In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies.
The Sarah Palins of the world will tell you Laizzes-Faire is the American way. Others will tell you it is what famed economist Adam Smith referred to as the "invisible hand." Supposedly, the economy will work just find so long as everyone just gets out of the way.
It sounds impressive.
Just like "smaller government" or "less regulation" sounds impressive.
But: Be careful what you ask for...you might just get it.
The "invisible hand" allowed the crash of 2007 to occur. In reality, there was not suppose to be an "invisible hand." The government had controls in place (intentional interference) however, those controls lacked the manpower or authority to do their job so they essentially didn't exist. so the invisible hand was unleashed and the economy crashed.
Nearly 100% of the people responsible for the crash made money on the event. Nearly 100% of them are still in place and are in charge of "fixing" things.
This is like going to the fox and saying, "I know you ate all the eggs. What I want you to do now is sleep in here with the chickens and make sure no one eats the eggs."
Dependence upon this invisible hand is hurting us today - at the gas pump.
Gas and oil prices should be based on Supply and Demand. If that were in fact true, we wouldn't be in the situation we are now.
Up to 25% of the cost of a gallon of gas is due to speculation. There is actually plenty of oil on the global market. Supply is high so the "invisible hand" should cause prices to be low.
Here is how speculation works. People with money wait for an event that will make people nervous - such as war in Lybia. Suppose, when that war started, oil was at $90 a barrel. The speculators will see the war brewing and they will buy "futures" which is the right to buy oil at a fixed price in the future. So they could pay $90 a barrel today, but instead, they buy the oil that will be available next week at $95 a barrel. Now, two things take place. Because they are buying future oil, they can take a lot of future oil off the market which makes it apparently scarce (in reality, it is there but owned by speculators). Scarce oil increases the prices. Fear of war in the Middle East also increases the prices. So, the future arrives and the speculators get their $95 a barrel oil. The problem is, because of their interference, the future oil is selling on the free market for $100 a barrel. They only paid $95 a barrel because they bought it in advance.
The bottom line is that, in part, they caused the price to go up - without affecting supply at all.
So much for the invisible hand.
A few years back, when oil went over $150 a barrel, a handful of speculators made billions. They made this money legally although, using questionable ethics. They could see what they were doing to the economy but continued to speculate just the same. After all - it was legal.
Now, I'm not a fan of government interference. Those of you that read this blog know that California is mired in debt simply because the government can't get out of the way. Government interference has ruined the 7th largest economy in the world.
Still, lack of government intervention ruined the largest economy in the world.
In short, this is not a black and white issue. Tea Party members and the GOP would have you believe it is.
I know this topic is a bit dry; but I needed to get it written down.
Now I have to save us from ourselves.
Up, up and away...
Jim
It sounds impressive.
Just like "smaller government" or "less regulation" sounds impressive.
But: Be careful what you ask for...you might just get it.
The "invisible hand" allowed the crash of 2007 to occur. In reality, there was not suppose to be an "invisible hand." The government had controls in place (intentional interference) however, those controls lacked the manpower or authority to do their job so they essentially didn't exist. so the invisible hand was unleashed and the economy crashed.
Nearly 100% of the people responsible for the crash made money on the event. Nearly 100% of them are still in place and are in charge of "fixing" things.
This is like going to the fox and saying, "I know you ate all the eggs. What I want you to do now is sleep in here with the chickens and make sure no one eats the eggs."
Dependence upon this invisible hand is hurting us today - at the gas pump.
Gas and oil prices should be based on Supply and Demand. If that were in fact true, we wouldn't be in the situation we are now.
Up to 25% of the cost of a gallon of gas is due to speculation. There is actually plenty of oil on the global market. Supply is high so the "invisible hand" should cause prices to be low.
Here is how speculation works. People with money wait for an event that will make people nervous - such as war in Lybia. Suppose, when that war started, oil was at $90 a barrel. The speculators will see the war brewing and they will buy "futures" which is the right to buy oil at a fixed price in the future. So they could pay $90 a barrel today, but instead, they buy the oil that will be available next week at $95 a barrel. Now, two things take place. Because they are buying future oil, they can take a lot of future oil off the market which makes it apparently scarce (in reality, it is there but owned by speculators). Scarce oil increases the prices. Fear of war in the Middle East also increases the prices. So, the future arrives and the speculators get their $95 a barrel oil. The problem is, because of their interference, the future oil is selling on the free market for $100 a barrel. They only paid $95 a barrel because they bought it in advance.
The bottom line is that, in part, they caused the price to go up - without affecting supply at all.
So much for the invisible hand.
A few years back, when oil went over $150 a barrel, a handful of speculators made billions. They made this money legally although, using questionable ethics. They could see what they were doing to the economy but continued to speculate just the same. After all - it was legal.
Now, I'm not a fan of government interference. Those of you that read this blog know that California is mired in debt simply because the government can't get out of the way. Government interference has ruined the 7th largest economy in the world.
Still, lack of government intervention ruined the largest economy in the world.
In short, this is not a black and white issue. Tea Party members and the GOP would have you believe it is.
I know this topic is a bit dry; but I needed to get it written down.
Now I have to save us from ourselves.
Up, up and away...
Jim
