The great urban journalist Jane Jacobs probably had New York City in mind when she wrote about the potentially devastating effects of government-sponsored “redevelopment” on the inner city, but her lesson applies in many cities across the world. San Francisco’s Fillmore District is a prime example of an “urban renewal” disaster.

“The agency’s time there has not been a happy story,” Fred Blackwell, the new executive director of the San Francisco Redevelopment Agency, recently told the San Francisco Chronicle. “There is no way to make up for clearing large swaths of land and displacing thousands of people.”

In 1948, city officials declared the Fillmore, an ethnically diverse but largely African American neighborhood, to be “blighted” under the California Redevelopment Act of 1945. Over the next few decades, and with the help of eminent domain and federal funding, 4,729 businesses were forced to close, 2,500 households were pushed out of the neighborhood, and 883 Victorian houses were demolished. What the Fillmore got in return for its troubles—a high-rise residential project, some fast-food restaurants, and, late last year, a posh jazz nightclub—was too little, too late.

What went wrong? Several things. First, the urban planners of the day got it wrong: Rather than being “blighted,” the Fillmore was the center of the city’s vibrant, black commercial district, providing goods and services, gainful employment, and upward mobility for thousands. If it wasn’t broken (and in the eyes of many of the Fillmore’s residents and shopkeepers at the time, it wasn’t), it didn’t need fixing. Second, the economic opportunities and complex social networks that fostered economic empowerment and community spirit were fragile things: Hoping that they would boldly spring forth years after they had been dramatically disrupted was no more realistic than trying to unscramble an omelet. Third, the powerful politicians, bureaucrats, and contractors who profited from “redevelopment” had different short-term interests than those displaced by program.

What can be done to prevent future “urban planning” disasters? Several things. First, eminent domain must be drastically curtailed. (That’s no real loss: Bruce Benson argues forcefully that the “holdout problem” is a bogus rationale for eminent domain.) Second, rent control, which, as Paul Krugman notes, inhibits the creation of new rental property and contributes to the deterioration of existing rental properties, must be dismantled. Similarly, below-market housing mandates, which curtail the creation of new housing and therefore drive up housing prices, should also be scrapped. Third, the power of politicians to dole out favors to special-interest groups should be greatly restricted. (The harms of interest-group politics and other sources of “government failure” are ably explained in Beyond Politics, by William Mitchell and Randy Simmons.) Fourth, urban planners and residents themselves must better learn the nature and positive potential of the voluntary institutions, networks, and patterns that arise without government planning. (For details, see the Independent Institute book The Voluntary City, edited by David Beito, Peter Gordon, and Alex Tabarrok.)

San Franciscans better learn these lessons fast: Last June, the city’s voters passed a redevelopment initiative for the Bayview/Hunters Point area.

Americans are now feeling the real squeeze between warfare zealots and anti-development environmentalists as the price of gasoline continues to skyrocket.

In a recent article for Bloomberg.com, Alexander Kwiatkowski notes that the most recent $5 spike in crude oil prices to a record high of $146.90 has resulted from . . .

concerns that Israel may be preparing to attack Iran, while a strike in Brazil and renewed militant activity in Nigeria threaten to cut supplies.

Oil rallied to a record high of $146.90 a barrel in New York after the Jerusalem Post said Israeli war planes practiced over Iraq, adding to speculation the country is preparing to attack Iran. A Brazilian union said it plans a five-day strike on platforms that pump 80 percent of the country’s crude and Nigerian militants pledged to renew attacks on oil facilities.

. . . .

Gasoline prices in the U.S. rose to a record. Futures for August delivery rose as much as 10.46 cents, or 3 percent, to $3.6155 a gallon on Nymex.

The average price of a gallon of gasoline at the pump in the U.S was $4.11 on July 8, according to AAA, 38 percent higher than a year earlier.

For an up-to-date and graphic plotting since 1947 of the effect of Mideast wars on oil prices, including how real oil prices have steadily increased since 9/11, go here.

Meanwhile, many politicos and environmentalists oppose ending oil development restrictions in the U.S., especially pertaining to offshore drilling, with one of the most hysterical and foolish commentaries appearing in a column in the San Francisco Chronicle, supporting the neo-mercantilist (corporatist?) drilling moratorium that was implemented by Bush’s father when he was president. And, a further editorial in the Chronicle fears increased drilling overall. (In contrast, Senior Fellow William Shughart points out here and here why freeing up markets is the solution to the oil pricing crisis. And, environmental harms are trivial so long as resources are owned and managed privately and not through government bureaucracies, with property rights for all parties fully protected from trespass.)

Barack Obama, Al Gore, Arnold Schwarzenegger, and Nancy Pelosi recently declared their firm opposition to any increase in offshore drilling, with Gore even equating offshore oil drilling to the invasion of Iraq. Never mind the fact that it is the federal government that invaded and now occupies both Iraq as well as the continental shelf.

Similarly, the chorus of warfarists continues its mantra for endless U.S. interventionism in the Mideast, guaranteeing a continuation of record oil prices on futures markets and at the pump, with John McCain claiming that the U.S. has “succeeded and we need to continue the strategy.” In Kansas City, MO, he stated:

I am happy to stand in front of you to tell you that this strategy has succeeded. It has succeeded. It has succeeded.

And later in the day he added that:

The strategy has worked and we now have the Iraqi government and military in charge in the major cities in Iraq. Al Qaeda is on their heels and on the run.

Meanwhile, Obama has set a 16-month timetable to begin withdrawing U.S. troop, and asked when the U.S. military should leave the country, Iraqi Prime Minister Nouri al-Maliki directly answered:

As soon as possible, as far as we’re concerned. U.S. presidential candidate Barack Obama talks about 16 months. That, we think, would be the right time frame for a withdrawal, with the possibility of slight changes.

Those who operate on the premise of short time periods in Iraq today are being more realistic. Artificially prolonging the tenure of U.S. troops in Iraq would cause problems. Of course, this is by no means an election endorsement. Who they choose as their president is the Americans’ business. But it’s the business of Iraqis to say what they want.

No sign of McCain retracting his view that the U.S. should remain in Iraq for a 100-years war and then even for 1,000 or 10,000 years.

In contrast, Obama’s proposal for a U.S. withdrawal from Iraq is indeed laudable and well-overdue, and would have a powerful effect on driving down oil prices.  However, since he incredibly wants then to send these troops on to Afghanistan to fight the “real front” and even into Pakistan (also see here) while maintaining a major presence of the U.S. in Iraq, war will only at best be shifted to other fronts (and more probably widened and escalated), with oil prices likely to go even higher in the process. And on top of this, his opposition to oil development will only make matters worse. So much for the candidate of “change” and his “new strategy.”

Better to consult our Senior Fellow Ivan Eland on the need for the U.S. to exit Iraq and disengage overall from the U.S.’s ill-fated and hubristic worldwide empire of 700+ bases and policy of endless, invasive war. In this regard, the updated edition of his book, The Empire Has No Clothes, plus that by Robert Higgs and Carl Close, Opposing the Crusader State, are must reads. And on the folly of going to war for oil at all, see David Henderson’s superb Independent Policy Report, Do We Need to Go to War for Oil?

For months, the news media have been dispensing reports of a “credit crunch.” I have been puzzled by these reports because scarcely a day passes that I do not receive offers in the mail or via the Internet from lenders who want to lend me money to refinance my mortgage or to make purchases with a credit card they stand ready to issue me. Am I the only one in America currently deemed creditworthy at attractive rates of interest?

Having my doubts, I checked some standard interest-rate data conveniently available online at the St. Louis Fed site.

The first series I checked pertains to the bank prime lending rate. During the latter half of the 1990s, this interest rate varied from 7.75 percent to 9.0 percent. It hit 9.5 percent in May 2000, then began a long decline, gradually reaching a low of 4.0 percent in June 2003. Afterward it climbed slowly to a high of 8.25 percent in June 2006. For the past two years it has fallen again, reaching 5.0 percent in April 2008. Given that the rate of change in the producer price index has been substantially greater than 5 percent during the past year, borrowing money at 5 percent seems to me to indicate, not a credit crunch, but a credit bonanza. A business borrows, finances inventory, holds it for a year, and earns a 5-10 percent rate of return. What could be simpler and more delightful?

But, you protest, the credit crunch is really in the housing industry. Well, let’s have a look at mortgage rates for 30-year conventional mortgages. Although rates have risen in the past few months, they still compare favorably with rates that prevailed in 2006 and 2007, and they are not more than about 1 percent higher than rates that prevailed during the housing boom in the first half of this decade. Given that the rate of inflation is greater now, present real rates may be lower than they were during those halcyon days. If a credit crunch exists, it is certainly not showing up in the mortgage-lending markets. Are we to believe that lenders are simply refusing to lend, rather than lending at higher rates to reflect a diminished supply of loanable funds?

If credit were being crunched, one supposes that lenders would be willing to pay higher rates for funds placed at their disposal. Yet six-month certificates of deposit are now yielding less than the rate of inflation—people are paying the banks to take their money! Some credit crunch: banks and thrift institutions don’t even have to pay a positive real rate of interest to attract funds! This situation makes sense only if the world is awash in loanable funds, so much so that people are clamoring to part with their money for less than zero reward.

Perhaps someone can enlighten me. I simply don’t understand how we can have a “credit crunch” without substantial increases in real interest rates across the board.

Are we to be spared nothing? The leaders of our two party monopoly have decided to wage war on some of the last remaining refuges of financial freedom and privacy. According to this morning’s story in USA Today, Republican Norm Coleman, the ranking member of the Senate Committee on Investigations, applauded…

…proposed legislation to strengthen reporting of foreign accounts held by Americans and penalize tax haven banks that impede U.S. tax enforcement.

“I would hope that this report [of the Committee] would be a call to action,” said Coleman.

(Moderators’ Note: Nothing here to be construed as an endorsement of any political action—this analysis is for educational purposes only.)

During election season, pundits and politicians are obsessed with polls. But are they obsessed with the wrong thing? There is a growing academic literature on the role of prediction markets, particularly in political contests, and it has been shown routinely that these markets are excellent (albeit not perfect) predictors of outcomes.

With this we turn to the ever-increasing obsession with November’s Presidential election. I’ve gotten a couple of emails recently comparing Obama and McCain on a number of issues, and to listen to most people in the media, the Presidential election is a two-horse race even though it isn’t. The structure of the system has some interesting implications, though.

First, we know that a single vote will not make a difference to the outcome of the election. A standard (and interesting) discussion to have in economics 101 is the question of whether it is “rational” to vote. The stock answer is that it isn’t, but that is only true if your only goal is to actually influence the outcome of the contest. I vote because it is a cheap way to let everyone know my preferences (Friend: “who are you voting for?” Me: “Candidate X.” This exchange says a lot about the package of ideas I most agree with among those being debated in the public square.

Read the rest

To fund his gangster regime, Marxist Robert Mugabe’s government may be breaking all known records for hyperinflation. Recently “elected” President of Zimbabwe through a campaign of bombings, murders, rapes, torture and repression to destroy his political opposition, Mugabe has financed his regime of terror and oppression by wildly printing new money to fund the police, military and intelligence branches.

While at Independence in 1980 the Zimbabwe dollar was worth $1.25 (U.S.), as the Los Angeles Times reports, rampant inflation has resulted as Fidelity Printers & Refiners, the state-owned company, “tirelessly churns out bank notes for the Robert Mugabe government”:

As hyperinflation spiraled last year, Fidelity printed million-dollar notes, then 5 million, 10 million, 25 million, 50 million. This year, it has been forced to print 100 million, 250 million and 500 million notes in rapid succession, all now practically worthless. The highest denomination is now 50 billion Zimbabwean dollars (worth 1 U.S. dollar on the street). . . .

Before the crunch, a beer at a bar in Harare, the capital, cost 15 billion Zimbabwean dollars. At 5 p.m. July 4, it cost 100 billion ($4 at the time) in the same bar.

An hour later, the price had gone up to 150 billion ($6).

But now, Mugabe’s government is facing a massive cash crisis

. . . after a German company stopped supplying bank note paper because of concerns over Zimbabwe’s recent violent presidential election, widely seen as fraudulent by international observers.

The printing operation drastically slowed. Two-thirds of the 1,000-strong workforce was ordered to take a leave, and two of the three money-printing shifts were canceled.

The result on the street was an immediate cash crunch.

But that is not all:

“If you think this currency shortage is bad, wait two weeks. By then, it will be a disaster,” said a senior Fidelity staffer, who spoke on condition of anonymity because he would face dismissal and possible violence for talking to a Western journalist. The paper will run out in two weeks, he said.

In the modern world, most governments have long adopted policies of monetary monopoly, and the current Zimbabwean monetary disaster is reminiscent of the government-created hyperflations in Germany (1923), China (1948-49), Argentina (1979-83), Brazil (1986-94), Greece (1944), Hungary (1945-46), Bosnia-Herzegovina  (1993), Nicaragua (1987-90), Angola (1991-95), Peru (1984-90), etc. As with Zimbabwe, such financial disasters are generally associated with wars (or their aftermath) and political or social upheavals that are ruinous to the citizenry.

With such a track record, why should people be forced to accept monetary monopoly that is inflating at all, and certainly one that becomes more worthless with each passing hour? And with the dollar the world’s reserve currency, what kind of inflationary pressures are the Federal Reserve’s responses to the enormity of U.S. government debt and the insolvency of banks today in the U.S. leading us into? In addition, if a massive shortage of monopoly currency suddenly occurs, as in Zimbabwe, then what?

Our book edited by Kevin Dowd and Richard Timberlake, Money and the Nation State, reveals the folly of government monetary monopolies and provides proven market-based solutions. And the economist George Selgin now provides additional insight in our new book, Good Money, which documents how since government currency is always improperly supplied, the freely competitive, private provision of currency is a must.

To a million Americans on the terrorist watch list.

The following text is drawn from the Associated Press report by Jeannine Aversa, “Fed to Rescue Fannie Mae, Freddie Mac.”

The plan, unveiled Sunday, is intended to signal the government is prepared to take all necessary steps to prevent the credit market troubles that erupted last year with losses from subprime mortgages from engulfing financial markets.

Yes, what is a government for, if not to save us from the impending disaster that its own policies have produced? Thank heavens for the government!

The Fed said it granted the Federal Reserve Bank of New York authority to lend to the two companies “should such lending prove necessary.” They would pay 2.25 percent for any borrowed funds—the same rate given to commercial banks and big Wall Street firms.

We may take it as a given that “such lending [will] prove necessary”; otherwise, these frantically fashioned keystone-cops high jinks will serve no purpose.

Note, further, however, that lending at 2.25 percent when the rate of inflation is at least twice that great means that the lender is giving away money. The real interest rate on such a loan is negative.

Worse, because the Fed itself is the lender, the loan will take the form of newly created money—that is, the loan will be pure inflation, a hidden tax on all assets denominated in dollar units, including dollar balances themselves.

The Fed said this should help the companies’ ability to “promote the availability of home mortgage credit during a period of stress in financial markets.”

Of course, the government always seeks to promote a noble purpose. And what could be more noble than pulling some leading crony capitalists away from the brink over which their own actions amply warrant their plunging? Our saviors protest, however, that the government’s every action aims only at helping the little guy. It’s music to the ears of the booboisie.

Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and make an equity investment in the companies—if needed.

Ah, equity investment! Now we’re looking at overt government takeover. For laggard students, let us define socialism: government ownership and control of the major means of production (including production of financial services). In a pinch, we can always resort to socialism—after all, we are doing so only in order to save capitalism!

“Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies,” Paulson said Sunday. “Their support for the housing market is particularly important as we work through the current housing correction.”

Blah, blah, blah.

The Treasury’s plan also seeks a “consultative role” for the Fed in any new regulatory framework eventually decided by Congress for Fannie and Freddie. The Fed’s role would be to weigh in on setting capital requirements for the companies.

But Freddie and Fannie are publicly owned corporations; they are listed on the New York Stock Exchange and regulated by the Office of Federal Housing and Enterprise Oversight. Hence, they must meet capital requirements determined by recognized accounting standards. So, why is the Fed being injected where it is not needed? (I leave the answer to this question to the student as an exercise.)

Sen. Christopher Dodd, chairman of the Senate Banking Committee, on Monday called the Bush administration’s actions Sunday “probably the right steps” and said he will summon Paulson and Fed Chairman Ben Bernanke to a committee hearing Tuesday to answer questions.

“What’s important here as well is to calm people’s fears,” Dodd said in an interview on CBS’ “The Early Show.”

Of course, it wouldn’t do for the people to be afraid, even if the government’s financial house of cards is threatening to tumble down and crush them. Next, Dodd will tell us that the only thing we have to fear is fear itself—or has that line been used?

He also drew a distinction between last week’s failure of IndyMac—which engaged in originating riskier mortgages than traditional community and regional banks—and the two mortgage giants.”There’s a big difference between IndyMac and Fannie and Freddie,” Dodd said. “IndyMac engaged in very bad mortgages, luring people into deals they could never afford. That’s not the case with Fannie and Freddie.” Dodd said that while there may be more bank failures, “I’m more optimistic about Fannie and Freddie than I am about these banks.”

If Fannie and Freddie never “engaged in very bad mortgages,” then why has the stock market awakened to the fact that together they hold or insure more than $5 trillion of mortgage paper, a substantial portion of which is more or less worthless. Were those “securities” dropped on them by a monetarist helicopter? Or did these government sponsored companies simply wake up one morning and find themselves up to their eyeballs in these ever-so-iffy promises to pay and say to themselves, “How’d that happen?”

The White House, in a statement, said President Bush directed Paulson to “immediately work with Congress” to get the plan enacted. It also said it believed the steps outlined by Paulson “will help add stability during this period.”

Here’s a general rule for you amateur political economists: whenever the government justifies a policy on the grounds that it must “stabilize” something (e.g., stabilize the Middle East, stabilize Iraq, stabilize Afghanistan, stabilize the commodity markets, stabilize the financial markets, stabilize the macro economy, etc.), immediately conclude that it is up to no good and hold on to your wallet.

Senate Majority Leader Harry Reid, D-Nev., said “Senate Democrats stand ready to work with the administration to quickly and effectively address the situation currently facing these institutions.”

But, of course. Democrats and Republicans in the government belong to the same thieving gang.

House GOP leader John Boehner, R-Ohio, and Republican Whip Roy Blunt, R-Mo., said they “stand ready to work with Secretary Paulson and congressional Democrats to take appropriate steps to ensure the soundness of our mortgage markets.”

But, of course. Democrats and Republicans in the government belong to the same thieving gang.

Democratic presidential contender Barack Obama said the government’s main concern should be “to make sure that home ownership remains attainable and affordable for American families. Second, any measures should protect taxpayers and not bailout the shareholders and management of Fannie Mae and Freddie Mac.”

Evidently, Obama was absent the day the logic class took up the subject of internal consistency.

Republican rival John McCain believes the measures announced Sunday “are consistent with the goal of providing support for a path through the current duress toward steps that include regulatory reform, market discipline and mission focus,” said Douglas Holtz-Eakin, senior policy adviser.

To which the only intelligent reply is, “say what”?

Is there now a light ahead in Cuba after decades of repressive communist rule? With his brother Fidel now on the sidelines, Cuban President Raúl Castro has recently lifted a nine-year-old ban on private taxis, “potentially legalizing thousands of unauthorized cabbies who cruise its cities in classic American cars.” As AP reports, Fidel Castro, who imposed the previous ban, had incredibly opposed private cabbies as “enriching themselves at the expense of egalitarian goals.” I gather that for Fidel, only a massive, crushing, incompetent, and inherently corrupt State transportation monopoly/bureaucracy would do.

But, is Raúl’s move simply to recognize the de facto existence of the thousands of illegal cabs that have long outnumbered the legal government ones, as dissident economist and human rights activist Oscar Espinosa Chepe suggests? After all, Transportation Minister Jorge Luis Sierra has not as yet indicated how many private cabs will be allowed.

However, Raúl may also be responding to the fact that Cuba’s failed “socialist paradise” is just not all that popular after all. A recent survey of Cubans completed after Raúl’s taking office indicates that economic problems rank highest, with the New York Times reporting that “70 percent of those interviewed saying they did not believe that the authorities would resolve the country’s biggest problem in the next few years. . . . More than 80 percent said they backed a market economic system that included the right to own property and run businesses.”

Overall, the survey found that for the Cuban people, “Cuba’s problems were ranked this way: low salaries and high cost of living, double currency standard, lack of political freedoms, embargo and isolation, food scarcity, lack of medicines, poor transportation infrastructure and lack of housing or dilapidated conditions.”

Of course and to say the least, the Cuban regime has never really paid much attention to what the public wanted one way or the other—this is after all what dictatorships are all about. Nevertheless, this now very public insight by the Cuban people is most important and coincides with that documented in Lessons from the Poor: Triumph of the Entrepreneurial Spirit, our new book edited by Senior Fellow Alvaro Vargas Llosa, which shows the irreplaceable power of private entrepreneurship to overcome abject poverty.

Hence we can only hope that legalized private taxis can begin to carry the Cuban people toward the long-overdue arrival of market-based enterprise and the rule of law.

Obama lays out his plans for Iraq and Afghanistan in an op-ed for The New York Times. It reveals on full display a proposed foreign policy of confusion and contradiction.

With the notable exception of calling for a “residual force” to fight Al Qaeda and train troops, Obama sensibly argues that the best policy is to wean the Iraqis from dependence on the United States and create “a successful transition to Iraqis’ taking responsibility for the security and stability of their country.”

Not recognizing the contradiction, however, Obama proposes the exact opposite solution for Afghanistan. Instead of letting the Afghans take “responsiblity for the security of their country,” he wants to make them even more dependent on American welfare:

As president, I would pursue a new strategy, and begin by providing at least two additional combat brigades to support our effort in Afghanistan. We need more troops, more helicopters, better intelligence-gathering and more nonmilitary assistance to accomplish the mission there.