Patterico's Pontifications


Thomas Sowell on the Fed: “When Somebody Removes a Cancer, What Do You Replace It With?”

Filed under: Books,Economics,General — Patterico @ 9:11 pm

I have recently begun a giant post about why we need to get rid of the Fed. But rather me writing a giant post, why not just ask you to watch a very short (under four minutes) video of one of our best thinkers arguing that we should do away with the Fed?

I love the fact that the interviewer is totally flabbergasted by his answer — admitting that he didn’t actually expect Sowell to say that.

I just finished Sowell’s Economic Facts and Fallacies. Just wonderful stuff; you always learn much you didn’t know from Sowell books, and it’s well-written and well-reasoned. He is a national treasure.

Here’s the video:

16 Responses to “Thomas Sowell on the Fed: “When Somebody Removes a Cancer, What Do You Replace It With?””

  1. Ding.

    Patterico (9c670f)

  2. “When Somebody Removes a Cancer, What Do You Replace It With?”

    Hope for the future?

    ropelight (c30b7f)

  3. I loved that line too ropelight.

    Removing the Fed would pretty much mean a non-inflationary currency, correct?

    Dejectedhead (4bfcf6)

  4. O/T, sorta. But since Thomas Sowell is the subject, it’s not really.

    October 27, 2005
    Rosa Parks and History
    By Thomas Sowell

    … Those who see government as the solution to social problems may be surprised to learn that it was government which created this problem. Many, if not most, municipal transit systems were privately owned in the 19th century and the private owners of these systems had no incentive to segregate the races.

    These owners may have been racists themselves but they were in business to make a profit — and you don’t make a profit by alienating a lot of your customers. There was not enough market demand for Jim Crow seating on municipal transit to bring it about.

    … These tactics delayed the enforcement of Jim Crow seating laws for years in some places. Then company employees began to be arrested for not enforcing such laws and at least one president of a streetcar company was threatened with jail if he didn’t comply.

    None of this resistance was based on a desire for civil rights for blacks. It was based on a fear of losing money if racial segregation caused black customers to use public transportation less often than they would have in the absence of this affront…

    I was reminded of this by the fact that the very wise Thomas Sowell is central to the discussion. And the Indiana RFRA has been insanely compared to Jim Crow by the very people who brought the south Jim Crow, and would do so again in the name of fighting Jim Crow.

    Steve57 (cd6f9a)

  5. …and would do so again in the name of fighting Jim Crow…

    This time nation wide.

    Steve57 (cd6f9a)

  6. I have removed the word “expect” from that post and am holding it hostage.

    Kevin M (25bbee)

  7. …admitting that he didn’t actually Sowell to say that…

    How much is the ransom for all those p’s and t’s that you’ve made disappear from my commens?

    Steve57 (cd6f9a)

  8. not jive ni**ers like sowell

    justin (7ae4ad)

  9. Mr. Sowell’s book Black Rednecks and White Liberals has been one book I lend out to liberals, they hate me twice as much when they realize their views are flucked about race.

    mg (31009b)

  10. I paid the ransom, Kevin M.

    Patterico (cf4526)

  11. But, but, but how can a black man be a national treasure to us racist conservatives?

    Hoagie (58a3ec)

  12. Thomas, Hoagie, Thomas Sowell. Does he have any nephews or nieces?

    nk (dbc370)

  13. The Fed’s role in our recent misery is the subject of Financial Fiasco by Johan Norberg. It is very good, full of fun stuff as well as clear explanations of the insanity that has prevailed in our financial and fiscal leadership, and it is available on Kindle for about $5. Did you know, for example, that:
    1. Alan Greenspan prefers to read and write while lying in his bathtub, and that he played a saxophone in a jazz band.
    2. Cheney said deficits don’t matter, and that was backed up by Irwin Stelzer in the Weekly Standard in 2005. Everyone was in thrall of the concept of “preemptive Keynesianism”, the idea that we could spend our way into fiscal health.
    3. Fannie and Freddie got caught out on audits in 2004, and Bush tried to clamp down on them. These two Government Sponsored Enterprises spent $170m lobbying and supporting Democrats, and that was pretty much the end of the Bush Presidency (my conclusion.)
    4. A coding error in a securities rating agency was discovered after it had rated a security as Aaa. The error was fixed, but instead of revising the rating to the lower one the corrected code produced, the agency tweaked the inputs until they replicated the original result. It was all part of a mad competition by the agencies to keep their ratings high, so as not to lose business.

    The author is careful to follow the twisted paths that “regulations” create (ie., Basel I leading to Basel II, etc.) as investment banks optimize their holdings while following the letter of the law. This leads to any number of unintended consequences. He also explains the secondary market created by Fannie and Freddie for “securitized” home mortgages, and how this played havoc when the market crashed in 2008.

    The thing I take away from all this is that the Fed is a problem, but it is only part of the problem. We have such a jumble of regulations and agencies that are all feeding off the carcass of our economy, that pulling one out of the feeding frenzy won’t make a lot of difference.

    bobathome (ef0d3a)

  14. “These two Government Sponsored Enterprises spent $170m lobbying and supporting Democrats, and that was pretty much the end of the Bush Presidency (my conclusion.

    bobathome – The GSE’s have an awesome lobbying machine in Washington and on a local level. They did not just spend money supporting Democrats, but actively lobbied against Republicans in their home districts who wanted to rein in their activities, enlisting the support of builders, bankers and realtors.

    daleyrocks (bf33e9)

  15. Exactly right daleyrocks [(bf33e9) — 4/9/2015 @ 8:45 am]. I think they ran a bunch of those ads in Republican districts saying “Contact your Congressman, tell him you don’t want him to keep the less advantaged from buying homes”, or something similar. I think we see the same thing today with “Obama has lowered your mortgage rate, contact us ..”. And Norberg mentions that Senator Robert Bennett (R, Utah) watered down legislation dealing with securities disclosure and capital requirement. Fannie was the second largest donor to his campaign, and his son worked for Fannie. So they were willing to support the right kind of Republican, which is a form of bipartisanship.

    Norberg also calls Krugman to task over a statement along the lines that “Fannie has never issued a subprime mortgage.” Which is factually true, since neither Fannie nor Freddie issue mortgages. That is all done by local banks or other financial institutions. However, Fannie and Freddie were able to scoop up all the prime mortgages (which paid low interest on the loans) since they could borrow at even lower rates denied private concerns, leaving the subprimes for others. Which indirectly supported subprime borrowing. And in addition, they were ordered by the Clinton and Bush administrations to buy more and more mortgages issued to low and very low income households. Under Bush it rose to 56% in 2008, with 28% very low income households. And many of these were subprime. And a huge percentage of the income statements made on loan applications weren’t verified, so who knows what the real percentage of very low, or nonexistent, income households were given mortgages. The local lenders were middle men who unloaded their mortgages to Frannie and Freddie as fast as their little legs could carry them.

    bobathome (ef0d3a)

  16. Will there be bells ringing in your areas this afternoon as part of the national commemoration to mark the end of the Civil War 150 years ago?

    elissa (76b476)

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