In September 2009 I wrote a post about learning the roots of the 2008 Financial Crisis. It really gets to the crux of why I was compelled to go on somewhat of an economic “expedition” to find out what went wrong with the U.S. economic system in 2008. Prior to the crisis there I wasn’t aware of any body of economic work that intelligently outlined the causes (not just the symptoms) of the financial crisis than the Austrian School of Economics. As I’ve said in earlier posts, I truly believe that the Austrian Business Cycle Theory (ABCT) is by far one of the most complete descriptions of the “science”, if you will, of economic booms and busts. In addition to the ABCT, I believe that the Austrians have a way of interweaving a healthy amount of skepticism when it relates to the government intervening in the broader economy.

Unfortunately many other economic disciplines make wild assumptions, often very overly optimistic assumptions about the value of government intervention. At the same time, I have my own skepticism on the benefits of a 100% Libertarian approach to our social and political problems, but they clearly have the right pulse on many of the causes of how financial markets and economic incentives can be distorted by “well intentioned” governments. Private corporations don’t get off the hook, but in the context of the financial crisis, they worked in tandem with the government to completely destroy the economy.

I want to make a couple of points:

1. Be an economic policy skeptic. All policy isn’t created equal. As a matter of fact, many of the policy “prescriptions” by the government were completely backward and financially destructive and/or these policies were instituted to benefit a few while impoverishing many.
2. Read some of the suggested resources below. As a matter fact, read as much economic policy as you can. Many times you’ll get to the “real” intentions behind a lot of these policies.
3. Your Congress is bought (Thank you Dylan Ratigan from MSNBC). Please watch the video below and make sure you listen to every single word. If it’s not clear after you watch this video that voting for these cronies is a waste of time, then just off yourself. Okay..that was a joke..don’t off yourself but really understand that depending on our “do nothing” Congress is a waste of time.
4. The only option left is civil disobedience. What I like to call “soft” anarchy. Be an active participant in the economy. Vote with your pocket. Our government was not always enslaved to corporate interests. This can be undone, but it’s going to take a lot more than marching, waving hands, and holding creatively snark protest signs in different cities. There’s trillions of dollars at stake and if a high level of creative destruction doesn’t take place by the people, then we are playing a very dangerous, albeit participatory charade of musical “armchair revolutionary” chairs. Instead of sitting at home or in a cafe we are sitting in the streets.

Books

• Griftopia: Bubble Machines, Vampire Squids, and the Long Con That Is Breaking America by Matt Taibbi
• Greedy Bastards: How We Can Stop Corporate Communists, Banksters, and Other Vampires from Sucking America Dry by Dylan Ratigan
• Economics in One Lesson by Henry Hazlitt
• Road to Serfdom by F.A. Hayek
• The Return of Depression Economics and the Crisis of 2008 by Paul Krugman
• America’s Great Depression by Murray N. Rothbard
• Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse by Thomas E. Woods Jr. and Ron Paul

(AP Photo/Julie Jacobson)

At the root of every social movement is the will to change the present situation for something better. At the root of the Occupy Wall Street protest, which has now moved to other cities around the country, the intention of this movement is to unhook the almost parasitical tentacles of Wall Street from government policy (Washington). More on this here

I don’t believe ANY significant changes will happen via government policy or Washington’s intervention. Washington is an entity that is in the last stages of terminal “political” cancer. At the end of the day, this has to result in the banking firms that were responsible for this crisis to be reprimanded for their corporate malfeasance. We should reward (with our business) those financial institutions that are fiscally responsible, and move our money out of those financial institutions that contributed to the financial crisis.

I’m not convinced that the TBTF banks really understand what they did, nor does our government really care to prosecute these banks who irresponsibly unhinged the global economy for their narrow benefit.

So what we truly need to occupy, is our apathy. It’s our apathy and reluctance to being properly engaged in our political process that has contributed to Wall Street usurping power from the laymen and laywomen. In short, we kept our eye off the ball for too long. This corporate takeover has been happening for decades. Some would say it’s been happening since the inception of the Federal Reserve Bank. Regardless of when you think international banks started unsettling our political process, we are clearly at a tipping point where banks have complete control over our political process.

My suggestion is we engage in a bit of creative destruction to bring the balance of power back into the hands of where it belongs. the Proletariat and many of the hard working people of America (and around the world) who watched their jobs, wealth, financial security and personal livelihood go up in flames by the Wall Street, Federal Reserve Bank, Government-sponsored enterprise (GSE) doomsday machine.

We should start with the following approach:

1. Remove all your assets and loans (checking, savings, IRA, Mutual funds, Brokerage accounts, credit cards, car loans, mortgages, etc) from all banks that were given a bailout from the government.
2. Take all those assets/loans and transfer them to a credit union or firm that was not given a bailout.
3. Everyone who did the first 2 steps should draft a personal letter using their own words and explain to the banks/investment firms (who no longer have your business) why you removed all your money. In addition to that, explain why you moved your assets to the other bank/investment firm.

It’s time to transform our thoughts into action. Show these banks and our “absentee landlord” government that they cannot push our society to the edge of financial oblivion, while profiting off that same financial destruction.

A bank is a place that will lend you money if you can prove that you don’t need it. – Bob Hope

Related Links

Let me be frank, understanding economics (at least U.B.E.P Understanding the Big Economic Picture) takes a lot of reading, patience and a hellava lot of googling archaic economic vocabulary that on the surface seems to make absolutely no sense. However, once you are able to get past the mysterious language of economics and understand the context of this vocabulary U.B.E.P becomes more concrete and eventually you’ll get the “Ahah” moment.

So why am I so relentless when it comes to economic stuff? Well for starters, the economic policies of government have very deep impacts on the amount of money we take home. From taxes, to interest rates, money in circulation, to how much our government spends on certain mandates and a slew of other things that would probably give me carpal tunnel syndrome in my fingers if I attempted to write out all the thousands of circumstances.

Below are 3 books which I believe are good starters or as I like to say “launch pads” into more sophisticated economic fields of thought. I believe there are several critical areas that each of these books cover. One is macro-economics (understanding how the sum decisions from individuals, firms, and governments impact trends, incentives and movements in the broader economic market), then personal economics (how your behavior fits into the larger scheme of the broader economic market), and how maximizing your personal utility is by far one of the most productive acts you can do to make your skills scarce, hence increasing your value in the broader economic market. These 3 books are as simple as it gets. No fancy language, no crazy complex charts, and lots of objectivity to give us an untarnished and balanced perspective needed to tackle many economic issues that challenge us on a day-to-day basis.

Naked Economics: Undressing the Dismal Science by Charles Wheelan

What is there not to like about this book? So simple and concise minus the ideological hyperbole of free markets vs government. Naked Economics strips away all the fancy rhetoric and explains economics in a language that just about anyone can understand. Don’t be discouraged if you bump into something that sounds unfamiliar. A simple “googling” of the particular word or phrase will get you back on track and it’s extremely rare that you’ll run into this issue. The author wrote this book because he was tired of all the “ivory tower” economist explaining economics in such a drab and complex way. If these mainstream economist are the only ones who understand each other and not the general public, what is the point? This book will clear the fog of economic misunderstandings, not to mention it’s pretty darn funny.

The Millionaire Next Door by Thomas J Stanley and William D. Danko

One of the first books that really helped me understand the difference between saving money instead of looking like you have money was The Millionaire Next Door. This book is the ultimate “Anti-Joneses” personal finance doctrine. What’s extremely helpful is this book attempts at destroying a lot of the myths and urban legends that surround wealthy people. Want to know why most millionaires are NOT entertainers and athletes? How is this possible..uh read the book. You’ll be shocked to know how much the average millionaire spends on his/her watch. Want to know? Read the book. Or how about how much the average millionaire spends on a car? Want to know? Read the book. I promise you, you’ll walk away with a new understanding of why saving is so important, especially when it comes to your own personal utility. Too many people carry a fictitious narrative about what wealth is and who are the fortunate few who’ve been able to reach the status of wealthy. I must read for those who are interested in finding out where the seedlings of wealth begin and how those seedlings grow into wealthy roots.

Outliers: The Story of Success by Malcolm Gladwell

One of the most difficult concepts to understand is the dynamic “magic” that keeps the economy chugging along. In short, incentives and human capital. Incentive is the factor that motivates an individual to do a particular act. In the context of economics, it’s usually more money and quality of life. In some instances aspiring for more money might not be tied to just material objects, but could be tied to savings which breeds financial security or other philanthropic aspirations. Malcolm Gladwell’s Outliers is all about the circumstances, timing, and incentives that allowed select individuals to do extraordinary things in the economy, while explaining what happens when people master the art of aligning their personal incentives with their stock of human capital. This is the driving force behind our global economy.

Honorable Mention

Economics in One Lesson by Henry Hazlitt

Once you finished with the first 3 books above, you can’t move forward with understanding economics before you read Economics in One Lesson. Although written within a Libertarian vein (I say this as a compliment), it’s does a pretty good job of removing a lot of the “economic myths” that seem to never go away. The language is a bit heavier than the books above, but it’s still a good read. Although written almost 60 years ago, the content is as relevant today as it was then. A must read for those who want to rise above the cloud of economic confusion and fallacious punditry.

Recently I’ve been reading a lot of articles on the housing market and how it’s been impacted by macro economic policy of the U.S. One article that stands out to clear the air on the roots of inflation and it’s so-called “archenemisis” deflation is Frank Shostak’s Is Deflation Really Bad for the Economy.

I spend a lot of time on mises.org. Not because all my ideas on economics fall in the so-called “Libertarian” camp, although I find many of my own views inline with many Libertarian views, but I can get straight non-partisan, non-baised information on what makes the global economy tick from the likes of mises.org.

It’s not for lack of trying to understand the “conventional” mainstream economic wisdom, but at some point you have to let go and look for greener pastures of understanding. So as we all know, the source of our economic woes was a huge bubble in real estate, prices soared beyond their intrinsic value, investors hedged their bets on those inflated prices and when the cheap credit and cash ran out, prices corrected themselves and we are now experiencing a dramatic price correction in the economy. Unfortunately we are experiencing a huge price correction on all areas of the economy because the real estate industry doesn’t happen in a vacuum. There are many industries that are tethered to real estate, so if real estate gets the “financial flu”, everyone else is going to get “financial pneumonia”.

As stated in the title of Shostaks’ article, “Is Deflation Really Bad for the Economy?”. Well..in the case of the U.S economy yes and no, but overall…No. It’s going to be bad for those individuals who were apart of those jobs in industries that experienced “bubble” prices. Meaning those prices weren’t real and any macroeconomic attempt by the Fed to prop up those inflated prices is a recipe for disaster. The prudent way to go is getting an asset back to it’s “real” price and not the fake “bubble” price. You can’t build off of something that was never supposed to be there in the first place. The “Great Recession” that you are seeing in the U.S. and other economies is a price correction. If there are pockets in the economy that are experiencing a value/price correction, then this is a good thing.

How is any economy going to experience any efficiency or proper recovery if you prop up areas of the economy that are correcting themselves? There are only x-amount of savings and investment resources in the economy and propping up “dead areas” of the economy will create artificial demand (i.e. housing) which is just another bubble. A bubble is just a misuse of resources, not something that is healthy for any economy.

I’ll close with Thomas Wood’s wonderful analogy from his book Meltdown: A Free Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. No better explanation can sum up the danger that lies ahead if we continue to artificially maintain areas of the economy that deserve a value correction:

Consider a circus that comes to town for a few weeks. A restaurant owner may expand his seating capacity in the false expectation that the circus and the related demand for his food that it brings in its wake will last forever. But when the circus leaves town, he’ll find he has “idle resources” on his hands. We should not want to put these idle resources to work. Doing so would only draw labor and other resources away from other sectors of the economy, where they are employed in the satisfaction of real consumer demand. The expansion of the restaurant should not have occurred in the first place. We should want this bubble activity to shrink back down to size, in order that other, non-bubble activities in the economy can be correspondingly strengthened.

In the wake of a previous, unsustainable boom brought about by the central bank’s credit expansion, the market economy and its price system, left to their own devices, will adopt another arrangement of resources that employs available factors in the service of producing goods and services that correspond to real consumer demand. During the bust, free individuals interacting within the market nexus sort out which projects and business ventures are healthy and sustainable, and which are bubble activities that cannot survive without a constant artificial increase in the money supply, and cannot (and should not) survive now that reality has reasserted itself.

• Tooth Fairy Economics by Thomas Woods
• Our Insane System of mortgage finance? by John Papola
• The Fed Can’t Solve Our Economic Woes by Gerald P O’Driscoll Jr.
• Is Deflation Really Bad for the Economy? by Frank Shostak

One of the most painful things to see is how pundits, cable networks, commercials, and hearsay can dominate the headlines, but practical financial advice on how to stabilize the economy fall to the waste-side. So the latest distraction is a Dow 10000 and other personalities selling the idea that only the government can dig us out of this economic mess. If it wasn’t clear before, let me elaborate who the guilty parties are in this current economic mess:

• Federal Reserve Bank aka The Government
• Financial apathy among the citizens of the United State of America
• Poor ethics among various investment houses, housing appraisers, rating agencies, mortgage brokers, commercial banks, especially Freddie Mac and Fannie Mae
• Unintelligent Regulation
• Capitalism (sike)

No matter what anyone says, capitalism is not the problem for the current economic crisis. Unethical individuals taking advantage of the financially naive, coupled with a rogue Federal Reserve Bank that clearly has mixed intentions is the core problem. I’m no psychologist but I’m going to be the first to offer a condition that has plagued Americans since the FED was instituted. It’s called Historic Economic Amnesia (HEA) Syndrome:

It’s the inability to grasp past guidelines of economic history and current financial events to prevent future prediction errors.

As soon as a tiny spark hits the economy, we forget about what sound economic policy really is. We also forget who the villains are who created this problem in the first place. We also forget that our financial decisions are a big part of economic policy. What really boils my blood is to see the same individuals who caused the problem claiming that they have the answer. As I said in a earlier post, we are going to the arsonist who burned our house down for advice on how to put out fires. Of course an arsonist probably understands creating and putting out fires more so than the average person, but clearly there is a ethical problem.

I have seen this author on several news shows (Morning Joe, GPS) in the last couple days; his name is Robert Skidelsky. His new book Keynes: The Return of the Master explains the career of John Maynard Keynes and his influence on today’s economic policy decisions. If you don’t have the patience to read Keynes’s original classic The General Theory of Employment, Interest and Money, this book will serve as a “Keynes in 24 hours” overview.

I would also suggest folks to watch the documentary Broke: The New American Dream. It serves as a good reminder of what we are dealing with.

• Keynes: The Return of the Master by Robert Skidelsky
• Foundation for Economic Education
  http://fee.org/
• Broke: The New American Dream.