Price Fixing

Yet in 2007 Congress [prospectively] raised the minimum wage to $7.25 in 2009 from $5.15 amid the recession. Speaker Nancy Pelosi [] was happy later to carve out a lower-wage exception for American Samoa, where the San Francisco-based StarKist [in her Congressional District] operates a manufacturing plant. But Puerto Rican employers got no such help.

"America’s Greece:  Puerto Rico is a failed welfare state that needs a Detroit-like overhaul," The Wall Street Journal, July 3, 2015, A12; Puerto Rico has 12.4% unemployment and only 40% labor participation rates.

In the Kingdom of Ends everything has either a price or a dignity. Whatever has a price can be replaced by something else as its equivalent; on the other hand, whatever is above all price, and therefore admits of no equivalent, has a dignity.

Im Rieche der Zwecke hat alles entweder einen Preis, oder eine Würde. Was einein Preis had, an dessen Stelle kann auch etwas anderes, als Äquivalent, gesetzt werden; was dagegen über allen Preis erhaben ist, mithin kein Äquivalent verstattet, das hat eine Würde.

Immanuel Kant, Foundations of the Metaphysics of Morals [Lewis White Beck translation, modified, The Liberary of the Liberal Arts, Bobbs-Merrill, 1959, p.53]; Grundlegung zur Metaphysik der Sitten, A/B 77 [Band VII der Werkausgabe, Herausgaben von Wilhelm Weischedel, Suhrkamp Taschenbuch Wissenschaft, Erste Auflage, 1974, 1995, p.68] -- note, only fungible things with prices can be replaced by something equivalent; things with dignity are never fungible -- but some things with dignity do have prices, even human lives, as we see in "wrongful death" lawsuits, which assess relative damages.

I suspect that most people would say that price fixing is a bad thing. At the same time, they may think of this only in relation to private businesses, businessmen, or corporations, while most of the instances where government fixes prices may be viewed as a good thing. We know that capitalists try to fix prices so that they can exploit others and increase their own profits. If they have a monopoly, they can do this easily; but since all capitalists are of like mind, they can always cooperate together and fix prices by agreement among multiple businesses. Government will fix prices to protect the workers and the public from such things. The government may fix wages to provide for a decent income for the workers, or fix food or housing prices to make such basic necessities affordable for all. This has actually been done for centuries. We still have the list of prices mandated by the Emperor Diocletian. It was only with the rise of laissez-faire ideology that governments began to let capitalists do what they wanted.

However, the reasons why price fixing is bad apply as much to governments as to businesses, while the ability of governments to fix and enforce prices, and thus magnify the evils of the practice, is vastly greater than the ability of any private business to do so. No business can durably fix prices without government assistance. Thus, the notion that monopolistic capitalists are always fixing prices, while government rides to the rescue of the people, is a fantasy -- a fantasy promoted equally by those who control and benefit from government, and by the businesses that benefit from the protection and patronage of government. Since government, institutionally and individually, can make money operating as a protection racket -- protecting business from government itself -- the whole process is a source of corruption.

The inability of monopolistic or colluding businesses to effectively institute price fixing, in the absence of the sort of coercive enforcement provided by government, is demonstrated by the experience of the Organization of Petroleum Exporting Countries (OPEC). The whole purpose of the existence of OPEC has always been to fix prices and/or control the supply of petroleum on the world market -- the later itself a device for influencing prices. While not all oil producing countries (such as the United States) belonged to OPEC, its membership included so many of the principal producers of the '70's, '80's, and '90's, that any time they raised prices or cut back production, the "oil shock" on world markets was palpable. However, the shock never lasted. The problem was always what happens to private price fixing or collusion in a free market:  Cheating. OPEC members could always arrange to sell more oil than their quotas, and for lower prices. They could make more money off increased volume than faithful members could make off the official price fixing. And nothing short of war could stop them from doing so. Indeed, the speculation is that Saddam Hussein invaded Kuwait in part because the Kuwaitis had been cheating on the price and production of oil, pulling business away from Iraq.

But if OPEC proved unable to control prices, and now in 2015 massively increased American production promises to permanently break the power of the cartel, how could John D. Rockefeller control prices more than a century ago? He couldn't -- except in the sense that he drove down oil prices and undersold competitors. The classic anti-capitalist canard, however, that the monopolist Rockefeller could wipe out competitors and then raise prices to squeeze consumers, was something that never happened. The prices that Rockefeller drove down stayed down for decades -- so much so that OPEC tried its best to drive them up. Gasoline at less than $2.00 a gallon in 2015 means that this is no more than 8¢ in 1891 prices, not much more (but still more) than Rockefeller's 5.2¢ kerosene. Nor did Rockefeller ever control any Texas oil, leaving his own "monopoly" sorely compromised. Nor could Rockefeller contractually collude with other companies and enforce price fixing in the courts. The courts of the evil days of laissez-faire capitalism refused to enforce contracts that embodied any "conspiracy in restraint of trade."

Why price fixing is bad depends on the nature and function of prices. Market prices reflect supply and demand. High prices encourage production, discourage consumption, and encourage entry into the market. Low prices discourage production, encourage consumption, discourage entry into the market, and often put weak competitors right out of business. If production outpaces consumption, there is a surplus of the produced goods and goods go unsold. If demand outpaces production, there is a shortage of the produced goods. Surpluses betray economic inefficiency and waste, while shortages mean that consumers are not getting the goods that they want, which is not a matter of waste but may be said to indicate a basic failure of the economic system, whose purpose is to provide goods to the public.

Bill O'Reilly used to ask economists on his show "who" sets prices -- since he believed high oil prices, but evidently not low ones, were set by a conspiracy of oil companies.
What is offered by the buyerWhat is asked by the seller
e.g. $44.60e.g. $44.63
His guest economists were almost never able to give a simple answer to the question. But there is a simple answer. Prices are set by the last transaction -- when a buyer accepts what a seller asks, or a seller accepts what a buyer bids. I used to participate in this process when bargaining in markets in Syria and elsewhere in the Middle East (before, of course, Syria exploded in civil war). When a commodity or stock market closes for the day, the last transaction will eventually be identified, but which transaction that will be depends on the timing of multiple transactions. As I discovered in the Middle East, the bargaining process makes some people uncomfortable; and the back-and-forth of bids and asks is a matter of skill and practice. Moralists may view the whole process as grubby, ignoble, and venal. Most Western consumers are now accustomed to "fixed" prices, i.e. sellers who will not bargain, but this is not natural to a free market. The Western consumer, however, affects prices by simply purchasing or not purchasing, or going to a different seller.

Where there is a surplus in the market, producers will cut their prices so that the goods will move, which is better than holding an unsold inventory that, as such, is worthless (hence the saying, "What is sunk, is sunk"). Where there is a shortage, consumers will bid up the prices they will pay, so as to obtain goods that otherwise might have been sold to others. If we are talking about the same goods, there is a point where the price cut down by the producer will meet the price bid up by the consumer. This is the "market clearing" price, which enables all the goods to move and also establishes the level of demand that comes from consumers -- otherwise it is all but impossible to know what the demand is going to be (a risk Hollywood takes with the release of every movie). Of course, if consumers are dissatisfied with the quantity of goods, i.e. there are some who didn't get what they wanted, they will continue to bid up the price. If the producer sold out his stock at the lower price, he will then be motivated to produce more. Some producers of luxury or specialty goods may deliberately try to create shortages, but they also run the danger of pricing themselves out of existence -- as Rolls Royce experienced multiple bankruptcies, while Ford never did.

The dynamic of prices, supply, and demand can be expressed in the diagram at left. Since supply and demand vary by price, they are represented by curves or schedules, and the diagram has two axes, one for price and the other for quantity, either of supply or demand. Where the supply and demand curves cross is found the market clearing price. As shown, if the schedule of supply increases ("supply, a" to "supply, b"), i.e. the producer is able to produce more goods, while the schedule of demand remains the same, the market clearing price will fall ("price, a" to "price, b").

The notion of critics of capitalism that chronic overproduction is possible, with producers marketing goods that cannot be bought, overlooks the characteristic of the system that goods will move when the prices are cut enough, or the producers, unable to sell their goods, will simply go out of business. Supply is thus corrected to demand. While Marxists often imagine that somehow businesses can continue even when their goods don't sell, Marx himself thought that the collapse of such businesses would initiate his communist revolution -- as though all of them would collapse all at once. Of course, only businesses at the margin will fail (a consideration, "marginalism," introduced into economics after Marx), while others adjust, or simply inherit, the level of production that is demanded in the market. This dynamic is discussed elsewhere as a feature of Say's Law.

We can see what will happen if there is no concern for determining the market clearing price but instead an attempt is made to fix prices at a certain level. If the price is fixed too high ("price, c"), this intersects the supply curve at a point representing greater quantity than where it intersects the demand curve. This means an overproduction of goods:  a surplus. Goods will go unsold. This has been the perennial problem with agriculture in the United States, where the policy of the government is to drive up agricultural prices, by various meeans, as a political favor to farmers (and to farming States, like Iowa), with the result that more food is produced than is consumed, leaving the government, which then buys the surpluses, with warehouses full of cheese or other commodities. Or food is donated overseas, where it may suppress local production, i.e. put local farmers out of business, which can render local food shortages a chronic problem.

At a dinner with some other academics in the early 1990's, the issue came up of graduate students who were having difficulty finding jobs after obtaining their advanced degrees. I had been long familiar with this in philosophy, but it was affecting the other humanities also. Someone at the dinner, who taught English, remarked that this phenomenon was the result of "overproduction in late capitalism." I had never heard this kind of language before and was really dumbfounded at the level of ignorance and folly it exhibited. Yet it turned out to be characteristic of what I would later call "English Department Marxism," which is usually deficient of any knowledge of economics or history, even Marxist economics and history. The most astonishing thing about this, of course, is how anyone could believe that a vast system of pubicly owned, supported, and administered colleges and universities could possibly be regarded as part of "capitalism," "late" or otherwise. Even private universities, however presitigious (e.g. Harvard, Yale, Princeton, etc.), are almost absolutely dependant on government money, with all the manifold strings and absurdities that are always attached to such money. "Overproduction" in such circumstances is endemic and deliberate, not to capitalism but to government, even as in 2015 Barack Obama wants community colleges to be free so as to subsidize even greater levels of education, on the premise that more education is always better. But more education, with more degrees and advanced degrees, most precisely means production without the slightest concern expressed for demand -- this at time when recent college graduates are already having less success than they have had in years finding jobs commensurate with their qualifications. Similarly, government policy drove up housing prices for years, by demanding of banks that they lend to unqualified, but politically favored, minorities. When this mortgage bubble collapsed, politicians then expressed shock, shock, that banks had been lending to unqualified borrowers. This was "predatory lending" -- and obviously another characteristic of overproduction in late capitalism. It's never the fault of a government filled with socialists and statists for the consequences of their own (coercive) policies. It is as though they were mere spectators on laissez-faire capitalism and had never been able to do anything about it. Instead, what is "late" is the history of disastrous government interventions in the market, beginning with the Interstate Commerce Commission fixing prices and then really hitting its stride with Herbert Hoover and Franklin Roosevelt, who created and then perpetuated the Great Depression with a program of driving up wages and demonizing capital. A surplus in the labor market, of course, is called "unemployment," which peaked at over 33% under Hoover but then had returned to over 20% in 1938, under Roosevelt.

If the price is fixed too low ("price, d"), then this interesects the demand curve at a point representing greater quantity than where it intersects the supply curve. Consumers want more goods than will be available. This is a shortage. For instance, newly independent African counties, persuaded by right thinking European academic advisers, fixed agricultural prices low enough to ensure that food would be affordable for the urban population of their countries. This was usually well below what a market clearing price would have been for local agricultural production, with the result that farmers went out of business and food simply was not available (except on the black market) to the urban population supposedly benefited by the price fixing policy. A similar problem had long been the case in the Soviet Union, where actual starvation was fended off by the device of allowing farmers to sell in private markets produce that they had grown themselves on land alloted to them personally from what were otherwise communal farms. The production from those private plots was vastly larger in proportion to their size than that of the communal farms as a whole; and the Soviet Union, while still requiring grain from the United States (as in a deal arranged by Jimmy Carter), did better than it would have otherwise. The whole experience vindicated Jefferson's prescient maxim, "Were we directed from Washington when to sow, and when to reap, we should soon want bread." Wanting bread was a frequent experience in the Soviet Union, as it still is in Cuba.

In my lifetime, the most annoying periods of shortages involved gasoline. People waited in lines to get gasoline during the Arab oil boycott of 1973, after the Yom Kippur War -- when Arab neighbors invaded Israel in a surprise attack but then were defeated in turn. Because of the boycott, people were not surprised that there seemed to be gas shortages. However, in 1979 there were shortages again, and lines, but by then people had begun to think it was all happening because the world was running out of oil.

No, it was all price fixing. Rihcard Nixon had instituted a wage and price freeze in 1971, ostenstively to stop inflation (which of course was actually due to the final abandonment of the Gold Standard and undisciplined monetary expansion). The freeze was lifted and reimposed more than once, and even imitated in Britain. After OPEC had some success in driving up oil prices (part of which was simply to keep up with inflation, but was not seen that way), a freeze on oil prices was continued even after most other prices were freed up. Hence the shortages in 1979.

Jimmy Carter, who started other forms of deregulation, kept controls on oil prices, i.e. he fixed the price at a politically agreeable, i.e. low, level. This produced shortages even as the night follows day. But the narrative in public discourse was that lifting price controls would leave everyone at the mercy of monopolistic Big Oil. The oil companies, if unleashed, would eat us alive.

Another problem with the oil companies in public discourse was "windfall profits." Companies had bought, or contracted, for oil previously at lower prices. As the prices rose, the oil was sold at the new prices even though it had been bought at the old. Almost everyone thought that this was unfair, and a ripoff. So Congress, with the hearty approval of one and all, passed a "Windfall Profits Tax" to take away the extra money that the companies got from the difference between the old and the new prices.

I never heard at the time why this was the wrong idea -- which was and is a sad commentary on American public discourse. Many years later, economist Walter Williams explained the problem. You sell things at the price you will need to replace your inventory. The old price is irrelevant. You can't replace what you've sold at that price. Thus, the "Windfall Profits Tax" took away money that the oil companies needed to restock. And if they can't restock, then....shortages.

Good work, economic illiteracy.

Then Ronald Reagan became President. He immediately abolished price controls on oil. And, of course, the oil companies immediately raised prices sky high to crush the little man everywhere, while the capitalists laughed all the way to the bank. No. Not quite. Oil soon became cheap and abundant, and it remained that way for decades. People even stopped worrying that the world was running out of oil. There seemed to be no evidence of it. OPEC occasionally rocked the boat, but its efforts always seemed to evaporate after a little while.

Thus, the market worked, when it was allowed to. The beef against oil now comes from worries about Global Warming. Although recently there was another surge of concern that oil was running out (the "Peak Oil" thesis), we have suddenly discovered all sorts of new sources of oil and gas; and the United States may soon be the largest oil producing country in the world, even as oil prices again fall. This is only bad for those who don't like fossil fuels and want to price or tax or regulate them out of existence, even at the cost of impoverishing Americans (and, incidentally, everyone else). This form of folly is no longer a matter of economics, and its hostility even to human existence, let alone American prosperity, is often palpable.

Shortages caused by government price fixing generate black (i.e. illegal) markets. Such markets can provide goods otherwise unavailable, but their prices are always higher than prices would have been in a free market. This is because black marketeers are in danger of having their goods seized by the government, so their prices must be high enough cover potential losses to confiscation. Prices must also cover potential losses to criminal rivals, who not only may steal goods but may kill employees or destroy properties of the black marketeers. And, prices will also be higher when black marketeers discover that seizures can be prevented, or rivals controlled, through payoffs to the authorities who might otherwise seize their goods. The payoffs become part of their overhead, even while the corrupt authorities may require the occasional seizure just to make the public think that they are doing their job. Historically, whole industries have operated in such circumstances, especially gambling, prostitution, drugs, and, during Prohibition, alcohol and bars. The State of New York officially ceased enforcing the federal Prohibition laws precisely because of the corruption it was generating in "law enforcement" -- although high New York taxes on cigarettes have resulted for years in a black market of smuggled cigarettes from low tax, tobacco growing States. The corruption that recently has enabled fortunes to be made in the drug trade has yet to be fully exposed to the public -- although it was a happy moment for poetic justice when the Governor of New York, Eliot Spitzer, who as a prosecutor made a great show of jailing patrons of prostitutes, was exposed as himself having regularly pratronized a very high end and expensive call girl (the lovely Ashley Dupré).

When critics of capitalism complain about overproduction, they are usually actually thinking about employment rather than production. If someone has no income, because they have no job, then it does not matter how low prices may be cut, the money is still not there to buy anything. The critics look at this and only see prices that remain too high, not workers who simply have no money at all. Their solution is usually to get the government to fix prices in such a way that the workers remain out of work, and others join them. The prices they want to fix, of course, are the wages for labor. Since workers obviously don't have enough money to buy produced goods, then, according to the critics, we must rig it so that they get more money, i.e. we fix wages higher than they already are -- up to a "living wage." Since they thereby end up with no money, let alone a "living wage," the government must step in and just provide them with an income.

One begins to wonder if that may have been the idea in the first place, since, if you are actually supported by the government, instead of having a real job, this is of political benefit to the government and its minions, who can count on the votes and support of such dependants. Thus are feudal vassalage and peonage reintroduced into the modern democracies. This is a far graver form of corruption than even the system of political payoffs for the protection of black markets; for it entrenches in power people, like Elizabeth Warren, who do not think in terms of production or markets, but only of loot and payoffs, both to them and to their vassals and serfs. How bad this can get is evident in Cuba, which, aside from Haiti, has achieved the worst poverty and tyranny in the Western Hemisphere for decades, even while retaining the admiration and praise of American Leftists and even politicians of the Democratic Party. When such politicians return from Cuba with enthusiasm for the Castros, one wonders both what they have been shown and what their plans are for the United States. The obvious indifference of Barack Obama for the poor economic growth of the United States, the loss of labor force participation, the lack of capital investment, and the net loss, not just of jobs, but of actual businesses, in the time since he has been in office, should be such as to raise the worse suspicions about his goals. This might have been obvious from one statement made even before his election, when, in response to the information that cutting the capital gains tax can actually generate greater revenue than raising it, Obama answered that he would raise the tax anyway as a matter of "fairness." One wonders to whom this is supposed to be "fair," since absolutely no one in the public benefits from such a scenario, and inhibiting the liquidation of capital prevents further investment to generate new business, new jobs, and new production. Obama, like Warren, is merely envious and vindictive -- which may benefit them politically, if no one else economically.

A basic problem with American politics is illustrated by a vote in New Jersey in 2013 on an amendment to the State Constitution fixing (and indexing) a minimum wage. Chris Christie, a Republican running for reelection as the popular, at the time, Governor of New Jersey, said absolutely nothing about this amendment, which passed easily. Since Christie wanted to run for President in 2016, his silence on the issue is disturbing, and telling. The Republican Establishment long ago sold out to the New Deal and never challenges its principles. No wonder that Republican voters do not feel well served by their own Republican representatives. The only political ads I saw that spoke out against the minimum wage amendment were wimpy complaints that the State Constitution should not be tampered with for such an issue. Oh, yes, that settles the matter! Totally irrelevant to the problem. Instead, Republicans needed to take a page from Democrat rhetoric and say something like, "Supporters of this measure do not want youth, and especially minority youth, to ever have jobs again." Since Democrats constantly accuse Republicans of wanting old people, or women, or "working families," or sick people, or minorities to die, they deserve some kind of turnabout, especially when there are Democrat constituents (labor unions), who actually do want to limit the labor force in order to drive up (union) wages. Democrats have also been allowed get away with the impression that minority youth unemployment has always been high, when it fact, before the Sixities, it was lower than white youth unemployment. But Republican political rhetoric for a long time has been missing the passion, conviction, and killer instinct so obvious in the Democrats. Nor do Republicans even bother to mention obvious facts like the high unemployment generated by historical practices of driving up wages, including the case of the Democrats' favorite country (apart from Cuba), namely France -- which in 2015 is back at 10% unemployment, with welfare supported Muslims murdering cartoonists or running off to join the Jihad.

Finally, while price fixing has often been attempted by businesses, or by entities like OPEC, which lack enforcement mechanisms, it has only successfully been instituted for extended periods by governments, which can use the law and police powers to keep the fixes in place. However, even governments are often not entirely serious about their manipulations, and government corruption ("the fix") allows some of the diseconomies of price fixing, like shortages, to be avoided to an extent, with benefits both economic and political that are then harvested by politicians and their retainers. If this is all presented under a cloak of lies and distortions, with much of the public deceived, the harm to the health and prosperity of the nation can be serious and enduring. This is much of what we see now, when a significant segment of the public actually believes that the economic policies of the Obama Adminstration have been successful. Not even the French are that gullible. Having foolishly voted in François Hollande, they recognized quickly that his policies were making things worse, not better. They really don't know what else to do, but the embarrassment of their situation seems evident to them. Their hostility to "neo-liberal" economics may in part come from no more than its association with the Americans and British. Americans themselves do not have that excuse, especially when Texas regularly creates more jobs than the whole rest of the country put together. But the United States now labors under a heavy burden of anti-American "educators" and intellectuals, who often dominate public discourse, despite the vigorous existence of alternative media. Thus, although price fixing involves violations of some of the most elementary principles of economics, the idea that the government can do it without harm, and indeed to actually effect benefits, and is even morally obligated to do so, woefully persists.

It's heresy to say so, but maybe after six years of zero-interest rates, and long after the financial crisis ended, the Fed should wonder if its policies haven't become an impediment to faster growth. Maybe letting markets begin to set interest rates again would lead to a better allocation of capital and less economic uncertainty. At the very least the Fed should start analyzing why its forecasts have been so wrong for so long.

"The Slow-Growth Fed," The Wall Street Journal, April 30, 2015, A12

The theory of zero rates and giant Fed bondholdings works for the government, big bond issuers and the upper crust, but it hurts lenders, savers and the broader economy. Japan has followed the same program since its bubble economy burst in the early 1990s, and it has experienced the same poor results. The Bank of Japan has mantained near-zero rates since the '90s and bought bonds equal to 70% of is GDP -- more than double the Fed's appetite -- yet growth and inflation haven't bugded and Standard & Poor's just downgraded the ratings on its massive national debt.

David Malpass, "The Federal Reserve Pulls a Lucy," The Wall Street Journal, September 18, 2015, A13

When the Fed broke ranks with Wall Street in 2014 to taper its bond purchases, it was warned of disaster but achieved a major success. Bank lending to small businesses surged until the Fed pulled back on normalization, and real GDP growth accelerated above 4% for two quarters...

The Fed's theory that extremely low interest rates will someday cause solid growth has been disproved repeatedly. It failed in 2003-2006, when the Fed held rates at 1% and then limited rate increases to only 0.25%, which channeled credit into the housing glut. Growth would have been faster and more balanced if rates had been higher. In the current recovery interest rates are even lower, but the results have been worse, with real growth averaging only 2.2% -- the slowest recovery on record.

David Malpass, "Pro-Growth Tools for the Frozen Fed," The Wall Street Journal, October 7, 2015, A15

The Federal Reserve and Bank of Japan issued new policy statements on Wednesday [9/21/2016], and the common message is that the central bankers aren't sure what to do...

Not even the Fed's dominant Keynesians [!] are promising they can still elevate the economy, after years of asserting the opposite.

The slow growth raises questions about whether the Fed will raise rates even in December. The best Chair Janet Yellen could muster in her press conference is a version of the Fed's familiar Phillips Curve [!] calculation that the jobless rate is low and inflation rises when labor markets are tight.

"Central Bankers at Wit's End," The Wall Street Journal, September 22, 2016, A18, color added

Another important case of price fixing involves interest rates. An interest rate is the price of money. It is what you pay when you borrow money, and it is usally not a fixed price but is proportional to the amount of time that you hold the borrowed money. Western ethics has disliked and condemned interest on money since the Greeks, and it is prohibited outright by Islamic Law. Since Jewish money-lenders were allowed to charge interest in European countries (i.e. Francia) during the Middle Ages, the hostility of borrowers to lenders became an important element in anti-Semitism.

These days, the general belief is that it is the duty of Central Banks to fix interest rates, and that this is to be used to control economic growth. The theory is that after a financial collapse, such as the mortgage debt crisis of 2008, interest rates should be set low, in order to encourage lending. Thus, the Federal Reserve System set interest rates pretty closed to zero for many years after 2008. By 2015, however, economic growth is still poor, the percentage of the population with jobs is bad (i.e. the size of the labor force is the worst since the 1970's), and these are also characteristic of European economies, where the Europeans have also employed the "stimulus" of low interest rates.

The logic here goes a long way to explain the result. Low interest rates may encourage borrowing, but they do not encourage lending. If the money you lend will not earn you much of a return, this is very different than if it will. The Federal Reserve and other central banks thus ignore the simplest economic terms of the situation. Also, not only has this zero interest rate business not been working in Europe -- indeed, things are worse there than in the United States -- but this policy is exactly what the Japanese tried back in the 1990's -- and actually have been still doing ever since. And the results for them have been dismal for the whole time. So, one might wonder, if it was already obvious, years before 2008, that zero interest rates weren't going to help, why is it that the Federal Reserve not only adopted such a policy in the first place but continues to pursue it even now, even when it has not worked in Japan for, literally, decades? There is a marked level of irrationality in this, or self-deception, or ideological blindness. If it is being done for some other reason, perhaps some political reason, it is actually hard to see what that would be. The whole exercise is pointless.

If anything, the political reason for manipulating interest rates goes with the idea of somehow controlling the economy. Since that doesn't work, the Fed may simply be at a loss for what else it can possibly do. Actually, it has been doing something else, which is to increase the money supply in the economy by buying bonds, especially the Treasury bonds that constitute the National Debt and finance the deficit spending that is the lifeblood of fools and Democrats. Maintaining the money supply was actually the only worthy thing that the Federal Reserve was created to do in the first place. In a credit collapse, there will be deflation, which will increase the real value of debt and thus preciptate more bankruptcies than otherwise. Creating money to buy assets, and supplying solvency to cash-strapped banks, will maintain prices, limit bankruptcies, and help the economy recover from its problems. This was well understood by Benjamin Strong, who unfortunately died before his wisdom could have been applied at the beginning of the Great Depression.

The Federal Reserve buying bonds and assets to expand the money supply has come to be called "Quantitative Easing" (QE); and the Fed has kept doing this long after there was no longer much threat of deflation, and when in fact, not only has the threat become of inflation, but the Fed has announced, like the Europeans, that it is actually targetting an ideal rate of 2% inflation. This is worse and worse. The only reason that any inflation is taken to be desirable is the illusion that inflation is good for economic growth. We might have hoped that this particular folly had been exploded by the experience of the 1970's, but apparently not. One begins to wonder if these people at the Fed know or remember anything, since high inflation, deliberately engineered, in the 1970's produced only "stagflation," which was economic stagnation and high unemployment along with inflation. Like the Bourbons, they have learned nothing and forgotten nothing.

If we are looking for ulterior political motives, however, it may be easier to see something here. Inflation is always good for borrowers, since it erodes the value of what they owe, and the biggest borrowers of all are governments. As the national debt of the United States has surprassed eighteen trillion dollars (which New Yorkers can see every day on the debt clock on 44th Street at 6th Avenue), every red blooded fool, or self-interested borrower (like the government), wants more and more inflation. Inflation with artificially low interest rates, however, means that there is less and less reason for lenders to lend.

In 2015, a curious feature of the situation is that, for all the efforts of the Fed and the European Union, they still just can't get much real inflation. Everyone selling gold and silver on television warns of the coming inflation, but the prices of gold and silver, and of mining stocks, continue to be soft, or decline. With all the money being created, what is happening? We may get the answer by going back to the disincentive to lend. People, from banks to corporations, are sitting on the money. The means very low velocity in Newcomb's equation (MV = PT) for prices. The lower the velocity is, other things being equal, the lower prices will be. At the moment, despite QE in America and Europe, there is little reason for the money to move. In the United States, investment, profits, and capital gains are all punished by the tax structure and political rhetoric of the Obama Administration, and the Democrats, openly becoming socialists, believe in more and more of such punishment -- with what we can only call blasts of hatred from people like Bernie Sanders and Elizabeth Warren. It is thus prudent for capital to hunker down, hide itself, and wait for better times. This also means poor growth and high unemployment, so that the money creation of the Fed is doing no more than roughly balancing the deflation that comes from a depressed economy. There is really no Ronald Reagan on the horizon to forcefully reverse all this, but we might get lucky.

It is distressing and bewildering how so much folly could persist at this late date in history. Not only does it, but one begins to think that it is getting worse. Many voters seem to understand that government and socialism make things worse, but then they end up voting for politicians who will simply give them more of the same. Thus, voters flee the high taxes of Massachusetts, but then they vote for the same kind of politicians in Vermont and New Hampshire, ruining the qualities that attracted them there in the first place. Ben & Jerry and Bernie Sanders were not born or raised in Vermont. It is the dilemma and the paradox of our time, and it is not a good sign for the durability of democracy.

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