Thursday, September 16, 2010

Bloated Government Still a Problem After All These Years

What a pleasure today to open the Wall Street Journal and find a full-page open letter to the President signed by Cato Institute. It scolds him, like Alice shaking the King, that in November of 2008 he promised to eliminate waste in the federal budget "page by page, line by line"; and that so far he had not yet begun.

[Thanks to Mr. John Tenniel, illustrator for Alice in Wonderland.]

On the contrary, he and our profligate Congress (both sides of the isle) have been responsible for expanding our budget to a precarious size never seen before.

This letter reminds me of the good old days. Back in the 1950s, 1960s, and 1970s my father, Edward C. Harwood, published such open letters to the standing president, over the byline of his research organization, the American Institute for Economic Research. Very few have the guts to do this anymore.

Rereading from one of my Dad's open letters published in February of 1961 on the subject of inflation, I'm struck by the parallelism with today:

"The great inflation of the past two decades [1940-1960] has shifted about $200,000,000,000 [equivalent to $1.5 trillion in 2010 dollars] worth of assets from the Nation's thrifty citizens and from endowed institutions, in addition to an incalculable but perhaps even larger amount from all whose incomes have been relatively fixed (such as retired individuals ...), to those who have benefited from inflation's progress. One of the chief beneficiaries has been the Government, whose tax revenues have increased greatly; other beneficiaries have been the holders of monopoly privileges including some elements of organized labor as well as numerous others.

"Thus have been fostered dreams of an affluent society able to afford global foreign aid, costly Government intervention in agriculture with accompanying waste of resources, and expansion of business enterprises without sufficient consideration of costs here compared with those abroad.... By cutting in half the buying power of elderly retired persons, they have been stripped of the means to provide for illness and other economic burdens of old age. In these and other ways too numerous to list here economic growth has been retarded and the Nation's economy has been seriously distorted.

"Now, consequences of past money-credit follies confront us. Some Keynesian economists ... recommend more inflation by monetizing more Government debt. Although some Keynesians favor more spending, others favor tax reductions; but the basic notion is the same, i.e., that Government deficits should be monetized to restore prosperity....

"In addition to the dedicated Keynesians, convinced that their nostrum is a useful remedy, various pressure groups will clamor for what they think will promote their interests. Labor leaders who can see only the short-run benefits of more increases in wages instead of decreased wage rates in some industries, speculators in real estate and stocks (especially those speculating on thin margins), bankers whose investment-type assets are excessive and largely 'frozen,' and others who hope to gain from more inflation or fear to lose if deflation occurs will join in the clamor. And adding their not inconsiderable bit will be many intellectuals whose education in verbal facility failed to make them wary of perpetual-motion schemes such as those proposed by the Keynesian inflationists."

[Quoted from "An Open Letter to President Kennedy," 2/19/1961, the final proof document of either the NYT or the WSJ version.]

Ah, that I had the wherewithal to republish much of what he wrote when he was alive. It's all still valid today.

PS: By sheer coincidence, on the page opposite Cato's letter was a huge ad for gold investment in iShares. The ad comes from BlackRock, the gold trust's sponsors and one of the biggest hedge funds, now apparently investing in gold. This also brings back the old days when my Dad brought all his investment clients into gold. He began to do that in 1958, and judging from the results in 1980 when he died, his clients did well.

Central banks have been purchasing gold within the last few months. Would BlackRock be trying to position themselves to get in on a developing business of gold trading, involving bigger and bigger players?

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