Free market deflation

I'm no economist but I've read the work of economists unafraid of deflation -- economists like Thomas E. Woods make good points regarding free market deflation. Deflation caused by Fed policies, of course, could spiral out of control, but improvement in productivity and efficiency that drives down prices is good for workers, and everyone, in the long run.

The ingrained idea of higher and higher prices and wages has been artificially stimulated by the Fed mentality, in spite of their ostensible mission to control inflation, and unions which see rising wages always as a sign of progress. But what is more important than higher wages is what the dollar can buy and companies' competitive position in the global market. Government intervention in the economy has caused higher food and gas prices, but without these inflationary realities, falling prices, and even relatively lower wages, could be seen as a major accomplish in the market, if we change our inflationary mindset. Allowing prices to follow economic realities is much better than government manipulation of the economy which has failed miserably.

Before we let Obama invest our borrowed money...

perhaps the country should look back over the past couple of decades. Thomas E. Woods, Jr. is a good guide, and if you read his book, Meltdown, you'll probably come to the conclusion that letting Obama "invest" our borrowed money is the last thing we should do.

Woods lays out the path from Carter's Community Investment Act (CRA) to ACORN blocking the drive through lanes of banks in a efforts to force banks into lending practices which weren't sustainable. Financial corporations share the blame for playing a game they knew was economically deadly, but their implicit understanding that government would back Fannie and Freddie made it easy for bannkers to play without protestation. Quoting Ron Paul, Woods writes:

The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.

This is what needs to be understood -- government "investment" and intervention have hurt Americans -- and the very ones they intended to help. Those who claim lax regulation caused the problem, blame large corporations and crony capitalism associated with Bush and Republicans, but this problem was created moreso by Barney Frank and Henry Cisneros and the Fed than by Republican involvement. The credit rating companies blindly gave their seal of approval for the bundled mortgages which became all the rage, and, at the time, the mortgages were performing, but as everyone who understands economics should have known, once housing prices began to fall the bubble began releasing air. The credit rating agencies are selected by government, so they went with the government pressure to expand home ownership -- everyone turned a blind eye, except the Austrian economists who saw it coming.

Wood's book is a short book and it's well worth reading if you want to understand the fundamental causes which led to the financial crisis and subsequent bail-outs and stimuli from Bush and Obama. Some Republicans, like Ron Paul, sounded the warning, but, for the most part, Republicans were complicit in silence and inaction. The main point is that the Democrat's plan to "invest" even more borrowed money will lead to the same economic distortions as prior "investments" and intervention.

Woods correctly focuses on the Fed as the main culprit, but in a larger way as a statist culprit which manages the economy through monetary policy, yet hardly anyone ever mentions the Fed's role in the financial crisis and the precarious economy which could fall apart at any time. The last thing we need is more Fed mis-management and more government "investment".