First, note their use of the word "forced." That panic didn't force the federal government to do anything. The feds chose to intervene. But by using the word "forced," the reporters make it sound as if the regulators are trying to avoid ever being "forced" into something again.

Second, the panic arose because, in 2008, the money market funds were trying to hold on to a $1 per share value and it looked as if they might not be able to. So many people, including me, quickly took their founds out at the $1 per share value to avoid a small haircut. But shares in money market funds are not, repeat, are not like checking accounts or savings accounts. The people who own the funds have no legal obligation to give $1 when you redeem. If earnings fall enough, they might be able to afford only 99 cents or 98 cents or 97 cents. This is called "breaking the buck."

Had the feds not intervened by shoring up the money-market funds, some of the money-market funds would probably have had to cut to a number like 98 or 97 cents. That would have stopped most of the panicked withdrawals. And many people would have learned, or been reminded of, the difference between a checking account and a money-market fund.

Instead, the SEC proposes to stick with moral hazard and add the further regulation that government-caused moral hazard often leads to.

In the comments, wd40 writes:

During WW2, there was forced saving (war bonds) and investment went into the war effort. Hence, the robust economy of 1946 when consumers could draw drawn their savings and consume items that were not not available during the war. Naive regressions did not sufficiently account for this pent up demand.

The problem is that the part about the drawdown of savings is wrong. Here's what I wrote in my Mercatus study, "The U.S. Postwar Miracle."

Keynesian economists also explained why their glum postwar predictions hadn't come true by arguing that people drew down their savings to finance their "pent-up demand" for the various goods they could not have during the war: cars, tires, refrigerators, stoves, and so on. In 1943, Paul Samuelson, in the article quoted at the beginning of this paper, laid out the idea that pent-up demand for consumer goods would cushion the blow of demobilization. Cited in almost every textbook on U.S. economic history, this explanation has become the orthodox one. There's a problem with this explanation, though: it doesn't fit the evidence.

There are two parts of this explanation. The first, which is plausible, is that there was pent-up demand due to the heavy rationing that the government imposed during the war. People were ready to buy cars, for example, after having not been able to do so for over three years. But Samuelson pointed out that this would be a short-term cushion at best. Of course, one could argue that the two years from 1945 to 1947 were short term. But then, after this pent-up demand was satisfied, there should have been a major drop in economic activity and a major increase in unemployment in the medium term. That didn't happen. The unemployment rate was 3.8 percent in 1948 and kicked up to only 5.9 percent in 1949.

The second part of the explanation is that people drew down their savings that they had accumulated during the war. But the term "savings" is what economists call a stock, whereas "saving" is a flow. If I draw down my savings this year, not only do I not save anything this year, but I also spend some of my stock of savings. So, if people were
drawing down their savings, they would have a negative rate of saving. They didn't. While the personal saving rate did fall substantially from a wartime peak of 25.5 percent in 1944 to 9.5 percent in 1946 and 4.3 percent in 1947, it remained positive.

Making things even worse, a DOE stimulus adviser, Steve Spinner, whose wife's law firm represented Solyndra on the application, repeatedly pushed for the original loan guarantee to be approved. For example, Spinner wrote an email to an OMB staffer in August 28, 2009 (just before the official approval) asking, "How [expletive] hard is this? What is he waiting for? Will we have it by the end of the day?"
This is from the February Econlib Feature Article, "Lessons from Solyndra," by Robert P. Murphy.

Another excerpt:

Despite the efforts to cast Solyndra as a lone bad apple, the Department of Energy has guaranteed other renewable energy projects that later collapsed. However, even if the DOE program had always backed "winners"--meaning that no borrower ever defaulted, and so taxpayers never contributed a dime--it still would have encouraged an inefficient use of resources.

Here it is.

That's my summary of an article by Pamela Druckerman in today's Wall Street Journal by an American woman who noticed that French kids tend not to be brats to the same degree that American kids are. It's more grist for Bryan Caplan's mill.

One excerpt:

After a few more harrowing restaurant visits, I started noticing that the French families around us didn't look like they were sharing our mealtime agony. Weirdly, they looked like they were on vacation. French toddlers were sitting contentedly in their high chairs, waiting for their food, or eating fish and even vegetables. There was no shrieking or whining. And there was no debris around their tables.

Though by that time I'd lived in France for a few years, I couldn't explain this. And once I started thinking about French parenting, I realized it wasn't just mealtime that was different. I suddenly had lots of questions. Why was it, for example, that in the hundreds of hours I'd clocked at French playgrounds, I'd never seen a child (except my own) throw a temper tantrum? Why didn't my French friends ever need to rush off the phone because their kids were demanding something? Why hadn't their living rooms been taken over by teepees and toy kitchens, the way ours had?

Here are the details.

For those who won't be able to attend, which is most of these readers, you can read this piece I wrote on the issue a few years ago for the Independent Institute. Shortly after it was published, I briefed it to Congressman Ron Paul's Freedom Caucus in his office. Eight Congressmen, all Republicans, attended. I think I persuaded 7 of them although some of the 7 might have already believed it. Certainly Ron Paul already agreed with my bottom line.

I will also talk a bit about why I think the Iranian government, though it is a threat to Iranians, is not a threat to the United States.

I'm looking forward to going back to Rochester. I left there in 1979 after 4 years as an assistant professor at the Business School (now the Simon School) and returned once to visit in 1980. I haven't been back sense. At age 28 in 1979, I was kind of the Pied Piper on my street, Rockingham Street. I played with a bunch of the kids on that street. One of the parents was recently--I don't know if he still is--the mayor of Monterey.

My wife, Rena Henderson, is a breast-cancer survivor and is active on the Susan G. Komen website. She wanted to write what follows below on that website but she decided that there's no point in doing so because the volume and nastiness on that site are too high. Lots of name calling, lots of people refusing to think about what others are saying, etc. So she posted it on Facebook. I read it and decided that it's worth posting here. It hits some themes that I've discussed in the recent past. Here it is:

Yes, the free and/or low-cost breast cancer screening that Planned Parenthood has provided, in part through grants from the Komen Foundation, is very valuable. I wish Komen had not withdrawn its funds, although I don't know what else they plan to do to help uninsured/underinsured women get potentially life-saving screening. Hopefully something good. However, I don't understand the narrow vision people have--i.e., that, somehow, Planned Parenthood is the only option. Granted, it's the best known and probably the most easily accessed. But there ARE other options. I just Googled "foundations that provide funds for breast cancer screening" and found many that I'd never heard of. In my own community, we have the Carol Hatton Memorial Fund. I donated to it yesterday. Why not find out if your community has such a fund and do the same? In the old days, we depended on the generosity of individuals. These days, we seem to expect either the government or one large organization like Komen to do it all. I wish the people who are spending their time flooding the Komen message boards and preventing women with breast cancer from getting the support they need would shut their mouths and open their wallets. If you can't afford a lot, then give a little. And for crying out loud, do a little research!

Here's the link.

Topic: "Five Myths about Free Markets."

A 'phony right'

Your article Saturday on CSU Monterey Bay students who are unhappy with a private company's inspections of the student housing they live in contains a telling quote. Student spokesman Michael Frederiksen states, "We all deserve safe and secure housing." But to say that someone deserves something is to say that others have a duty to provide it. Who has that duty? Frederiksen thinks that taxpayers owe it to him and his fellow students. But why do students' decisions to attend a heavily subsidized Cal State University automatically impose a duty on taxpayers who do not attend?

Frederiksen is advocating a "phony right." What's the difference between a phony right and a real right? A real right is, say, my right not to be murdered. The only responsibility that imposes on you and others is not to murder me. In other words, it's a responsibility not to do something. The "right" to good housing, though, is a phony right because it implies that someone else has a positive duty to provide it. And let's not hide behind government. The only way government can provide things is by forcibly taking from others.

David R. Henderson
Pacific Grove

I'll leave out the bad parts--the parts where I was critical of various attendees--and quote two paragraphs, one on Emil Kauder and one on Friedrich Hayek. Both attended.

Here goes:

Have you ever heard of Emil Kauder? He's an old Austrian who teaches at the University of South Florida. He seemed senile to most of, until one night when everyone was listening to [Leland] Yeager claiming that politicians should have principles, and Kauder started shouting to get attention. "No, no," he said, "when politicians have principles. you end up with Adolf the Unspeakable." He then told us about how he had been the liaison man between the army and the Socialist Workers' Party in a plot to overthrow Hitler. I asked him if he had been a socialist. He answered, No, monarchist." He told us that we shouldn't try to overthrow the government until they try to destroy liberty. "But if it's just a matter of the milk contract at the local hospital . . . ." Kauder then went on to tell us stories about some of the great Austrians, e.g., Schumpeter. His stories were not old man's stories. He had a vitality in the way he told them and his stories were concise. He generally would concentrate on telling us about the physical characteristics of the people. He described Schumpeter as looking like a Javanese god. Someone asked him if Schumpeter was German-born. Kauder said, "No, Austrian as apple strudel." He was a chivalrous old gentleman. When someone toasted him, he bowed.

[Current day note: Writing this reminded me of another story he told that, for some reason, I didn't put in the letter. He was describing a woman--I think Schumpeter's daughter--and he described her face the way an artist might.]

Hayek was a lot of fun. He was spirited, much more so, I am told, than before he won the Nobel Prize. He had gone to a teaching post at Salzburg where no one had heard of him and ended up teaching a principles course there. He was down in the dumps, and his physical state also suffered. His wife pushed him to do the first volume of Law, Legislation, and Liberty. Then when he got the Nobel Prize, he became a new man. I noticed that when people would get more libertarian than him in their pronouncements, he would smile broadly. I think he likes the idea of being out-libertarianised, simply because it's never happened. He told me that Buchanan had told him that he had got his interest in public choice from Hayek (from reading The Road to Serfdom) but I'm a little skeptical. He also claims, by the way, to have encouraged his student, John Hicks, to develop the notion of indifference curves.

Do you notice a little benefit that Davidson left out of his purported cost-benefit analysis? Davidson understands that if the Chinese government keeps its currency artificially low, that makes its exports artificially low-priced. He also understands that we import a lot from China. So the question: who benefits from those exports from China? He mentions one set of beneficiaries: owners of corporations. Let's see. There are gains from exchange. Hmmm. Who else is he leaving out?

It's a slow day in some little town........
The sun is hot....the streets are deserted.
Times are tough, everybody is in debt, and everybody lives on credit.

On this particular day a rich tourist from back west is driving thru town.
He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.
As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill at the feed store.

The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her services on credit.
She, in a flash rushes to the motel and pays off her room bill with the motel owner.
The motel proprietor now places the $100 back on the counter so the rich traveler will not suspect anything.

At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money & leaves.

NOW,... no one produced anything...and no one earned anything...however the whole town is out of debt and is looking to the future with much optimism.

There are several ways to think about this intriguing example. But they all must recognize that these transactions have made no change in any of the parties' NET wealth. True, at the beginning each resident has a $100 liability. But each also has an offsetting financial asset of $100. At the end, they all have neither. So the $100 bill acts as a clearing mechanism.

If you want to think of the town as a distinct economy, then the rich tourist has temporarily increased the town's money stock by $100. In effect, he has made a short-term loan of a new $100 bill, increasing liquidity. The $100 provides the residents with a medium of exchange that allows them to clear their offsetting debts.

Or if you broaden the economy to include the rich tourist, his short-term loan has provided liquidity through increasing the transactions velocity of money. If the rich tourist hadn't provided the loan, any of the residents could have accomplished the same result by borrowing $100 cash from someone else. No new final goods and services were produced (they had been produced already). But borrowing from the tourist may have cost less interest (zero percent) than otherwise. (I'm ignoring the possible complication that the hotel owner only gets a zero-percent loan by embezzling: using the tourist's deposit without permission.)

Either way, the $100 cash would have been unnecessary if the residents had a central clearinghouse. The fact that the hotel owner seems to know that the $100 bill will come back quickly suggests they already had everything necessary for an informal clearing, and didn't need the bill in the first place. The hotel owner could have gone to each party in succession, offering to take on their debt if they cancelled his.

Nonetheless, the example illustrates Mises's point that increases in the efficiency of the clearing system reduce the demand for (increase the velocity of) money. A clearing system is an alternative way of providing medium of exchange services. In fact, in my classes I use a similar example with fewer parties to illustrate the nature and benefits of a clearing system. At the limit, a perfectly efficient clearing system would be an all-encompassing network of computerized barter making money completely unnecessary. So your student's intuition is partly right. What the tourist's short-term loan has produced is monetary services.

The second is "You Say You Want a Revolution" by blogger Ted Levy. His latest post reminds us of how often we fail to use our imagination to conceive of non-government solutions. One excerpt:

Similarly, now that the government cares for the poor, few of us can imagine how civil society handled such matters a century ago. Down the memory hole go the vast array of voluntary organizations that handled problems of health, insurance, and unemployment for the poor and did so until they were no longer needed because the government "took care of that." And now we can't conceive of it being done without government. To oppose federal programs for the poor is now assumed tantamount to wishing the poor were dead.

Still, I do find something missing and it's a point I made in "Tea and Empathy," my response to what I saw as a little (just a little) elitism toward the Tea Party on Arnold's part. I think that it would be absurd not to let your education influence your thinking about lots of things. If you didn't, then education would be almost totally just a screen. That said, it would be equally absurd not to think that you can learn from people with way less formal education than your own. I won't repeat what I said in "Tea and Empathy," but I do recommend reading it and the comments, especially the one about the bottle of soda on the supermarket checkout belt.

Rereading my original post, I noticed that I had promised to tell how a high-school dropout had taught my UCLA apartment mate and me (when he and I were entering the Ph.D. program at UCLA in September 1972) capital theory. I never told it. Here it is:

Harry Watson, my roommate, and I were looking for an apartment in West Los Angeles or Santa Monica. We found one that was within our budget, was just over the West L.A. border into Santa Monica (on Berkeley St.), and was just a little nicer--slightly bigger bedrooms and a nice high ceiling--than the others we looked at. Moreover, it was about $20 a month cheaper--$145 a month, if I recall correctly, rather than the $165 for the others.

There was just one problem: it had no stove and no refrigerator. The woman showing it to us was a resident of the apartment block next door and had been hired by the owner to show it. Her name was Darlene. She was in her late 30s and had moved there from rural Oklahoma. We said that although we liked it a lot, it didn't have a fridge or stove. We regretted it, but we just didn't think it would work.

Darlene shook her head. "I can't believe you two. You're going to UCLA graduate school? Think about it. You're going to save $20 a month. You can go down to a used appliance store and buy a good used fridge and stove for less than $100 each. You're signing a one-year lease and so in the first year, it will pay for itself."

We grinned at her, looked sheepish, and asked her to give us an hour to check the prices on fridges and stoves. We did, she was right, and we signed the lease.

Darlene, by the way, was the first person to introduce me to U.S. Thanksgiving. She found out that I was home alone that day and felt bad for me. (I didn't. It was a great day to catch up on the daily curve balls Armen Alchian was throwing our way.) So she brought over a plate piled high with turkey, mashed potatoes, vegetables, and stuffing. Sweet!