Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse

Posted: February 3, 2011 in Book Reviews, My Economics Quest
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This is the latest book review in my ongoing economics quest.

Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things WorseMeltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worse by Thomas E. Woods Jr.

My rating: 5 of 5 stars

Meltdown is one of the best economic books I have ever read. In a matter of only 160 pages Thomas E. Woods, Jr. examines the causes of the crash of 2008, explains why government has done nothing but make the situation worse, addresses the boom-bust cycle, discusses the great myths of the Great Depression, explains what money really is, and gives a plan that if implemented could fundamentally change the American economy for the better. The biggest and most important thing that Woods does in this book is exonerate the free market. The free market didn’t cause the last major bust, government did.

The first chapter “The Elephant in the Living Room” acts as more of an introduction for the whole book than anything. The most important thing to acknowledge, the one that the economic morons on both the left and the right don’t want to see, is the Federal Reserve “is the elephant in the living room that everyone pretends not to notice.” The Fed is devoted to one thing, that is central economic planning, and there is nothing more in conflict with the free-market than this failed philosophy of the 20th century.

Woods next moves into discussing How Government Created the Housing Bubble in Ch. 2. There are six main culprits that caused the housing bubble and they are all traceable to government intervention. 1) Fannie Mae and Freddie Mac 2) The Community Reinvestment Act and affirmative action in lending 3) The government’s artificial stimulus to speculation (push for easier mortgages through more creative mechanisms 4) The “pro-ownership” tax code 5) The Federal Reserve and artificially cheap credit 6) The “too Big to Fail” mentality. Arguments in this chapter are convincing, sound, and well-sourced, many quotes are taken from the horses’ (should I say asses’) mouth.

Chapter 3 addresses “The Great Wall Street Bailout.” This is where I get incredibly angry with a lot of Republicans who are as clueless as those on the left. These are the people that kind of get a hold of an idea and run around spouting it as if they understand it, but in reality it’s not right. What am I talking about? Quick the sky is falling let’s we must “save” the free-market by forgoing the free-market, or whatever the delusional statement Bush gave in defense of TARP. Woods examines all of the Bailouts here and shows how they haven’t and won’t work.

Woods next turns his attention to “How Government Causes The Boom-Bust Business Cycle{ in Chapter 4. This was a very informative chapter. It is scary to think how few Americans understand all of this and how much it really affects their lives. This chapter is where the true economics lessons begin, Woods does a good job of using real and fake examples to illustrate the points he is trying to get across. The explanation of how Austrian economists explain a true free-market is really useful. I used to be someone that believed that cycles in the economy were normal and they just happened. Not really, the heavy hand of government is really the cause here again.

Chapter 5 looks at “Great Myths About the Great Depression.” Woods sets up this chapter by giving a brief history of the depressions of the 1800’s and the depression of 1920-21. The most important lesson drawn from this is that these depressions were caused in the same manner as the most recent mess. All of them were a result of credit expansion and the over-issue of paper money. Then Woods starts in on all the myths of the Great Depression and destroys the American myth that FDR and government saved us during the 1930s. It’s a complete lie, often perpetuated by people whose only experience with history and economics is their high school coach/social studies teacher.

Chapter 6 is a great look at just exactly what “Money” is. Very useful discussions on the origin of money and how the Fed creates money and inflation. Inflation is not good, it’s BAD! Wood’s also spends a little time on the idea of transitioning to a precious metal as a monetary base. I still need to read more on this, but it makes sense. Also useful is the little essay added on deflation. Guess what, deflation is a good thing in a truly free-market system. It’s just price depreciation and a result of a progressing market, in other words things getting cheaper and more efficient.

Finally, in Chapter 7 Woods gives a brief plan for the future and ideas on what we should consider doing. First, let the failures fail and companies go bankrupt. The assets of any company don’t disappear, they are just moved on to someone who BETTER UTILIZES THEM. I know modern Americans can’t stand the thought of failure because mommy and daddy have coddled them their whole lives, but in a true free-market people fail, and everybody goes on about their business. Life goes on and actually gets better. Second, get rid of Fannie and Freddie. This is a no-brainer for me. But I suppose it’s a stretch for the brainless like Barney Frank to understand. Third, stop the bailouts and cut government spending. It didn’t work in the Great Depression and it’s not working in this Great Depression! Fourth, end government manipulation of money. Fifth, put the Fed on the table. Amen to that! Sixth, close the special lending windows of the Fed in the meantime. Sixth, this is where people get uncomfortable, end the monopoly money that is the US dollar. Yes allow money to be subjected to the market just like anything else.

I love a couple points in the conclusion and they are worth sharing.

“We are watching a systemic problem unfold, and looking for ways to blame it all on “the Democrats” is unhelpful.” Look I get it, for the most part Democrats are natural enemies of freedom and the free-market for many reasons, but so are some Republicans, you have to be willing to accept that fact.

“If the Federal Government is an addict, then the Federal Reserve System is the enabler.” The only way to stop the stupidity in this country is to get rid of the most anti-free-market bureaucracy in existence. The one that allows the politicians to spend without any consequence, we have a debt because there is always the freely available drug, money creation.

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