government cannot force prosperity but can destroy it by creating an enviroment where resourses are mis-allocated. That is what we are dealing with now. The problems created by governments mis-allocating resources will never be solved by governments mis-allocating even more resources. It will only make the adjustment that much more painful.

For example, markets are adjusting to mis-allocated resources in housing where government assistance programs have been in place since the 1930's. Prices rose dramatically as government incentives created excess investment in housing and unsustainable high prices. Housing prices will fall to the point where housing becomes less of a burden to typical Americans and attitudes will change so that people will not consider housing an investment but just a place to live. Housing will have to become 'cheap' before prices stabilize. And it will be cheap when the price of the total housing stock falls relative to GDP This will free up investment capital for more productive uses and will create a foundation for the bottom and a sustainable recovery. However, under the current socialist prescriptions of the current resident of the White House, the campaigner-in-chief solutions are just a continuation of the behaviors that created this problem to start with. It will not work. Maybe temporarily but the next downturn will only be more severe.

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