Obama gets to rail about the bad economy for which the probability of his election is responsible. Sometimes there’s no justice.

Harry Reid, despite originating from and representing Nevada in the Senate (a state whose history is based upon minerals and mining), has gone all moonbat, and won himself a place in YouTube’s list of “Most Watched” videos, bleating absurdities about coal and oil “making us sick” and “ruining the earth.”

0:35 video

Well, mining coal in deep mines and breathing in coal dust can make you sick. It killed my grandfather back in the 1930s. But claims that coal is making anybody other than deep miners sick is a claim based on what we call statistics. Statistics are produced by sophisters, calculators, and economists, and liberals always have statistics by the boxcar load ready and waiting to prove whatever they happen to want to prove. As the old saying goes, there are lies, damned lies, and statistics.

Coal has been used in domestic heating and in industrial production since Elizabethan times. Burning coal undoubtedly produced cleaner air in places like London than the wood fires used previously.

They discovered anthracite coal in Pennsylvania early in the 19th century, and Benjamin Franklin’s stove adapted with grates was found perfect for its use. By mid-century, railroads and canal boats were carrying coal to all major American cities. They found oil, also in Pennsylvania, in the mid-19th century, and we’ve been using that ever since, too.

Generations of Americans and Europeans have lived and died using coal and oil, and the Earth remains, far from ruined.

I don’t feel particularly sick. How about you?

The truth is that no economically practical alternatives exist, and politicians cannot magic new forms of energy into existence. What they can do is jump on to the bandwagons of fashionable do-gooder causes and disseminate misinformation and sow unnecessary fear as a means of bamboozling the gullible public into surrendering more powers and more tax monies to them.

It’s this kind of politics that ought to make you sick.

Loon Decoy, Nova Scotia

One of my liberal college classmates was recently ranting about the terrible growth of Inequality over the whole post-Reagan period of the ascendancy of Conservatism in American politics, which roughly coincided, interestingly enough, with most of our own real, post-age-30, adulthoods.

Another classmate effectively rebutted those assertions of declining middle-class economic well-being by pointing out how much had changed with respect to lifestyle and expectations in America during that time, as well as over our own lifetimes. We approaching-age-60 adults can remember not only a world with no personal computers, no cell phones, and no multiple family automobiles. We can remember the time of no televisions, no air conditioners, party-line telephones, and a lot of people owning no automobile at all.

One can see the dramatic impact on human life of the economic growth produced by the free economy just by looking at antique artifacts of everyday life. Those charming collectible pieces of folk art being sold at auction for high prices to serve in future as decorative art not so terribly long ago were practical tools.

Take the charming, somewhat primitive, stark and streamlined decoy above, found in Nova Scotia, going on the block at a Guyette & Schmidt Auction later this month. Someone will be proudly displaying it soon in his living room or den but, less than a century ago, it was bobbing in some cove or inlet along the shore as a hunter was trying to shoot… a loon.

The common loon, Gavia immer, is protected today, and most people would find the idea of shooting one of these iconic symbols of the Northern wilderness sacrilegious and the idea of cooking and eating one even less appealing.

Loons are pretty much the lowest evolutionary form of waterfowl, the most primitive and the boniest, featuring the toughest flesh and the fishiest taste. No one would eat loon if he could get coot or even merganser.

Loons were so renowned for their lack of gustatory appeal that a whole genre of loon recipes taking roughly the following form are traditional jokes.

PLANKED LOON
Catch a Loon Duck. (Black Lake Loon’s are best). Pluck and clean. Boil well. With sharp knife, split duck down the belly. Splay it on a well soaked hardwood plank. Nail it good and wire it securely. Place upright on plank in front of hot coals on outdoor fireplace. Cook well for about two hours. When done, throw that fishy duck away, and eat the plank!

But, in the old days, people really did hunt loons in order to eat them. There would be periods of the year when the more migratory waterfowl were not present and available in the North Country. Ducks and geese would have flown South, but you could still find loons.

Even in Nova Scotia, I expect it’s been a long, long time since anybody was reduced to dining on loon.

Democrats Barack Obama, Nancy Pelosi, and Harry Reid have all recently declared that “we can’t drill our way out” of the current high priced petroleum crisis.

What would their solution look like?

The answer may have been recently supplied when several House democrats proposed nationalizing oil companies

FoxNews:

House Democrats responded to President’s Bush’s call for Congress to lift the moratorium on offshore drilling. This was at an on-camera press conference fed back live.

Among other things, the Democrats called for the government to own refineries so it could better control the flow of the oil supply.

They also reasserted that the reason the Appropriations Committee markup (where the vote on the amendment to lift the ban) was cancelled so they could focus on preparing the supplemental Iraq spending bill for tomorrow.

At an off-camera briefing, House Majority Leader Steny Hoyer (D-MD) said the same. And a senior Republican House Appropriations Committee aide adds that “there were multiple reasons for the postponement” including discussion on the supplemental. But the aide said there was the thought that Democrats may wish to avoid a debate today on energy amendments.

Here are the highlights from briefing

Rep. Maurice Hinchey (D-NY), member of the House Appropriations Committee and one of the most-ardent opponents of off-shore drilling

1115
We (the government) should own the refineries. Then we can control how much gets out into the market.

Democrat supporters will respond: “Oh well, Maurice Hinchey and Maxine Waters are just congressional backbenchers and representatives of the democrat party’s extreme left fringe.”

And Barack Obama is also a member of the extreme leftwing fringe of his party.

“Not ready to be president.”

1:17 video

New York Post:

Today, Americans finally will start working for themselves rather than for their government masters. This milestone arrives two days later than in 2007, clearly proving that the era of big government is back with a vengeance. May 19 is Friedman Day, when the American Institute for Economic Research calculates that citizens finally will have toiled long enough to fund local, state and federal spending.

The Guardian describes how Europe’s intensely regulated employment policies are resulting in a generation of losers.

With inflation soaring, property prices sky high, wages relatively static, labour markets gridlocked and sluggish or slowing economies, ..tens of millions of Europeans raised to expect that their degrees and diplomas will assure them a relatively high quality of life.. are now realising that the world has changed. The disappointment is a shock with big political, social, cultural, even demographic consequences. ...

In 1973, only 6 per cent of recent university leavers in France were unemployed; now the rate is 25 to 30 per cent; salaries have stagnated for 20 years while property prices have doubled or trebled, though the overall proportion of French people living in poverty has not changed. Whereas in the 1960s the poor were mainly the old, now they are the young; in 1970, salaries for 50-year-olds were only 15 per cent higher than those for workers of 30; the gap now is 40 per cent.

‘Some talk of a war between the generations, but that’s a little simplistic. It is more that the system means that the haves are keeping what they have and no one is helping the have-nots,’ said Chauvel. ‘The big determinant in France now of success is not your educational level but the wealth of your parents, if they can support you during your twenties as you fight your way into a closed employment market.’

French economists speak of ‘insiders and outsiders’. The insiders are those who already have a job and are well-defended by the battery of French laws protecting the workforce and the unions. The outsiders are those without work which, naturally, include newcomers on the job market. Chauvel says the problem is particularly bad in Latin countries where parents are expected to support their children much longer.

But, cheer up, Europe! we have a political party right here in the United States firmly committed to bringing us European-style labor market regulations, too. They call themselves democrats, and they are favored to win in November.

H/t to MeaninglessHotAir.

Ronald Reagan said: “The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Democrat Barack Obama promises to do all that:

In a major economic address at Cooper Union today, Senator Barack Obama called for immediate relief for homeowners hit by the housing crisis, modernization of our regulatory framework, and an additional $30 billion stimulus package to jumpstart the economy and help protect families from the economic slowdown. ...

In his speech today, Obama made the case that while markets are the engine of American progress, the government’s role as umpire and steward is critical to the function of the free market. For too long, he said, special interests have been able to bend the rules to maximize their profits on the backs of hardworking Americans.

Obama pledged to restore confidence in the markets, tackle the housing crisis and protect families from the economic slowdown by:

Ø Creating 21st century standards for transparency and oversight of the financial system in order to prevent future abuses and crises.

Ø Providing immediate relief to homeowners hit by the housing crisis.

Ø Enacting a second stimulus package to stabilize and strengthen the economy, provide aid to homeowners and states hardest-hit by the housing crisis, and extend and expand unemployment insurance.

But who needs Obama? Even if the democrats don’t win, Republicans like George W. Bush, and certainly John McCain, will do nearly every bit of very much the same.

Bloomberg:

Treasury Secretary Henry Paulson is likely to call for the creation of new regulatory agencies with broad powers over lending, the securities industry and business conduct, according to the draft of a study he commissioned.

The report, which recommends more power for the Federal Reserve, also proposes combining the Office of Comptroller of the Currency—which dates back to the Civil War—and the Office of Thrift Supervision into a single banking overseer. In addition, the draft, which was circulated to government agencies this week and obtained by Bloomberg News, calls for the merging of the Securities and Exchange Commission and the Commodity Futures Trading Commission.

New York Times:

The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades. ...

According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

John Mangum argues that the US Government’s failure to strengthen the dollar is a clever and deliberate (and unannounced) gambit in the economic contest between the US and China.

we must ask, why is this happening? Why have the prices of commodities like oil and gold risen so dramatically in the last year? Why has the dollar fallen so much? Normal business cycle? Bad management from the world’s financial institutions? And why hasn’t the world’s largest and strongest economy, backed by the most powerful government, been able to change the course of the situation?

Perhaps the larger picture is that the United States is waging an economic war against China.

The United States could strengthen the value of the dollar. It has not. China is hurt because now Chinese products are very expensive in the United States, and this will reduce the US trade deficit with China. China must import huge amounts of oil and strategic metals which are very much more expensive now. China holds hundreds of millions of physical dollars, the value of which is now much less.

China has refused to revalue its currency to a realistic level to improve its trade position with the United States. China has used its huge dollar reserves as a sword against the United States by threatening to sell those dollars, and thereby causing the dollar to drop in value. In effect, the United States is using China’s strength against China.

In order for China to maintain the levels of its trade with the United States, it will be forced to lower the value of its currency. However, if it does that, it faces two major problems. Foreign direct investment (FDI) into China would become less expensive, and China is worried that more and cheaper FDI would spur China’s inflation. Further, a devalued currency would reduce the profit to China for its exported goods.

If China keeps it currency at its present levels, the United States will buy less. The United States wanted a stronger yuan to reduce trade, which China was unwilling to do. That objective is now achieved by a weaker dollar.

China’s dollar holdings are worth much less when buying goods like oil and metals that China depends on for its development and growth. Further, China has been talking and trying for some time to diversify its foreign-reserve holdings form dollars to other currencies and gold. Now, their dollars are worth much less when buying gold, yen and euros. ...

the “crisis” is being used to further the US economic position, long-term position, particularly with regard to China. From Sun Tzu: “All warfare is based on deception.”

Caroline Baum points out the obvious alternative to the Bush Administration’s behavior in the face of the sub-prime mortgage meltdown: Just get government out of the way.

Fed Chairman Ben Bernanke encouraged mortgage servicers to write down a portion of the principal on home loans, which would give owners some equity and discourage foreclosure. He advocated a bigger role for the Federal Housing Administration, a Depression-era agency that insures mortgages. Congress envisions an even larger role for the federal government.

Any day, I expect some government official to unveil the John Galt plan to save the economy.

Galt, the hero of Ayn Rand’s magnum opus “Atlas Shrugged,’’ stops the world by going on strike. He and the “men of the mind’’ literally withdraw from the world after watching their wealth confiscated by the looters (the government).

Toward the end of Rand’s 1,000-plus page novel (or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to “tell us what to do.’’

Galt refuses, or rather tells them “to get out of the way.’’

You probably can sense where I’m going. Today’s economic and financial crisis would resolve itself more quickly and efficiently if the government got out of the way. Yes, there would be pain. Some banks would fail. Others would clamp down on credit to atone for the years of lax lending standards. Homeowners-in-name-only would become renters. Housing prices would fall until speculators found value.

That’s not going to happen. The bigger the mess, the more urgent the calls for a government solution, the more willing government is to oblige.

We want laissez-faire capitalism in good times and a government backstop against losses in bad times. It’s a tough way to run an economy.

Real Estate Investor Sam Zell identifies the source.

The US economy will avoid recession as the housing market begins to recover this spring, according to billionaire investor Sam Zell.

Speaking on “Squawk Box” this morning, Zell attributed much of the current economic troubles to fear-mongering and politicking by Democratic presidential contenders Hillary Rodham Clinton and Barack Obama.

“Obviously what we have going on is an attempt to create a self-fulfilling prophecy,” said Zell, chairman of Equity Investments Group and owner of the Chicago Cubs, Chicago Tribune, Los Angeles Times and other companies. “We have two Democratic candidates who are vying with each other to describe the economic situation worse.

Zell should have added the stock market’s turmoil wouldn’t be occurring if there was a real Republican candidate who appeared to be likely to win. Current market pessimism is principally based on fears of the economic impact of the democrat demagogues promised higher taxes and attacks on corporations.

Roger Kimball responds to Hillary’s promise that “if she became president, the federal government would take a more active role in the economy to address what she called the excesses of the market and of the Bush administration.”

As Hayek observed, the socialist, the sentimentalist, cannot understand why, if people have been able to “generate some system of rules coordinating their efforts,” they cannot also consciously “design an even better and more gratifying system.” Central to Hayek’s teaching is the unyielding fact that human ingenuity is limited, that the elasticity of freedom requires the agency of forces beyond our supervision, that, finally, the ambitions of socialism are an expression of rationalistic hubris. A spontaneous order generated by market forces may be as beneficial to humanity as you like; it may have greatly extended life and produced wealth so staggering that, only a few generations ago, it was unimaginable. Still, it is not perfect. The poor are still with us. Not every social problem has been solved. In the end, though, the really galling thing about the spontaneous order that free markets produce is not its imperfection but its spontaneity: the fact that it is a creation not our own. It transcends the conscious direction of human will and is therefore an affront to human pride.

The urgency with which Hayek condemns socialism is a function of the importance of the stakes involved. As he puts it in his last book The Fatal Conceit , the “dispute between the market order and socialism is no less than a matter of survival” because “to follow socialist morality would destroy much of present humankind and impoverish much of the rest.” We get a foretaste of what Hayek means whenever the forces of socialism triumph. There follows, as the night the day, an increase in poverty and a diminution of individual freedom.

The curious thing is that this fact has had so little effect on the attitudes of intellectuals and the politicians who appeal to them. No merely empirical development, it seems—let it be repeated innumerable times—can spoil the pleasures of socialist sentimentality. This unworldliness is tied to another common trait of intellectuals: their contempt for money and the world of commerce. The socialist intellectual eschews the “profit motive” and recommends increased government control of the economy. He feels, Hayek notes, that “to employ a hundred people is … exploitation but to command the same number [is] honorable.”

Not that intellectuals, as a class, do not like possessing money as much as the rest of us. But they look upon the whole machinery of commerce as something separate from, something indescribably less worthy than, their innermost hearts’ desires. Of course, there is a sense in which this is true. But many intellectuals fail to appreciate two things. First, the extent to which money, as Hayek put it, is “one of the great instruments of freedom ever invented,” opening “an astounding range of choice to the poor man—a range greater than that which not many generations ago was open to the wealthy.”

Second, intellectuals tend to ignore the extent to which the organization of commerce affects the organization of our aspirations. As Hilaire Belloc put it in The Servile State, “The control of the production of wealth is the control of human life itself.” The really frightening question wholesale economic planning raises is not whether we are free to pursue our most important ends but who determines what those “most important ends” are to be. “Whoever,” Hayek notes, “has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower—in short, what men should believe and strive for.”

Read the whole thing.

Hat tip to The Barrister.

Former Oklahoma Congressman Ernest Istook, now at Heritage Foundation, identifies the key problem with America’s economy.

We can’t afford Congress. It’s driving America’s cost-of-living through the roof.

Any tax cut or “economic stimulus” we might get this spring is peanuts compared to how Washington keeps jacking up the price of everything that’s important.

By itself, last month’s energy bill will make food, cars, gasoline and even light bulbs more expensive. Washington is also the culprit behind high medical bills and health insurance, washing machines that have doubled in price, and our wonderful, more-expensive “lo-flo” toilets that don’t flush right.

All this is on top of what red tape already costs us. A 2004 government report admitted that federal regulations cost our economy at least $1.1 trillion each year. That’s $3,666 per person, so multiply that by the number of people in your household. And remember that’s before the 2007 energy bill. And in addition to taxes.

The new energy laws are a leftist’s dream and a supply-sider’s nightmare. As 2008 starts, we’re paying $3 (often more) for a gallon of gasoline. That’s up about a fourth (64 cents) from a year ago. The Heritage Foundation calculates the new energy bill will boost gas prices over $5 a gallon by 2016. Yet rather than let us produce more oil domestically, Congress keeps areas off-limits from drilling that could raise supply and lower prices. Nor will Congress let us expand nuclear energy, which likewise would help energy prices.

Read the whole thing.

Steven E. Landsburg subjects the current campaign issue of domestic jobs lost by export overseas to a philosophical re-examination.

Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside? ...

Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.

Hat tip to Frank A. Dobbs.

Megan McArdle, in the Atlantic, identifies a number of the economically distorting impacts of Social Security.

The real problem with the Social Security system: not that it is bankrupt, but that it encourages people to make extremely bad decisions about providing for their future.

It starts with childbearing: social security systems seem to exert downward pressure on birthrates, in effect undermining their own actuarial base. Social security socializes the benefits of childbearing in providing for retirement, but no one has yet figured out how to socialize the main cost, which is turning your life choices over to a screaming pre-verbal dictator. People are thus tempted to free ride on the childbearing of others, and the more generous benefits are, the more they seem to free ride. This is one reason that Social Security, which used to have more than 30 workers for each retiree, now has only three, headed towards two.

Social Security also encourages people to leave the workforce earlier than they otherwise would. People are healthier than ever at 65, but while in 1950, almost half of all men over the age of 65 worked, that number is now less than 20%. This appears to be highly correlated with the spread of defined benefit pensions such as social security, which offer no advantage to delaying retirement. Indeed, Social Security perversely penalizes anyone who takes early benefit but continues to work, docking a third of their earnings.

Finally, Social Security discourages private savings. This is terrible for two reasons. If future fiscal problems force the government to reduce benefits, the people who didn’t save enough because they relied on those promises will be made much worse off than they would otherwise have been.

The other problem is that Social Security is not a productive investment. Privately saved money is mostly lent to corporations that mostly use the money to do things that make the economy more productive, such as R&D and capital equipment upgrades. Social security “contributions” are lent to the government, where they are mostly spent on things that could not be remotely described as improving our economy’s productive capacity, such as farm subsidies.

Via Hal_10000, who adds:

The hilarious thing is the response from the liberals. Everything McArdle says is supported by economic research. You will find no economist, for example, who will dispute that Social Security cause earlier and more costly retirements. But the liberals, as they do on everything related to Social Security, stick their fingers in their ears and scream, “Nah! Nah! Nah! Nah! Nah! I am not listening. FDR was great! You hate old people!”

The biggest problem with government is people focusing on what programs purport to do rather than what they actually do.

There is also the problem with liberals’ worship of the State leading them to believe that the kind of thing which leads inevitably to economic disaster in the private sphere (for example, a Ponzi scheme) will work out differently if undertaken by government.

Ultimately via the Barrister.

Merle Hazzard meets Arthur Laffer and sings.

4:30 video

Hat tip to the New York Times.

Freakonomics’ Mellisa Laffey interviews British economist Philippe Legrain.

Legrain has served as special adviser to the director-general of the World Trade Organization and worked as the trade and economics correspondent for the Economist. His new book, Immigrants: Your Country Needs Them, has been nominated for the Financial Times/Goldman Sachs Business Book of the Year Award.

Q: You argue that immigration is a good thing, under almost any circumstances. Why? Are there any circumstances in which it isn’t good?
A: I think freedom of movement is one of the most basic human rights, as anyone who is denied it can confirm. It is abhorrent that the rich and the educated are allowed to circulate around the world more or less freely, while the poor are not — causing, in effect, a form of global apartheid. So I think the burden of proof lies with supporters of immigration controls to justify why they think letting people move freely would have such catastrophic consequences. And, frankly, I don’t think they can.

The economic case for open borders is as compelling as the moral one. No government, except perhaps North Korea’s, would dream of trying to ban the movement of goods and services across borders; trying to ban the movement of most people who produce goods and services is equally self-defeating. When it comes to the domestic economy, politicians and policymakers are forever urging people to be more mobile, and to move to where the jobs are. But if it is a good thing for people to move from Kentucky to California in search of a better job, why is it so terrible for people to move from Mexico to the U.S. to work? ...

From a global perspective, freer migration could bring huge economic gains. When workers from poor countries move to rich ones, they can make use of the advanced economies’ superior capital, technologies, and institutions, making these economies much more productive. Economists calculate that removing immigration controls could more than double the size of the world economy. Even a small relaxation of immigration controls would yield disproportionately big gains.

Read the whole thing.

Personally, I think Legrain is perfectly correct, with the exception of his ultra-libertarian perspective on Islamic immigration. I suppose it’s just the case that I believe that extremist views and hostility to the West are more common among individual Muslims than Legrain does.

Islam is not simply another religious denomination. Islam features even more intransigent claims to authority than the most authoritarian forms of Christianity extant today, and subscribing to a fundamentalist form of Islam is very likely to involve religious obligations to support violence against Western governments and/or non-Muslim inhabitants of Western countries.

Admitting Islamic immigrants at the present time would be a great deal like having an open borders policy for Germans or Japanese during WWII.

George Friedman, at Stratfor, discusses the fundamental contradiction of the current European Union.

How do you have multiple sovereign states within a single central bank? How do you reconcile national sovereignty with a multinational monetary system when it is impossible to create a single monetary policy that satisfies the policies of multiple sovereign nations? Someone must always be hurt. What is of great significance is that Sarkozy has made it clear that it is France, one of Europe’s founders, that is being hurt—to the benefit of its partner, Germany.

This leads to the more immediate question: If Germany and France undertake fundamentally different approaches to economic development, how can both of these strategies be contained in a single European structure? In a way, it would have been simpler had there not been a euro. Multiple economic strategies can be reconciled with a customs union, or even a multinational regulatory system. But reconciling multiple economic approaches with a single currency cannot happen.

The United States confronted this question in the past. In the 1850s, some states wanted a radical revision of social, economic and monetary policy that would benefit them but leave other states at an enormous disadvantage. The industrializing part of the country wanted policies that would protect its interests. The agricultural part of the country, heavily dependent on exports, wanted a different policy. A conference was held in 1863 at Gettysburg. Both sides made compelling arguments over three days, but in the end it was decided that not only would the policies of the industrializing states be followed, but no one would be permitted to withdraw from the economic, political and social union of the United States. State sovereignty was to be limited and federal power was to be paramount.

It was the Union Army that made the most convincing argument at Gettysburg. There is no Union Army in Europe. There is no sovereign center that can hold dissidents in the monetary or economic union. And there is, for that matter, no power on Earth that can keep France and Germany within a single system if they do not want to be there. Sovereignty, without the slightest shadow of doubt, rests with the nation-states of Europe—and the European institutions will last only as long as they reflect the interests of all of these nations.

George Friedman has started blogging.

Arthur C. Brooks argues quite trenchantly that what America needs is mobility and opportunity, not equalization of income.

those left behind, it’s important to note, will almost certainly not become happier if we redistribute more income. Indeed, they will probably become less happy. Policies designed to lower economic inequality tend to change the incentives of both the haves and the have-nots in a way that particularly harms the have-nots. Reductions in the incentives to prosper mean fewer jobs created, less economic growth, less in tax revenues, and less charitable giving—all to the detriment of those left behind. And redistribution can, as the American welfare system has shown, turn beneficiaries into demoralized long-term dependents. ...

policies to redress economic inequality hardly affect true inequality at all. Policymakers and economists rarely denounce the scandal of inequality in work effort, creativity, talent, or enthusiasm. ...

Finally, arguments against inequality legitimize envy. Americans may indeed have strong concerns about their relative incomes and may seek status as reflected in their economic circumstances. But to base our policies on the anxieties of those at the back of the status race is to bow before Invidia. A deadly sin is not, in my view, a smart blueprint for policymaking.

A more accurate vision of America sees a land of both inequality and opportunity, in which hard work and perseverance are the keys to jumping from the ranks of the have-nots to those of the haves. If we can solve problems of absolute deprivation, such as hunger and homelessness, then rewarding hard work will continue to serve as a positive stimulant to achievement. Redistribution and taxation, beyond what’s necessary to pay for key services, weaken America’s willingness and ability to thrive.

This vision promotes policies focused not on wiping out economic inequality, but rather on enhancing economic mobility. They include improving educational opportunities, aggressively addressing cultural impediments to success, enhancing the fluidity of labor markets, searching for ways to include all citizens in America’s investing revolution, and protecting the climate of American entrepreneurship.

Placidity about income inequality, and opposition to income redistribution, are evidence of a light heart, not a hard one. If happiness is our goal, those who promote opportunity over economic equality have no apologies to make.

Read the whole thing.
—————————————————
Hat tip to Karen L. Myers.

I don’t suppose one is required to feel sorry for Silicon Valley’s millionaire working class economically exactly, but there is definitely something pitiable about seeing the Porsche and Mercedes stuffed into the minimum of parking associated with a 2000 sq. ft. 1950s tract house on a postage stamp lot.

California is in some respects a lot like Hell. Those condemned to reside in the Valley literally have its temperatures. And the great majority of the more favored, those cooled by balmy Pacific breezes, live like Sisyphus, in possession of real wealth, yet surrounded by conspicuously displayed examples of far greater wealth. Able to own a nice automobile, but still unable to afford a decent home.

“You’re nobody here at $10 million,” Mr. Kremen said earnestly over a glass of pinot noir at an upscale wine bar here. ...

“People around here, if they have 2 or 3 million dollars, they don’t feel secure,” said David W. Hettig, an estate planner based in Menlo Park who has advised Silicon Valley’s wealthy for two decades. ...

Celeste Baranski, a 49-year-old engineer with a net worth of around $5 million who lives with her husband in Menlo Park, no longer frets about tucking enough money away for college for their two children… Yet like other working-class millionaires of Silicon Valley, she harbors anxieties about her financial future.

“I don’t know how people live here on just a normal salary,” said Ms. Baranski. ...

David Koblas, a computer programmer with a net worth of $5 million to $10 million, imagines what his life would be like if he left Silicon Valley. He could move to a small town like Elko, Nev., he says, and be a ski bum. Or he could move his family to the middle of the country and live like a prince in a spacious McMansion in the nicest neighborhood in town.

But Mr. Koblas, 39, lives with his wife, Michelle, and their two children in Los Altos, south of Palo Alto, where the schools are highly regarded and the housing prices are inflated accordingly. So instead of a luxury home, the family lives in a relatively modest 2,000-square-foot house — not much bigger than the average American home — and he puts in long hours at Wink, a search engine start-up founded in 2005.

“I’d be rich in Kansas City,” he said. “People would seek me out for boards. But here I’m a dime a dozen.”

Read the whole thing

5:10 video

map

The sleeper awakes to find Communism gone, replaced by prosperity and plenitude.

Reuters:

A Polish man has woken up from a 19-year coma to find the Communist party no longer in power and food no longer rationed, Polish TV reports.

Railway worker Jan Grzebski, 65, fell into a coma after he was hit by a train in 1988.

“Now I see people on the streets with mobile phones and there are so many goods in the shops it makes my head spin,” he told Polish television. ...

When Mr Grzebski had his accident Poland was still ruled by its last communist leader, Wojciech Jaruzelski.

“When I went into a coma there was only tea and vinegar in the shops, meat was rationed and huge petrol queues were everywhere,” Mr Grzebski said.

The following year’s elections ushered in eastern Europe’s first post-communist government.

Poland joined the Nato alliance in 1999 and the European Union in 2004.

“What amazes me today is all these people who walk around with their mobile phones and never stop moaning,” said Mr Grzebski.

“I’ve got nothing to complain about.”

Hat tip to Robert Breedlove and Toni Marcus.

Lawrence J. McQuillan and Hovannes Abramyan have done a study of the economic impact of American Tort litigation. Their conclusions are more than a little appalling.

Economists have long understood that America’s tort system acts as a serious drag on our nation’s economy. Although many excellent studies have been conducted, no single work has fully captured the true total costs, both static and dynamic, of excessive litigation.

The good news: We now have some reliable figures. The bad news: The costs are far higher than anyone imagined.

Based on our estimates, and applying the best available scholarly research, we believe America’s tort system imposes a total cost on the U.S. economy of $865 billion per year. This constitutes an annual “tort tax” of $9,827 on a family of four. It is equivalent to the total annual output of all six New England states, or the yearly sales of the entire U.S. restaurant industry.

Anything useful you could do with an extra $9827 a year?

Read the whole thing.

Joram Bauman, the world’s only standup economist, translates Greg Mankiw’s well-known Ten Principles of Economics.

5:20 video

General Motors and Look Magazine long ago published a cartoon version of Friedrich Hayek’s Road to Serfdom, doubtless intended to counteract the efforts of the organized international Communist conspiracy to corrupt the thinking of the American workman.

Hat tip to David C. Larkin.

Milton Friedman died today at the age of 94. There is an excellent obituary by Samuel Brittan in the Financial Times.

Milton Friedman played an exceptionally prominent role in the intellectual revolution which occurred in the later years of the last century, when the 19th century “Progressive” ideals of centralized economic planning, socialism, and collectivism were finally discredited.

It is almost impossible to imagine today the uniformity of leftwing opinion on politics and economics that prevailed in Europe and the United States right up until around 1980. Paul Samuelson’s orthodox Keynesian “neoclassicism” was the bible of Economics study at US universities. But, suddenly and unexpectedly, the consensus of professional economists was perceived virtually overnight to be both impotent and wrong.

No one played a more prominent role in articulating the case for the economic advantage of Freedom over Coercion, of spontaneous order over central planning, than Milton Friedman. In both the most rigorous learned academic publications and in popular books, Milton Friedman made an irrefutable case in favor of Freedom.

I remember when his 10-part television serious Free to Choose ran on PBS. It was in a time of national malaise, when recession and high unemployment was combined with double-digit inflation. Inflation had persisted for mre than a decade. From the conventional liberal point of view, the problem was intractable. In one of the episodes of Free to Choose, Milton Friedman walked through a government monetary printing plant. As he approached the gigantic press turning out US currency, Friedman reached out and hit the red emergency STOP button. The press’s operation instantly came to a halt. Milton Friedman twinkled at the camera, and announced: “I have just stopped Inflation.” And the viewing audience understood that he was perfectly right.

He died at age 94 covered with honors for a lifetime devoted to fighting for human liberty. There should be commissioned a painting after Girodet of the Spirit of Ayn Rand Welcoming Milton Friedman Into Valhalla.

Friedman Foundation announcement.

New York Times

Wikipedia entry

Ralph Kinney Bennett played tennis with Friedman.

The Von Mises Institute doesn’t think so. Mark Brandly observes

a hamburger that cost 60¢ in 1959 would have cost $4 in 2005. If the money supply had been fixed, however, that hamburger would only cost 12¢ today. Similarly, a $20,000 car in 2005 would have cost slightly less than $3,000 in 1959. Again, without the monetary effect on prices, that car would only cost $600 today. The price of a $45,000 house in 1959 would have increased to $300,000 in 2005. With a fixed money supply, that house would cost $9,000 today.

UPI 10/20:

A University of Washington economic geologist says there is lots of crude oil left for human use.

Eric Cheney (Y ‘56, Y Ph.D. ‘64) said Friday in a news release that changing economics, technological advances and efforts such as recycling and substitution make the world’s mineral resources virtually infinite.

For instance, oil deposits unreachable 40 years ago can be tapped using improved technology, and oil once too costly to extract from tar sands, organic matter or coal is now worth manufacturing. Though some resources might be costlier now, they still are needed.

“The most common question I get is, ‘When are we going to run out of oil?’ The correct response is, ‘Never,’” said Cheney. “It might be a heck of a lot more expensive than it is now, but there will always be some oil available at a price, perhaps $10 to $100 a gallon.”

Cheney also said that gasoline prices today, adjusted for inflation, are about what they were in the early part of the last century. Current prices seem inordinately high, he said, because crude oil was at an extremely low price, $10 a barrel, eight years ago and now fetches around $58 a barrel.

Thomas Sowell writes:

Although socialism has long claimed to be for the poor, it has probably done more damage, on net balance, to the poor than to the rich. After all, the rich have enough money to leave the country if they think the socialists are going to do them any serious harm.

Some of our own rich have already had their money leave the country, to be sheltered from the higher taxes that limousine liberals say we should all pay. Meanwhile, the liberal media give them kudos for their selfless advocacy of higher taxes on higher income people, forgetting that these are not taxes on wealth.

Most of the people in the upper income brackets are not rich and do not have wealth sheltered offshore. They are typically working people who have finally reached their peak earning years after many years of far more modest incomes—and now see much of what they have worked for siphoned off by politicians, to the accompaniment of lofty rhetoric.

The rich have learned to adapt socialist policies to their own benefit.

Sowell also identifies the factor behind much of the astonishing rise in real estate prices in many regions of the country in recent years: artificial shortages produced by zoning and building regulations designed to preclude development.

A very different form of socialism for the rich protects their communities from even the dangers of a free market. A whole array of laws and policies prevents outsiders from buying up property near them, even when these outsiders are ready to pay prices determined by supply and demand, rather than by eminent domain.

For example, the “open space” laws that have spread across the country to protect upscale communities represent one of the biggest collectivizations of land since the days of Josef Stalin.

Upscale residents say that they have a right to protect “our community.” But not even the rich own the whole community.

They own what they paid for—their own individual property. But they get the government to collectivize the often vastly larger surrounding property, in order to keep the unwashed masses from settling near them and spoiling their views.

Moreover, they wrap themselves in the mantle of idealism while doing this and denounce the “selfishness” of those who would stoop to building homes or apartments to house others, just to make money.

Hat tip to José Guardia.

The Wall Street Journal celebrates the twenty fifth anniversary of Ronald Reagan signing the Economic Recovery Tax Act by noting the significance of the impact of Reagonomics on the US and World economies and the breadth of his philosophy’s current acceptance. Russia today has a 13% flat tax.

Twenty-five years ago this weekend, Ronald Reagan signed the Economic Recovery Tax Act. The bill cut personal income tax rates by 25% across the board, indexed tax brackets for inflation and reduced the corporate income tax rate. The anniversary is worth commemorating as a seminal moment that continues to influence policy for the better in the U.S., and around the globe.

The achievement of Reaganomics can only be fully understood by recalling the miserable state of affairs a quarter-century ago. Newsweek summarized the national mood when it wrote in 1981 that Reagan “inherits the most dangerous economic crisis since Franklin Roosevelt took office 48 years ago.”

That was no exaggeration. The economy was enduring a cycle of rising inflation with growing levels of unemployment. Remember 20% mortgage interest rates? Terms like “stagflation” and “misery index” entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American economic weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.

The reigning Keynesian policy consensus had no answer for this predicament, and so a new group of economic ideas came to the fore. Actually, they were old, classical economic ideas that were rediscovered via the likes of Milton Friedman and the Chicago School, Arthur Laffer, Robert Mundell, and such policy activists in Washington as Norman Ture and Jack Kemp, among others. These humble columns under our late editor, Robert Bartley, led the parade.

For every policy goal, you need a policy lever, Mr. Mundell likes to say. Monetary restraint was needed to break inflation, while cuts in marginal tax rates would restore the incentives to save and invest. With Paul Volcker at the Federal Reserve and Reagan at the White House, those two levers became the essence of the “supply-side” policy mix.

The results have been better than even some of its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800—one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn’t exist a generation ago…

Adherents of Rubinomics—after Clinton Treasury Secretary Robert Rubin—are still not converts, arguing that tax increases are virtuous if they reduce the deficit. We’ve addressed that argument many times and will again. But even the Rubinites haven’t dared to repeal indexing for inflation (which pushed taxpayers via “bracket creep” into ever-higher tax rates), and even the most ardent liberals don’t propose to return to the top pre-Reagan income tax rate of 70%. They also now understand that, at some point along the Laffer Curve, high rates begin to yield less tax revenue. The bipartisan consensus in favor of sound money has also held.

Thus today, the top marginal personal and corporate tax rates are 35%, compared with 70% and 48% in 1981. In the late 1970s the tax on dividends was 70% and the capital gains rate was 50%; now they’re both 15%. These reductions have increased the rate of return on capital, and hence some $3 trillion more was invested by foreigners in the U.S. between 1981 and 2005 than was invested by Americans abroad. One result: 40 million new jobs, more than the rest of the industrialized world combined.

The rest of the world, meanwhile, has followed the Gipper down the tax-cut curve. Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland’s corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.

Not bad for a President dismissed as a dreamy former actor. In his 1989 farewell address, Reagan said that “People say that I was a great communicator. It would be more accurate to say that I communicated great ideas.” He was right, and a remarkable global prosperity has followed in his wake. The challenge for current and future political leaders is not to forget it.

Lawrence Kudlow points out that Bush’s tax cuts have worked as promised.

Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium.

This is an extraordinary fact, although you may be reading it here first. Most in the mainstream media would rather tout the faults of American capitalism than sing its praises. And of course, the media will almost always discuss supply-side tax cuts in negative terms, such as big budget deficits and static revenue losses. But here’s another suppressed fact: Since the 2003 tax cuts, tax-revenue collections from the expanding economy have been surging at double-digit rates while the deficit is constantly being revised downward.

For those who bother to look, the economic power of lower-tax-rate incentives is once again working its magic. While most reporters obsess about a mild slowdown in housing, the big-bang story is a high-sizzle pick-up in private business investment, which is directly traceable to Bush’s tax reform.

The dismal quality (“Little boxes made of ticky-tacky”) and mind-boggling prices of San Francisco area housing are famous. “They took the Earthly Paradise, and built New Jersey,” one appalled visitor recently remarked.

Ordinary people are completely priced out of this market, and the Sunday Chronicle reports the situation has inspired the traditional local activist response: Start a Web-Site!

Phil Zarboulas is mad as hell about Bay Area housing prices.

And he doesn’t want you to take it anymore.

What started as an open letter of frustration about the region’s exorbitant home values was reborn last month as www.boycotthousing.com, a Web site that urges people to stop buying Bay Area real estate, report overpriced properties and spread the word about cracked foundations, leaky roofs and rundown surroundings.

A software entrepreneur who was outbid several times during his two-year plus home search, Zarboulas admits he wants to hasten a slowdown in the market and thereby help regular folks (and himself) onto the home-ownership bandwagon.

Through the site—which seems a natural fit in the technology/real estate/advocacy-obsessed Bay Area—Zarboulas also hopes to educate overextended homeowners about the possible disadvantages of tapping equity that may not be real.

“There’s no fundamental reason why house prices are this high—it’s just a mentality,” Zarboulas, 40, said during a wide-ranging interview at a coffee shop in San Francisco. “We want to change that mentality.”

In a housing-strapped region with a population of nearly 7 million and growing, economists doubt Zarboulas’ site will have a measurable effect—not to mention the difficulty of organizing any kind of boycott on something as fragmented as a market with tens of thousands of housing sales each year.

But if even a relatively small slice of those sales are affected by his grassroots effort, Zarboulas is convinced a sense of reason could return to a market gone haywire.

Since its introduction in mid-May, almost 24,000 have visited the site and nearly 1,000 have signed up to voluntarily avoid purchasing a home in the Bay Area for some period, ranging from three months to more than a year.

Obviously, starting web-sites, signing petitions, even linking arms and singing Kumbaya, is not going to bring down Bay area home prices.

What would is what the Bay Area moonbat population would never consider for a New York minute: reducing the San Bruno Mountain-sized pile of building regulations, and opening up some of vast reservoir of safely squirreled-away “open space” where no one is permitted to build.

Unfortunately, the drastic shortage drives prices of existing homes into the stratosphere (Fido’s doghouse would go for $500K if it were on the Peninsula), and creates a gloating constituency of existing homeowners. “I’m on board, Captain, pull the ladder up,” is the real motto of the Golden State.

The SF Peninsula is not an enormously large place, but three preservation organizations alone have taken 125,000 acres, 200 square miles, of land out of circulation.

Peninsula Open Space Trust 55,000 acres

Midpeninsula Regional Open Space District 50,000 acres

Peninsula Watershed 23,000 acres

You won’t read it in the Times or the Washington Post, but Investor’s Business Daily reports that Bush may keep his promise and halve the deficit three years early

Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 — three years early.

Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal ‘06 than in any other such period over the past 25 years — except for last year’s 15.5% jump.

The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%.

The CBO forecast in May that the 2006 deficit could fall as low as $300 billion. Michael Englund, chief economist of Action Economics, has long expected a deficit of about $270 billion this year. Now he thinks there’s a chance the “remarkable strength in receipts” will push the deficit even lower.

With the economy topping $13 trillion this year, a $270 billion deficit would equal less than 2.1% of GDP, easily beating the president’s 2.25% goal. Bush made his vow when the White House had a dour 2004 deficit forecast of 4.5% of GDP, or $521 billion. The actual ‘04 deficit came in at $412 billion, or 3.5% of GDP, before falling to $318 billion, or 2.6% of GDP, in 2005.

A CBO analysis last week noted that withheld individual income and payroll taxes are up 7.6% from a year ago, with the gains picking up in recent months.

Byron York on NR’s The Corner posts an ECONOMICS QUIZ:

Q: Was U.S. economic growth higher during the time John Snow was Treasury Secretary, or during the time Robert Rubin was Treasury Secretary?

A: It was the same, 3.8 percent.

The government of Zimbabwe cannot afford to print enough paper currency to meet the needs of its runaway inflation.

Official sources said the recent 150 percent pay rise for soldiers, teachers, policemen and nurses had put a strain on money supply.

Reserve Bank officials told IRIN that plans to print about Zim$60 trillion (about US$592.9 million) were briefly delayed after the government failed to secure foreign currency to buy ink and special paper for printing money.

Inflation has shot to 1,042 percent and is still climbing as the economic meltdown continues, putting Zimbabwe’s rapidly dwindling working class in an ever more precarious position.

Clive Crook remembers Galbraith:

‘In all life one should comfort the afflicted, but verily, also, one should afflict the comfortable, and especially when they are comfortably, contentedly, even happily wrong.’ John Kenneth Galbraith, who died at the age of 97 on April 29, said that to Britain’s Guardian newspaper in 1989. Was any American economist of comparable esteem so wrong—so comfortably and contentedly wrong, and for so many years—as Galbraith himself? Verily, I cannot think of a rival.

In a letter to the Wall Street Journal, Mark Skousen notes that even Galbraith confessed recognizing the greater efficacy of freedom:

Mr. Henderson refers to one example where Galbraith changed his mind (about big business facing risk and competition). I can think of another: Which has helped the average person more—economic growth under free-market capitalism or redistribution of income via progressive taxation and the welfare state? In “The Affluent Society” (pp. 96-97), Galbraith wrote:

“Over the centuries those who have been blessed with wealth have developed many remarkably ingenious and persuasive justifications of their good fortune. The instinct of the liberal is to look at these explanations with a rather unyielding eye. Yet in this case the facts are inescapable. It is the increase in output in recent years, not the redistribution of income, which has brought the greatest material increase, the well-being of the average man. And, however suspiciously, the liberal has come to accept the fact.”

Glenn Reynolds notes a good one this morning in Reason by Ronald Bailey:

For the average American living in the United States is like having more than half a million dollars in wealth. So says a new study from the World Bank, Where is the Wealth of Nations?: Measuring Capital for the 21st Century, which makes estimates of the contribution of natural, produced, and intangible capital to the aggregate wealth of 120 countries.

Why are Americans so well off? It’s not just because of America’s fruited plains and its alabaster cities. In fact, it turns out that such natural and man-made resources comprise a relatively small percentage of our wealth.

The World Bank study begins by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal, and mineral resources), cropland, pastureland, forested areas, and protected areas. Produced capital is what many of us think of when we think of capital. It is the sum of machinery, equipment, and structures (including infrastructure) and urban land. The Bank then identifies intangible capital as the difference between total wealth and all produced and natural capital. Intangible capital encompasses raw labor; human capital, which includes the sum of the knowledge, skills, and know-how possessed by population; as well as the level of trust in a society and the quality of its formal and informal social institutions.

Christopher Shea reports:

Victor Yakovenko, a physicist at the University of Maryland, happens to think that current patterns of economic inequality are as natural, and unalterable, as the properties of air molecules in your kitchen.

He is a self-described “econophysicist.” Econophysics, the use of tools from physics to study markets and similar matters, isn’t new, but the subfield devoted to analyzing how the economic pie is split acquired new legitimacy in March when the Saha Institute of Nuclear Physics, in Calcutta, held an international conference on wealth distribution.

Econophysicists point out that incomes and wealth behave suspiciously like atoms. In the United States, for example, beneath the 97th percentile (roughly $150,000), the dispersion of income fits a common distribution pattern known as “exponential” distribution. Exponential distribution happens to be the distribution pattern of the energy of atoms in gases that are at thermal equilibrium; it’s a pattern that many closed, random systems gravitate toward. As for the wealthiest 3 percent, their incomes follow what’s called a “power law”: there is a very long tail in the distribution of data. (Consider the huge gap between a lawyer making $200,000 and Bill Gates.)

Other developed nations seem to display this two-tiered economic system as well, with the demarcation lines differing only slightly.

To an econophysicist, the exponential distribution of incomes is no coincidence: it suggests that the wealth of most Americans is itself in a kind of thermal equilibrium. To change it, “you will have to fight entropy,” Yakovenko says. That people aren’t mindless atoms and that governments try limited wealth redistribution doesn’t really matter, he adds: large, complex systems have their own statistical logic that trumps individual, and state, decisions. In March, Yakovenko told New Scientist that “short of getting Stalin,” efforts to make more than superficial dents in inequality would fail. Recent increases in inequality in the United States, he adds, stem from the rising fortunes of the top 3 percent; there has been little change in the rest of the distribution.

Not so very long ago, almost universally accepted common wisdom blamed the Great Depression on “the excesses of capitalism,” and believed that it was Franklin Delano Roosevelt and the New Deal which saved the capitalist system from itself by the addition of social welfare and more intense federal management of the economy. As the Wall Street Journal reports, the world has since turned upside down:

For decades, many economists and policy makers thought the Depression was the inevitable consequence of excess investment, flawed corporate governance and speculation in the 1920s, culminating in the 1929 stock-market crash. That view was reinforced by John Kenneth Galbraith’s 1955 book “The Great Crash, 1929.”

Milton Friedman and Anna Jacobson Schwartz upended that view in 1963. In “A Monetary History of the United States, 1867-1960,” they argued that the Depression was far from inevitable, but brought about by an “inept” Federal Reserve. First, they said, the Fed foolishly raised interest rates in 1928 to end speculation on Wall Street, causing a recession the next year that precipitated the crash. Then, it let thousands of banks fail and the money supply shrink. In part, it thought weak banks should be allowed to fail. It also feared that lower interest rates might lead foreigners to dump dollars, straining the currency’s link to gold.

Mr. Bernanke read the book as a graduate student at Massachusetts Institute of Technology in the 1970s. “I was hooked, and I have been a student of monetary economics and economic history ever since,” he recalled at a 2002 conference honoring Mr. Friedman’s 90th birthday. Mr. Bernanke, by then one of the Fed’s seven governors, told Mr. Friedman: “Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.”