Wednesday, February 20, 2013

Still at War? Part 2

I had asked were we still at war since the confederacy never officially surrendered. It occurred to me that the answer is "no" simply because the Civil War was technically a police action. The north never recognized the succession by the southern states and the confederacy was not officially recognized as a country by any other country. Thus, there was no need for a formal surrender by the confederacy since technically it did not exist as a country.

Armen Alchian

There are many reasons why one becomes what one becomes. For me, it was honors principles of economics taken my sophomore year at Georgia. It was a small class taught by a legendary tough professor, Prof. William Miller. The regular sections of economics used Paul Samuelson’s now famous text. We, however, used Alchian and Allen’s University Economics. Prof. Miller was a free trade laissez-faire thinker and scoffed at Samuelson’s Keynesian economics. Alchian and Allen was the perfect text for teaching economic principles. Its free market approach applied basic supply and demand concepts to everyday problems, the political theater and international politics. It was humorous yet rigorous. It asked questions such as “what is the impact of minimum wages on poor wage earners?” While the popular knee jerk reaction – which still exists today – is raise them. Employing supply and demand yields the answer that an increase in minimum wages creates unemployment for those who work for the minimum. That example and countless others led us to apply basic economic principles and come up with answers that were definitely out of the mainstream. However, it gave us a logical basis for making decisions based on rational thought rather than raw emotions. Moreover, Dr. Miller added works by Thomas Sowell when I turned up in his class. Basically he was illustrating that free market thinking was not the sole province of whites and that its use would make us all better off. Alchian and Allen spoke to me and I became an economics major. I then when to Ohio State because one of their free market UCLA colleagues Karl Brunner had taken an endowed professorship there. I had decided I wanted to study monetary economics and wanted to write under Brunner, considered by many as the father of modern monetarism. I was fortunate enough to write under Brunner and spent my career teaching and practicing free market economics – yes even as a federal regulator. Fifty years later, I still have my copy of University Economics. It is on my list of favorite books. I owe a deep intellectual debt to Drs. Miller and Brunner but especially to Professor Armen Alchian who died on February 19th.

Monday, February 11, 2013

Still at war?

The Kingsport (TN) Times News runs on occasion a front page article on the civil war by Ned Jilton. In the Jan 29 issue (I tired to find a link but failed but found an earlier piece which is almost identical is a piece entitled "Gen. George Pickett, the man in charge". It is an excellent article on Pickett from the Mexican-American war to the incident with the pig in Oregon to the end where he was at a fish fry as his men were overrun at Five Forks. I sent him an email congratulating him on an otherwise excellent article. I said that it was mistitled since Pickett was far from "the man in charge". How could he be in charge when he was at the rear? Jilton said that being at the rear was protocol for division commanders but then why were the other commanders, Pettigrew (mortally wounded) and Trimble (wounded and captured) leading their troops? But mainly I was wondering if technically we still may be at war since I don't think the confederacy ever officially surrendered. Yes each confederate army on the field eventually surrendered and Jefferson Davis dissolved the government when he fled to Georgia but I don't think there was ever an official declaration of surrender. Was there?

Sunday, February 3, 2013

Did the Germans read my blog?

The Wall Street Journal reported on Thursday January 31 that the German government will propose splitting off bank's risky activities into a separate bank. I have made that proposal often in the past in this space along with imposing 100 percent reserves on the bank that holds deposits ( My notion is that the fiduciary deposit taking side of the bank should not be exposed to risk taking. Moreover, the beauty of 100 percent reserves is that there is no need for the FDIC, the banks could no longer create money and there is no risk to depositors. The deposit taking bank would make money by having the Fed continue to pay interest on reserves. The risk taking bank - it could be a subsidiary in the bank holding company - would not finance its portfolio from deposits. Rather it would borrow the money, much like mutual funds do now. My idea was to have this risk taking bank also make loans as well as investments. The German proposal is an outgrowth of a proposal from Finland's central bank and is being also considered in France. So instead of the mish mash that is Dodd Frank which does precious little to address bank risk taking, such a proposal would allow banks to take risks and be regulated by the market place. It would also shield depositors from such risks since no risk taking can occur since the deposit taking entity would not make loans. Of course, the government and the regulators would oppose such a proposal here since it limits their role and reduces their power. But still, its a thought.