Letters

From the April 2008 issue

Burn the Rich
Matt Welch is right on the money in “Burn the Rich” (January). Perhaps the most important point that the critics of privatized firefighting have overlooked is that the firefighting services about which they complain are being provided by a private entity, AIG, in exchange for a higher insurance premium. AIG obviously arrived at the conclusion that it would be more cost-effective to provide heightened fire protection in the form of additional trucks and other prophylactic measures than to pay out possibly millions in indemnity payments for fire-damaged property in high-risk areas.

AIG should be applauded for its proactive approach, which probably will result in lower insurance premiums to its policyholders in the aggregate. I can’t see how AIG’s approach is any different from a corporation’s paying for its own security services in a high-crime area or an insurance company’s charging a lower premium for added security measures, good health, or a spotless driving record. In the end, the financial burden is placed on the individual or entity seeking the protection and not on society as a whole.

In this case, California’s wealthiest in conjunction with their insurers have taken it upon themselves to buy an additional layer of fire protection in lieu of draining public resources. How does this not benefit John Q. Public in the long run?
Eric J. Smith
Bloomfield Township, MI

Guests in the Machine
I was surprised to read Kerry Howley’s praise for a guest worker program and her advocacy for its implementation in the United States (“Guests in the Machine,” January). I find it hard to believe that any proponent of limited government would support such a program, which would undoubtedly require active involvement, as well as the devotion of expensive resources, by the federal government. It seems inconsistent with the traditional principles of libertarianism to promote a federal project of this magnitude. By simply enforcing the law and ensuring that every person employed by an American company is a taxpaying and law-abiding citizen, the federal government can take a much more direct approach to the immigration problem in a way that requires far less bureaucracy than a guest worker program.
Matt Varvaro
Port Washington, NY

Kerry Howley replies: Matt Varvaro forgets that the prohibition on free movement across our southern border is a massively expensive government program. In 1986 the U.S. Border Patrol had an annual budget of $151 million. Today it is $3.5 billion. Even by conservative estimates, the proposed 700-mile border fence will cost many billions more. As taxpayers are hit, so too are border businesses that depend on cross-border trade.

While the fiscal strain is staggering, the costs to human freedom may be even more troubling. For those not granted the benefits of U.S. citizenship, the curbs on autonomy are obvious. But the same ban that prevents non-Americans from traversing the border prohibits Americans from hiring whom they wish, from housing their noncitizen mothers and fathers, from bringing same-sex domestic partners into the United States. As with similarly failed prohibitions on drugs and the commercial sale of sex, I take the position that even a highly regulated regime is preferable to this comprehensive ban on peaceful cooperation. I find it hard to believe that any proponent of limited government would not agree.

Remembering ‘The Forgotten Man’
Amity Shlaes says in her interview (“Remembering ‘The Forgotten Man,’ ” January) a lot that should be said. But she also says some things that shouldn’t be said, especially about the Federal Reserve. Shlaes adopts Milton Friedman’s thesis that the Fed failed in its duty by contracting the quantity of money between 1929 and 1932. She cites Irving Fisher, whom she admires, as saying, “There must be more money!”

True, there was a shortage of money after the collapse of the stock market in 1929. But the contraction had such a catastrophic effect because of the previous expansion.

The Fed was established in 1913 in the hope of avoiding crises due to a shortage of funds such as banks and their clearinghouses had encountered periodically. The Fed was to create a “flexible” money supply to satisfy the “needs of business” and to serve as the lender of last resort to banks in crisis. Thus its very purpose was inflationary. It fostered “easy money” by making loans available at relatively low interest rates. The new easy money lured businessmen to undertake enterprises they would not have considered profitable at market interest rates. Business boomed. The stock market flourished. If there had been no boom, there would have been no monetary contraction. Thus, the Fed’s responsibility for the depression started with the preceding boom.

It is true that the 1929–1932 monetary contractions precipitated the crash and the depression that followed. But the contractions were only the spark that ignited the depression; the kindling had been gathered in the preceding boom. Friedman and Anna Schwartz’s massive history of money, today’s acknowledged authority on the theory that the quantity of money matters, apparently accepted the Keynesian explanation, at least in part, attributing the stock market crash of October 1929 to a “speculative investment bubble,” the cause of which, they say, was “a somewhat controversial topic.”

But the cause of that “bubble,” the seeds of the crisis, were inherent in the very principles on which the Fed was founded. The fact that each crisis, with its unpleasant consequences, is followed once more by a new boom, which must eventually expend itself as another crisis, is due only to the ideology—dominant among political economists, politicians, statesmen, the press, and the business world—that not only sanctions but demands the expansion of circulation credit.

Once the Fed started trying to create a “flexible” money supply, it found itself between a rock and a hard place. Of course its founders didn’t then realize this. But the Fed faced a dilemma: to expand and to keep on expanding the quantity of money would lead to a catastrophic boom and runaway inflation. But if and when it stopped expanding, it would cause an economic crisis. Friedman apparently recognized this point later, although as far as I know he gave no indication that he realized the problem was inherent in the very principle on which the Fed was based. But then he was an inflationist; he believed an economy can prosper only when the money supply is constantly and steadily increased to keep abreast of increases in production and population.
Bettina Bien Greaves
Hickory, NC

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