The Coming Storm

     Searching for the right article for this stage of the blog, I checked CNN and was surprised to see a commentary on the current economic crisis written by Dr. Ron Paul. Not surprised to see that he had written it, knowing his economic prowess, but surprised to see CNN, a newsgroup considered liberal by many, carrying his ultra-conservative writings. Paul must have been trying to bring his message to the wider audience of “the most trusted name in news,” although in researching the background of this article, I was even more shocked that CNN was not the only network to seek his advice.

     So. I like a challenge. Why don’t I attempt this critical analysis on his commentary? Daunting though it might seem, I set about to dissect Paul’s formidable take on the crisis.

     Paul, who openly and vociferously speaks against the Treasury’s bailout plan, foresees that the bailout will only have a temporary effect on the markets and the gross inflation and ultimate devaluation of the dollar will have a greater adverse effect in the long run. He calls for deregulation in most sectors of the economy, a backing-off of government from its current position of heavy-handed intervention, and balancing and decreasing the federal budget. In Paul’s eyes, the Federal Reserve and various government regulations since the 1930s, such as the Community Reinvestment Act, have the greater share in the blame of today’s financial crisis than, say, deregulation in the mortgage industry. He explains in a brief overview the underlying points of laissez-faire economics, and elucidates how that systems should work and how it is working now.

     This is where Paul and I start to differ (strangely enough, I’ve recently found myself ideologically torn between Paul’s libertarian capitalism and the far extreme of socialism). How things are working now is not the contention; how the system should work is the tricky bit. Part of me wonders if my emerging socialist instincts that cry foul on his Austrian-school logic are just youthful naivety, and another part of me questions whether I possibly understand more than I think. His logic is sound, if you are looking from his free-market perspective; he is more than capable of expressing his views logically enough to convince and enlighten the most uninformed layman. His evidence is basic, solid economic theory that anyone can learn in Principles of Macroeconomics. But Paul is an adherent to a free-market economy, and his calls for deregulation, though stirring, are problematic. Yes, some deregulation might be needed, as in the eradication of the Fed, but more deregulation in the industry could lead to more greed. Yes, people would be responsible for their actions (with no rescue for moral hazard), but then there would be nothing to stop the materialistic and unethical from exploiting other people.

     The implications of this article are the hardest part. Paul obviously understands the markets better than I do, in more depth and obviously with more experience, but I definitely appreciate one of his major points: that a financial bailout by the Federal Reserve could result in hyperinflation and the crashing of the dollar. It took nearly 10 years to recover from the Savings and Loan crisis, at the cost of $153 billion—Capitol Hill is now calling for bailout nearly 5 times that. This is an uncomfortable position for me to take because I don’t know the consequences of letting the market crash. But I do know that by creating more money, we are devaluing the dollar--at a high cost to the average taxpayer--and leaving ourselves open to greater tragedies of unknown scale.

     I could be wrong about the bailout. Perhaps it will save the country from being mired in a second Depression. Or perhaps the $700 billion tab picked up by the taxpayers will only trigger the revolution. If so, I want front row seats.