Florida Congressional District 8 is the infamous home of national jerk Alan “Die Quickly” Grayson. In a Zogby poll Todd Long was leading Grayson by 8%. Grayson is despised by both independents and the right for his outrageous statements pandering to the left. Whoever wins the August 24th primary will have little trouble firing up the base. Grayson is probably the most hated congressperson since Dan Rostenkowski had the nerve to tax the gimme generation for the Medicare catastrophic coverage act of 1994. Grayson is truly a despicable devil’s spawn bastard who needs to be in a psychiatric ward and not congress. And with that here they are.

Todd Long on the campaign trail with his book “The Conservative Comeback” that has been reportedly sent to 30,000 Republican voters in Florida District 8. Quite a impressive logistical feat.

On the negative side Todd has quite a colorful past including a DUI in 1998, a “drunk and disorderly” warning at the local Orlando Millennium Mall in 2005, allegations of sexual harassment (denied 8-16-2010), allegations of financial hard times (denied 8-16-2010) and a police report of how a cop found Mr. Long drunk and asleep on a sidewalk in Tallahassee in 2007. There is a reason when I get trashed I do it at home Todd. The worst thing that happens to me is I say something stupid on face book or my wife kicks my ass. Enough said.

Patricia Sullivan is living the American dream with four home schooled children, a loving husband and running for congress at the same time.

Patricia Sullivan is living the American Dream. She is the mother of four and has home schooled all of them. Her first daughter is graduating and on her way to college. She is the organizer of the 2009 Tea Parties in Lake County. She has no political connections or great wealth but has amassed a sizable army of volunteers to spread the message of this citizen warrior. Despite being on a shoe string budget of $56,000 she will finish well in the August 24th primary.

What she has going for her is charisma. She speaks strongly with a slow clear purpose and cadence making her thoughts clear to her audience expressing her anger over the current state of affairs. I suspect this comes from her years of homeschooling trying to make lessons both interesting and clear to her children. Whatever it is it creates compelling political drama from the normal political speech. Charisma is hard to define but she clearly has it in abundance.

Dan Fanelli is a former Navy pilot and former commercial airliner pilot.

Dan Fanelli is a Navy pilot veteran and if you don’t know that talk to him for five minutes. He will surly remind you. He is the only military veteran in the race and a formal commercial airline pilot who was flying when 9-11 happened. He is an honorable man and as far as we can tell has never been awaken by police for sleeping on a sidewalk in public.

Ross Bieling is a successful businessman who earned his law degree as a non traditional student in 2008

Ross Bieling is a very intelligent self made businessman and I would be comfortable if he was elected to congress. His list of accomplishments with his private business in the medical field is impressive as well as his education obtaining a law degree as a working nontraditional student in 2008. Very impressive.

Businessman Bruce O’Donoghue is the most successful Republican fundraiser but has a recent 2008 DUI. A very organized and intelligent political foe.

Bruce O’Donoghue is a local small businessperson who started in his parent’s traffic engineering business and eventually took it over. He has raised an impressive $478,000 in contributions (compared to Todd Long’s $220,000) with 79% from fund raising efforts and not his personal financing. On the issues he is standard Republican fare, cut waste, taxes, spending, repeal Obamacare. In person he is very articulate and in command. Mr. O’Donoghue is a very respectable opponent and very intelligent.

On the negative there is a report of a 2008 DUI and tax trouble in 2009. The recent DUI is very damaging to Mr. O’Donoghue. I think everyone is having recent financial troubles with the exception of government workers. The recent DUI drops Mr. O’Donoghue from second to fifth, what a shame. He is a very accomplished and polished individual.

Kurt Kelly’s vote supporting a multibillion dollar federal government rail system has been costly for his chances in District 8.

On the negative side he can be a weak speaker when trying to justify his stand on the ground rail system here in Central Florida. He has a hard time justifying his votes for massive government projects that will waste billions while touting himself as a fiscal conservative. Pathetic political double talk. We don’t need double talk we need a leader with a clear vision to reduce the federal governments share of the GDP.

Daniel Webster is the former Florida Speaker of the House. He is the Republican establishment candidate in a very anti-establishment year. He has been endorsed by former Florida Governor Jeb Bush and Mike Huckabee along with much of the Republican establishment. His fund raising is slightly above average at $228,000 with no personal contributions. He is an honorable man who is a career politician.

On the negative side he is elderly and not a very inspiring speaker. Unlike O’Donoghue or Long you don’t get the sense that there is much in his intellect beyond the standard Republican talking points. His biggest claim to fame is he has never lost a election. One could attribute that to his skills but one could also comment on the fact that he has one of the most universally recognizable names in modern political history. Who knows how many last minute voters who failed to research the candidates voted for him simply due to his name recognition? Hopefully the District 8 voters will be educated come August 24th.

Daniel Webster’s days of never suffering a political defeat are about to end August 24th. Uninspiring and standard Republican establishment candidate in a anti establishment year.

Daily it becomes more evident that Mainstream Media has shot itself in the foot again. To most of the nation it is clear if you CHOOSE NOT TO live in a fantasy world you better get your news elsewhere.

Their ratings have plummeted and most are on the verge of bankruptcy if they have not already bobbed for the last time. Those in high places at these companies have failed to realize one very important thing.
WHEN THE MASS gives up on you for whatever reason they DO NOT return.
It was a mistake for them to assume distortions and flat out lies would fly forever.

Out of the news rubble emerges the internet and the latest electronic technology.
An angry revved up public with video phones/cameras and the KNOW HOW to catch EVERYTHING on disc, then PUBLISH it.

Funny thing about that stuff published on the internet.
Once there it most likely will be there FOREVER. Tucked away in some obscure ether corner until GOOGLE dredges it up for the billionth time.

A contract with America for 2010
By Dick Morris

My observations from the campaign trail are that this year’s elections will be a total and complete disaster for the Democratic Party. In fact, it will amount to the obliteration of an entire generation of Democratic officeholders. It will become very rare to find a youngish baby boomer white Democrat in elective office in the United States. I believe that almost half of the white Democratic congressmen who are seeking reelection will lose!

A wipeout of this magnitude cannot be explained, alone, by Obama’s ratings or his policies. He has fallen sharply since he took office, but even ratings in the 40s do not explain this type of result. It is increasingly obvious that Congress has earned much of this disaster by itself, quite unrelated to Obama. The vision of the deal-making that accompanied healthcare was too disgusting for the average American to stomach. And now the failure of the Congress to expel Reps. Charles Rangel (D-N.Y.) and Maxine Waters (D-Calif.) underscores its inability to police itself.

But Republicans need to remember that when they lost the House in 2006, about 5 percent of their incumbents were under indictment, convicted or in prison, or resigned. Washington has always been the crime capital of America, but the House of Representatives was its highest crime-rate neighborhood!

Republicans should embrace specific ethical reforms, which they should showcase in their campaign advertising in 2010. These positive ads will do as much as any good negative to underscore the difference between a Republican challenger and a Democratic incumbent.

The reforms should include:

• The establishment of an office of special prosecutor for Congress, with its head appointed by the chief justice of the U.S. Supreme Court for a fixed term. The office should have subpoena power, a well-funded staff and the right to convene grand juries and issue indictments. Self-policing by ethics committees obviously does not work.

• All earmarking should be banned. Congress cannot be trusted with this power.

• A ban on spouses of members of Congress serving on boards or accepting employment by any company or organization that receives federal funds. In cases like Mrs. Chris Dodd and Mrs. Evan Bayh, corporate board employment was a way for special interests to influence their husbands and pad the family checkbook.

• A ban on families of members of Congress serving as lobbyists.

• No free travel, whether sponsored by foundations or lobbyists. Only government trips on official business — real business — should be allowed.

• Full disclosure of the precise amounts of members’ net worth, debts, investments and holdings, including home mortgages.

•Full publication, online, of all committee votes.

• No student loan repayments for congressional staffers.

• A five-year ban on lobbying for members of Congress or their staffs after leaving office. The ban should also apply to employment by a company that performs lobbying services.

• If a senator or congressman is absent more than 10 percent of the time for reasons other than illness — including running for president — his pay should be docked proportionately.

• Term limits for congressional staffers. No staff member of Congress should be permitted to serve in a job that pays above $100,000 a year for more than eight years. If we can’t get term limits for Congress, let’s at least clean out the professional staffers!

A smart candidate in 2010 will take elements of these proposals — particularly the special prosecutor — and put them in his or her campaign ads. Cashing in on Obama’s unpopularity and his failed agenda is only half the battle. Capitalizing on the dismal state of congressional ethics is the other part!

Morris, a former adviser to Sen. Trent Lott (R-Miss.) and President Bill Clinton, is the author of Outrage, Fleeced and Catastrophe. To get all of his and Eileen McGann’s columns for free by e-mail or to order a signed copy of their latest book, 2010: Take Back America — A Battle Plan, go to dickmorris.com. In August, Morris became a strategist for the League of American Voters, which is running ads opposing the president’s healthcare reforms.

Florida House District 33 lies partially in Orange County, Seminole County and a portion of Volusia County. It has been in the news somewhat because it will host the first Libertarian Party primary in the history of the state. It is also an open seat vacated by Sandy Adams who is ruining for the District 24 congressional seat. We have some good contenders and some back markers. Here are my picks and thoughts on them.

James DeCocq

Unfortunately for Mr. DeCocq he is new to the area and his fundraising has hampered his efforts. To date he has raised about $14,000, far behind his challengers. With his challenger Alice Sterling getting the endorsement of the Orlando Sentinel combined with her personal popularity from being the town optometrist the odds are long for Mr. DeCocq. What a shame. With his talent I think he should be running for Orange County Mayor not House Representative.

Alice Sterling

Jason Brodeur (R) is a very dedicated young man but in my opinion not ready to lead. In his interview with the Orlando Sentinel he was laid to waste by a couple of progressives. He is a good trooper but not a leader at this time. With his far right positions he should have been better prepared for his interview and he wasn’t. DeCocq got the same miserable biased treatment and worse and he handled it as well as one could ask. Both interviews are instructive on how to handle an adverse hostile political interrogation, one how to handle it and one showing what not to do. Mr. Brodeur needs more seasoning if he is to be an effective leader.

Jason Brodeur

Franklin Perez (L) has run twice previously as a no party affiliation candidate in 2006 and 2008. When the Florida legislature change the law removing the requirement that a minor third party candidate must be approved by the party chairman Mr. Perez took advantage of the law and filed as a Libertarian. In previous years he would not have receive the endorsement of the Seminole County Libertarian Party because of a long feud with the leadership dating back to 2004. As a result of the feud and the continued bickering we got the next candidate to enter the District 33 race, Ellen Paul.

Ellen Paul (L) entered the race at the bequest of the Libertarian Party in Seminole Cunty for the specific propose (in my opinion) of running against the “machismo” Perez. The intended propose (pure speculation) being to discipline Mr. Perez and to present a kinder, gentler more rational face to the public of the Libertarian Party. With only 161 Libertarians in Seminole County every vote counts.

I will be pulling for Franklin simply because I think it is a waste of the $1,400.00 filing fee for Mrs. Paul to be running against Mr. Perez in District 33. What ever you think of Mr. Perez he cherishes his time in the spotlight spreading the Libertarian message. Why take that away from the man? If this were the Democratic or Republican primary then that is a different scenario. Whoever wins this primary will most likely get at best 3% of the vote. It’s all just too personal for me. Let the man have his moment in the sun and get on with your life.

Franklin Perez and Libertarian Governor Candidate John Wayne Smith

Congratulations to Mrs. Sterling, it looks like the nice kid on the block will win this one.

For Florida residents’ crunch time is just around the corner. August 24th is our primary where the contenders separate themselves from the pretenders. In some of the contest it’s easy to see the separation but in some the competitors are similar in positions and finances. For Orange County Mayor this does not apply. There is a huge contrast between bloated government and the private sector approach to problems. So from the Libertarian perspective here are my recommendations.

Matt Falconer

Positives: Mr. Falconer dislikes the hugely extravagant waste of government and has been on the receiving end of government abuse throughout his career. He would make Orange County government responsive to the people and not special interest unions. I would say Mr. Falconer dislikes wasteful government as much or more, well maybe not more, than I do. That is saying a lot. The end result would be the press and unions would hate him and taxpayers would love him. He’s the kind of a…… we need in charge of government.

Negatives: Mr. Falconer, if he is elected, would be very wise to surround himself with a couple of nonpolitical statistician, economist, accountant types that could check and recheck his math which is known to run astray at times. This same team should recheck Mr. Falconer’s public statements which also tend to get him in trouble. In other words he is the kind of guy who needs handlers to filter out rash statements and incomplete evaluations BEFORE he talks to the press or public. He needs to transition from a developer to a politician. If he is elected Orange County mayor the public will expect a more polished presentation from Mr. Falconer devoid of the petty politics exhibited by bush leaguers like Obama who will soon find himself the most hated president of the 21st century. Matt needs a class in how to kiss ass.

Overall this guy is a genius when it comes to local issues. He is by profession very micro management orientated and pays attention to the minutest detail. With a few good handlers and fact checkers on his team he could make a huge positive impact on Orange County government.

Alan Grayson and Bill Segal

Positives: Mr. Segal is the nerd who everyone loves to be around. He is the fun guy at the party. He’s a clown and does all the politically correct functions. He is a polished politician.

Negatives: As far as I can tell he has no real agenda other than to make money. Mike Thomas the local village idiot progressive reporter has called out Segal several times on questionable business dealings and associations.

Overall this guy seems devoid of any ethics or political leanings. He is there to make money and he doesn’t give a hoot one way or the other if he uses the democrats or republicans to make money. He’s a old fashion country commissioner using his inside knowledge of planed future development to make money the old fashioned way with real estate. His goal is to get the taxpayers to pay his associates inflated prices for his holdings. As for the taxpayers I seriously don’t think he gives a damn one way or the other.

Teresa Jacobs

Positives: She is easily the most intelligent of the candidates. Her speaking skills are clear and coherent. She is a polished public speaker and will do the hard work to research and present data to the public favorable to her position. She would do the work required of her and not delegate to subordinates any major evaluations that need to be performed.

Negatives: She is easily the most intelligent of the candidates. She is clearly a very competent and dangerous progressive much in the mold of Jacob Schiff and others who have promoted the progressive agenda. Orange County voters should be scared strait of this very competent progressive who has the capabilities to take Orange County into a far left direction over the next four years. With enough support Orange County, Florida could resemble Orange County, California. Huge union expenditures, deficit riddle budgets, progressive schools and government, no Republican government workers, illegal immigration and an end to an opposition political party in Orange County. Teresa Jacobs is a very dangerous politician.

Linda Stewart

Positives: She’s not bright enough to lie in public. We know if she is elected she will be truthful.

Negatives: Jacobs outshines her by a good 15 IQ points. Sorry but that is the reality of it.

Overall I think Mrs. Stewart realizes she cant outshine Jacobs on the left, Falconer has the Tea Party vote on the right and Segal will capture the “moderate” vote in the middle. And where does that leave her? Most likely come August 24th in 4th place.

I think this race comes down to how well Mr. Falconer has communicated his message to the Tea Party. Mr. Segal has the Republican establishment as well as moderate vote locked in. Despite his shortcomings he is well liked in the community. The real race here is to see if Falconer can hold off Jacobs and the progressives on the left who support her. If no candidate gets 50% there will be a run off.

While the other three traditional candidates, Jacobs, Segal and Stewart are politicians and can keep a lid on their public statements Mr. Falconer is not. He should have had two or three handlers around him at all times during this campaign fact checking his statements and muzzling him when needed. If the Tea Party voters and rational taxpayers show up at the polls and he is elected he will need to get his group of handlers ASAP and become a politician whether he likes it or not. He needs to learn how to talk in a non offensive way to progressives and democrats. Despite his lack of polish he has the one quality that all taxpaying voters should cherish, a genuine hatred of government elitism, fraud and abuse of the taxpayers. If this rough diamond can get his team together and become a polished gem the Orange County taxpayers will be the beneficiaries.

Perhaps it is worth all of our time to actually read the Qur’an at least once.

What has deeply disappointed me this political year is the lack of candor about two of the biggest issues tearing America apart, race and social security. Both are talked about indirectly or not at all by the Republicans. Democrats and their lab dogs like the NAACP cry racism over any and everything. Then the Republican and Tea Party people beg and plead that they are not racist. And then the Democrats and their lap dogs cry racism again and again. Mindless Saul Alinsky tactics that work. What happened to the real men and women of yesteryear who would just reply “You don’t like it? Take a walk buster!”

Immigration has become the substitute issue for race. We all know the illegals south of the border like the old country one party rule formula and vote democratic 65% of the time. We all know Republican businessmen love the fact that 10 million uneducated undocumented workers drive down blue collar wages 37%. It wasn’t until 22,000 people were killed in a civil war just south of the border that anyone payed any attention and now the Republicans have taken up this issue. Oh great and where was Reagan, Bush I, Bush II or Ford? And now we are suppose to believe the Republicans are serious? Sorry the track record isn’t there.

Florida District 24 Republican Candidate Karen Diebel is fine with Social Security and federal entitlement programs

Blacks have been radicalized by mostly Jews since the NAACP was founded by the white man Moorfield Storey as an almost all white organization exploiting black issues for the benefit of the communist movement. How else to we explain 95% of blacks voting for the party of Jim Crow, slavery and segregation? The Republican Party was formed to destroy slavery. The Democratic Party actively promoted segregation for decades. How did a small group of radicals brainwash the American Negroes so thoroughly?

Of course the official answer given is Lyndon Johnson’s support of the Civil Rights legislation. A more politically incorrect answer is blacks allowed themselves to be enslaved by Democrats (this time voluntarily) with the 1965 Great Society programs. Give mama a welfare check programs that have destroyed the black family in America. Today blacks have been so dumb down and left fatherless they cannot do nothing more that react like a Pavlov dog when the dinner bell rings. With government education and propaganda you can walk up to almost any black and tell them the democrat candidate supports black genocide and they would still support and vote for the democrat. This kind of brainwashing of 12% of voters is killing America along with the 5th grade educated immigrants pouring over the border. Is it racism? Maybe but if you don’t identify the problem there is no hope of solving the problem.

Florida District 8 Congressional Candidate Todd Long has the courage to question federal entitlement programs. A breath of much needed fresh air. Open the link in this blog and look at how a man answers the though questions showing political courage with a strong sense of direction. Todd is a leader.

Social Security is the elephant in the tent, like racism, that everyone pretends is not there. The Republicans talk about fiscal responsibility but they blew the budget up under their idol Reagan 76% and 56% during the Bush years when they were in control of the House, Senate and Presidency. If they will not talk about a program that generates 37.8% of federal revenues and the fact that it is already in deficit status 10 years ahead of schedule then what chance is there they will change once back in power? Do any of these Republicans realize 44.7% of the federal government is transfer payments? All of them rail against the 13.1 trillion deficit and not a peep out of them about the massive federal programs already in place. What the ……? Where is the intelligent life forms?

Okay so the Republicans, we assume, like Social Security and the taxes will be raised from 12.4% to 18%? 20% by 2020? I would like a strait answer on that. Never mind Obamacare its DOA. Entitlements will soon be 15% of the GDP and will climb to 25% in 2042 if nothing is done. Hey we all like grandma but its past time someone stood up to the gimme generation and told them Roosevelt was a bad economic president and the entitlements from the federal government need to end. Adopt the Todd Long rule and just say no to all social engineering at the federal level. It was a lie back in 1935 and the lie is destroying America from within.

Finally has any of these Republican thought of what will happen, god forbid, we get into a real war? Lets just say there is a economic stagnation or collapse. China owns $2.5 trillion in foreign debt. At least $800 billion in US notes and bonds. And with a dollar and Euro collapse they lose what? 30%? 50%? Or more? Who knows but with a $8.9 trillion dollar economy economically they are not that far off from challenging the US for world power status. Lets say the Chinese become just a little pissed seeing all their foreign debt become useless and their economy in the toilet. Lets say the peasants at the factories put pressure on their communist slave masters to keep paying that $56 dollars a month wage and the communist slave masters don’t have the cash. So what do tyrants throughout history do? War.

North Korea is a basket case and South Korea has a $1.35 trillion dollar economy there for the taking. Taiwan has a nice $731 billion dollar economy. Burma is another basket case and all of a sudden you have a real situation on your hands. China has a lot of interest in Africa and the Middle East. And there you are America $15 trillion or more in debt with Chinese troop movements throughout the Southeast Asia and Africa and your response is what? You cant even afford to pay Social Security and all of a sudden the boys are going to suit up and fight a war with China? Who will buy the debt?

For those who don’t know history Russia had a similar situation in 1914 to 1916 with weak leadership and a poorly run Czarist federal government. It didn’t end very well. Russia suffered 73 years of communism because the Czarist leadership was not prepared militarily or financially for WWI. When the citizens are starving some Bolshevik Jew promising bread and land sounds pretty good.

What Social Security and the national debt represent is the removal of the United States of America as the number one superpower…and the Republicans are silent on Social Security and entitlements. What the hell its just our nation and national security at stake. And no one says a word about anything of importance. All we get is mindless crap about the deficit and how they will fix the problem. They will put their heads together and “dig” real deep to save 10% off the federal budget. Wow the money bubble set to explode and they worry about saving that 10%. Funny and tragic.

We are at the equivalent of 1931 with 10% unemployment and looking into the abyss. The Republicans have shown no real indication in the time I have spent with them locally (my apologies to Marco Rubio and Todd Long) that they grasp the severity of our economic situation. In 2011 when the capital gains tax goes up to 20% and the artificial growth is over what will America be looking at with the communist in the White House having another party with Lady GaGa? The economic abyss.

We don’t need another Ronald Reagan that hiked Social Security taxes, ran huge deficits and spend like a drunken sailor. We don’t need the ra ra BS talk and the long winded talks about fiscal responsibility while voting to hike Social Security taxes. Ronald Reagan is not the role model we want or need. He was a talker and not a doer. The one good thing about Reagan was he had Arthur Laffer. That’s it.

Lets move on and kill Social Security and adopt a Switzerland type of retirement. Its simple. 5% of your gross goes towards federal, state, local or AAA rated corporate bonds. Your account and your choice. Pay back the taxpayers the billions ripped off from them in the Ponzi scheme. Apologize to the tax payers. End Medicaid and Medicare. Give the elderly and pre-existing condition people who qualify a voucher to buy private insurance. Split the cost of the Social Security buy out and vouchers with the states. Kill the program and move on. Its time for Republicans to get real or lose the country.

There is a reason I am a Libertarian. We have no political power but we do sleep well at night.

The following is from Ludwig von Misis Institute. Sorry for the copy and paste but I just cannot help myself being overcome with glee when Krugman is put in his place. That place would be as a political hack and not a economics unless you are into centralized planning and statism.

Mises Daily: Thursday, July 29, 2010 by Jonathan M. Finegold Catalan

F. A. Hayek and Paul Krugman

The growth of the Austrian School has forced economists like Paul Krugman — who, for the sake of simplicity, we will refer to as Keynesians[1] — to reconsider these opposing viewpoints. Krugman originally addressed Austrian business-cycle theory in 1998 and since then has continued to provide criticism.[2]

A recent contribution to the debate, “Antipathy to Low Rates,” swipes at Friedrich Hayek’s “liquidationism.” The argument Krugman makes is that those who disapprove of countercyclical quantitative easing and fiscal policy inevitably support a long period of depression, and thus equally “persistent” high unemployment.

Krugman bases his antiliquidationism thesis on the following passage written by Hayek and quoted by Bradford DeLong in a as of yet unpublished history of economic thought in the 20th Century,[3]

still more difficult to see what lasting good effects can come from credit expansion. The thing which is most needed to secure healthy conditions is the most speedy and complete adaptation possible of the structure of production. If the proportion as determined by the voluntary decisions of individuals is distorted by the creation of artificial demand[,] resources [are] again led into a wrong direction and a definite and lasting adjustment is again postponed. The only way permanently to ‘mobilise’ all available resources is, therefore to leave it to time to effect a permanent cure by the slow process of adapting the structure of production.[4]

Krugman then provides his interpretation,

These days, relatively few economists are willing to say straight out that they regard persistent high unemployment as a good thing. But they find reasons to oppose any and all suggestions to use government policy — including monetary policy — to alleviate the slump.

While Krugman’s position is erroneous, regarding both fiscal and monetary policy, it is important to understand Krugman’s exact argument. The concept of the liquidity trap is the keystone to Krugman’s thesis,[5] according to which the rules of the game change when there is a lack of private investment.[6]

As a general concept, the liquidity trap is legitimate in the sense that we are currently in a situation in which, despite the extreme provision of liquidity on the part of the Federal Reserve, there has not been a substantial increase in real private investment. As such, any Austrian rebuttal to Krugman should concede this point.

The real debate is whether or not fiscal stimulus can effectively revive an economy (or pull it out of a “liquidity trap”) or if fiscal stimulus contributes to the existence of a liquidity trap — there is the distinct possibility that this so-called liquidity trap is the product of regime uncertainty, which may or may not be aggravated by government policy.

All considered — even conceding that we are in what Krugman would call a liquidity trap — within the Misesian-Hayekian framework, the only permanent solution to existing malinvestment is to allow its liquidation and the readaptation of the structure of production.

This suggests — like Krugman accuses — that following a boom of malinvestment there will be a period of relatively high unemployment. Krugman would temporarily alleviate the fall in employment and production through public expenditure; however, the problem with loose fiscal policy is that government cannot distribute and invest capital efficiently or profitably. Furthermore, government countercyclical policy tends to create regime uncertainty, which may directly contribute to the existence of this “liquidity trap.”
Brief Overview of the Keynesian Liquidity Trap: From Keynes to Krugman

The concept of the “liquidity trap,” a term coined by economist Dennis Robertson,[7] has returned to the forefront of Keynesian economic analysis. While Krugman’s liquidity trap bears the same name as that of Robertson, Hicks, and Keynes, Krugman’s liquidity-trap theory is fundamentally different.[8] In general, however, all liquidity-trap theories are meant to detail the limitations of monetary policy and the advantages of fiscal policy.
“Within the Misesian-Hayekian framework, the only permanent solution to existing malinvestment is to allow its liquidation and the readaptation of the structure of production.”

While the liquidity trap does not play an important or major role in Keynes’s General Theory, there is a mention of it in the fifteenth chapter of the Keynesian magnum opus,

There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest.[9]

Keynes believed that such a situation occurs out of a change in the “state of expectation.”[10] In other words, an increase in uncertainty leads to an increase in the demand to hold money and a decrease in investment,[11] based on the belief that money’s relatively riskless qualities makes it more desirable to hold than bonds and assets.[12] Given a “virtually absolute” liquidity preference, monetary policy becomes ineffective at stimulating “aggregate demand” since an increase in the supply of money cannot increase wage-earners’ incomes.[13] Furthermore, even supposing a fall in the “pure rate of interest,” Keynes argued that monetary stimulus cannot diminish the cost of lending, and therefore moneylenders are unwilling to lend under a certain rate of interest.[14] Keynes’s solution to such an event is government spending.[15]

While Keynes provided the groundwork, it was John Hicks who refined the theory within the bounds of what was to become known as the Investment-Saving/Liquidity Preference-Money Supply (IS/LM) model. Hicks originally formulated the IS/LM in 1937, in “Mr. Keynes and the Classics,”[16] and later elucidated it in his 1939 book Value and Capital. Hicks believed that while monetary policy could check an increase in the price inflation by increasing the rate of interest, the central bank is effectively unable to stop price deflation[17] because of the positive floor to the interest rate — which prohibits newly created money from being introduced into circulation.[18]

Hicks also introduced key differences to interest rate theory, contra Keynes, including putting emphasis on the idea of the elasticity or inelasticity of the long-term rate of interest based on expectations.[19] Writes Hicks,

If the costs of holding money can be neglected, it will always be profitable to hold money rather than lend it out, if the rate of interest is not greater than zero. Consequently the rate of interest must always be positive. In an extreme case, the shortest short-term rate may perhaps be nearly zero. But if so, the long-term rate must lie above it, for the long rate has to allow for the risk that the short rate may rise during the currency of the loan, and it should be observed that the short rate can only rise, it cannot fall. This does not only mean that the long rate must be a sort of average of the probable short rates over its duration, and that this average must lie above the current short rate. There is also the more important risk to be considered, that the lender on long term may desire to have cash before the agreed date of repayment, and then, if the short rate has risen meanwhile, he may be involved in a substantial capital loss. It is this last risk which provides Mr. Keynes’ “speculative motive” and which ensures that the rate for loans of infinite duration (which he always has in mind as the rate of interest) cannot fall very near zero.[20]

After receiving much attention from the likes of Nicholas Kaldor,[21] Franco Modigliani,[22] and Lawrence Klein, Hicks’s IS/LM formulation of the liquidity-trap theory became the standard Keynesian representation.[23] Between 1940 and 1970, the liquidity-trap theory went through major changes and reformulations, only for Hicks to recant, suggesting that, “[w]hile one can understand that large balances may be held idle for considerable periods, for a speculative motive, it is harder to grant that they can be so held indefinitely.”[24]

The prominence of liquidity-trap theory in mainstream macroeconomics began to rescind by the early 1970s. A change in focus in macroeconomics factored into this shift in thought,[25] as did high rates of interest throughout the 1970s and 1980s that made the idea of a liquidity trap largely irrelevant.[26] Furthermore, research by Milton Friedman and Anna Schwartz questioned the belief that the Great Depression was beset by a liquidity trap,[27] denying the Keynesian camp from any clear empirical evidence supporting their position.[28]

Interest in the liquidity trap resurfaced when Paul Krugman applied his own version of the concept to Japan’s economic stagnation of the 1990s. Krugman explains that

[a] liquidity trap may be defined as a situation in which conventional monetary policies have become impotent, because nominal interest rates are at or near zero: injecting monetary base into the economy has no effect, because base and bonds are viewed by the private sector as perfect substitutes. By this definition, a liquidity trap could occur in a flexible price, full-employment economy; and although any reasonable model of the United States in the 1930s or Japan in the 1990s must invoke some form of price stickiness, one can think of the unemployment and output slump that occurs under such circumstances as what happens when an economy is trying to have deflation — a deflationary tendency that monetary expansion is powerless to prevent.[29]

Where Krugman parts ways with Keynesian precedents is in applying a theory of intertemporal expectations, where monetary policy is ineffective because of the expectation of future deflation — the public believes monetary policy to be only temporary, as opposed to sustained.[30] In effect, expectations of future deflation cause individuals to shift time preference: they prefer holding cash to investment, believing that in the foreseeable future the value of said cash will rise. As such, injections of liquidity have no impact on present aggregate demand.[31] Note, Krugman is not arguing that monetary policy is temporary, only that the public perceives it to be temporary. Krugman cites two reasons why: the public’s knowledge that the Bank of Japan was unwilling to allow for a radical depreciation of the Yen, and its reputation for maintaining price stability and low inflation.[32]

There are two general “New Keynesian” solutions to Krugman’s liquidity-trap problem,

1. Expansionary fiscal policy;
2. Expansionary monetary policy targeting for long-term inflation.

The case for fiscal policy claims that a sufficiently large temporary fiscal stimulus to the economy would “jolt” the economy towards equilibrium, by increasing output and aggregate demand,[33] where expansionary monetary policy would once again be effective.[34] Krugman cites the Second World War as an example and writes that “the massive one-time fiscal jolt from the war pushed the economy into a more favorable equilibrium.”[35]

Writing in support of deficit spending, Bradford DeLong puts it much more crudely, stating that “at this point, anything that boosts the government’s deficit over the next two years passes the benefit-cost test — anything at all.”[36]

While Keynes and Hicks would have perhaps shied away from massive monetary stimulus, operating with the understanding that monetary policy was ineffective during a liquidity trap, New Keynesian theory puts much more importance on a growing money supply. In fact, Krugman’s monetary solution to a liquidity trap is sustained inflation, where the central bank reverses fears of future deflation by instead causing an increase in the price level through massive monetary pumping (Krugman estimates this to be in the area of $10 trillion, borrowing the figure from a prior study conducted by Goldman Sachs).[37] Periods of relatively high inflation would not be temporary, as to assuage fears of future deflation. Instead, the “optimum” monetary policy is one that targets relatively high inflation for a period long enough to shift the public’s rational expectations.[38]

As is, the Keynesian “solutions” to a liquidity-trap run in the face of Austrian capital and calculation theory. The idea that government investment is as good as private investment is highly suspect, while a policy of monetary inflation is bound to lead to malinvestment. Thus, the Austrian capital and business-cycle theory are highly relevant. Understanding the Keynesian argument, we can now delve into Hayek’s work.
Austrian Economics and Economic Restructuring

Although Austrian business-cycle theory is not simple — especially since it is rooted in a wealth of capital and monetary theory developed by a multitude of economists[39] — it can be concisely explained as a theory that recognizes disequilibrium between savings and investment.[40]

$8 $5

The relationship between consumption, saving, and investment is intertemporal in the sense that in order to accumulate the capital necessary to invest one must refrain from present consumption and opt for future consumption.[41]

This intertemporal relationship between consumption and investment is reflected through the interest rate, which serves as a price mechanism, transmitting information to the entrepreneur. An increase in savings, or a societal shift towards the preference to refrain from present consumption, leads entrepreneurs to borrow these savings and invest them to satiate the needs of these savers in the future. Austrians call this a lengthening and a widening of the structure of production, as entrepreneurs invest in stages farther away from the final consumer good.[42]

Given that the rate of interest reflects society’s time preference — or preference towards present or future consumption — it thus acts as a mechanism by which savings and investments strive to reach equilibrium (or where the two are equal).[43] Disequilibrium would therefore imply that savings are unequal to investments, or, in other words, that the market is not acting according to society’s time preference. Instead, a disequilibrium caused by credit expansion lowers the rate of interest, makes capital-good investment more lucrative,[44] and thusly lengthens the structure of production without a prior increase in savings.[45] In this case, an increase in investment is not met by an equal decrease in consumption, and so investment outstrips savings.

The productive boom, caused by this disequilibrium, must inevitably end when the price mechanism adjusts — or when the credit boom ends.[46] The structure of production is now pressured to return towards equilibrium.
“The idea that government investment is as good as private investment is highly suspect, while a policy of monetary inflation is bound to lead to malinvestment.”

Despite this notion of disequilibrium, Austrian theory does not argue in favor of blaming “overinvestment,” as the supply of capital goods does not necessarily increase. Instead, it examines price distortion where a price ceiling is effectively installed causing entrepreneurs to not recognize the actual scarcity of the capital goods in question — the adjustment of the price mechanism reveals this scarcity, and entrepreneurs must liquidate their “malinvestments.”[47]

Knowing where Hayek was coming from makes his comment, as quoted by Bradford DeLong and Paul Krugman, far more understandable. The depression period is one in which the structure of production readjusts according to society’s time preference, and so the most sensible approach to returning to economic stability is allowing this readjustment to take place the fastest possible.

One of the results of this readjustment is a fall in the supply of money — what Austrians refer to as deflation. There are three main reasons this occurs,[48]

1. A rise in demand for money, or a rise in demand for liquidity, in expectation of falling prices;[49]
2. Credit contraction due to a reduction in outstanding loans by banks fearing bankruptcy, or predicting a greater need for liquidity;
3. A fall in outstanding credit and loans caused by default or liquidation of malinvestment.

The common Keynesian argument is that of the “deflationary spiral.” Finding its modern origins with Irving Fisher,[50] this argument suggests that a fall in prices makes it more difficult for debt to be repaid, increases demand for money, and feeds on itself in the sense that it causes a cycle of deflation.[51] It is not necessarily rejected by Austrians.[52] Where the Keynesians and the Austrians differ, at least on this point, is on the solution. While Keynesians, such as Krugman, argue for inflationary monetary policy,[53] Austrians instead see the resulting fall in the price level as the cure for deflation (or fall in the money supply).[54]

Recognizing the problem as the result of a fall in profit, due to the deceleration of credit expansion, the problem of demand necessarily stems from the inability to pay for products demanded. The solution is a fall in prices of relevant goods and services, to the point where demand for them can once again rise.[55] In other words, conceding that a fall in the money supply will lead to a decline in spending, the only method by which spending can rise is through a fall in the price level.
“The depression period is one in which the structure of production readjusts according to society’s time preference, and so the most sensible approach to returning to economic stability is allowing this readjustment to take place the fastest possible.”

The alternative method, or the Keynesian “solution” of inflation, can lead to a temporary “recovery.”[56] Nonetheless, such a policy would inevitably result in greater malinvestment and a greater net loss of wealth.[57]

While the Keynesian case for inflation has been dealt with, there still lies the supposed problem of the liquidity trap. Krugman’s liquidity trap becomes theoretically unsustainable once we dispel the myth of the supposed deflationary spiral.

However, rising uncertainty and low expectations for the future, brought about by economic depression, can be considered legitimate factors behind a liquidity trap. In this case, we define a liquidity trap as a situation in which private investment stagnates despite the readjustment of the structure of production. One such situation of this occurring was during the Great Depression. This topic is tackled by Robert Higgs, in which he attaches the blame to “regime uncertainty,” or uncertainty caused by a general antibusiness climate produced by the government.[58]

While we cannot accuse the current government of causing the same disruption as did the Roosevelt administration during the Great Depression, it nevertheless stands that the onset of the current recession and the sheer amount of bankruptcies that resulted were enough to shatter confidence. While the bailouts perhaps managed to salvage the balance sheets of those banks fortunate enough to receive government money, it failed to aid these banks to stabilize. Since there are low expectations for stability, it only makes sense that private investment remains stagnant. Furthermore, it is very possible that the threat of higher taxes due to increased government debt and deficits has also factored into business expectations.

The final remaining question is whether or not a natural readaptation of the structure of production to society’s time preference can be aided through government spending. This is, of course, the other side of the Keynesian coin — if not monetary policy, then fiscal policy must be the solution.[59]

An Austrian would argue a resounding “no.” Wealth-producing investment relies on two underlying factors: that there exists a demand for the product and that the producer can satisfy that demand at a profit or by receiving greater satisfaction in return. That government cannot satisfy another’s demand at a profit can be extrapolated empirically, because if it could, there would be no need for deficit spending — the capital necessary to fund these programs would come from received profits. As such, government spending usually results in a net loss in wealth, as less wealth is produced than the amount invested in the first place. Ergo, government spending absolutely cannot replace private investment.

The typical “redistribution of wealth” argument doesn’t directly pertain to the Keynesian case for deficit spending, because the Keynesians adamantly believe that government spending will cause an increase in net and sustainable output, and as a result the burden of these deficits in terms of percentage of income taxed will be much smaller in the future than they are in the present (thus, the point of running deficits). But, the argument for deficit spending falls to pieces if government spending does not result in higher economic growth.

Fulfillment of satisfaction is dependent on individual subjective evaluations and voluntary exchange. Government, instead, distributes capital towards otherwise unwanted ends, taking it away from the private sector and “producing” at a net loss. The ultimate consequence is the destruction of wealth.[60] While in a vibrant economy wealth creation by the private sector may outstrip wealth destruction by the public sector, in eras of depressed private investment government spending could be potentially disastrous.
Hayek and Unemployment

Paul Krugman frequently suggests that “facts have a well-known liberal bias.”[61] The present essay argues otherwise. The evidence overwhelmingly suggests that the best possible route to economic recovery is through the free-market and by allowing the structure of production to readapt itself. The Austrian case shows why monetary policy and fiscal policy are not effective methods by which to accelerate the pace at which this readaptation occurs.

Krugman accuses Hayek of seeing unemployment as a good thing, but nothing could be further from the truth. Hayek clearly considers unemployment a result of interference with the price mechanism, caused by credit expansion. Hayek, like anybody else, would rather see as many individuals employed as possible, as he was a defender of capitalism and as such valued economic growth through voluntary exchange. The difference between Hayek and Krugman is that Hayek was not a utopian, and realized that economic growth can only once again take place if the structure of production adapts to society’s time preference — there is no formula by which government can centrally plan wealth creation.

While Krugman’s policy could perhaps lead to a temporary surge in employment, we have shown that over the long run such policies are unsustainable. The only long-run results are the destruction of wealth and even greater unemployment. If Hayek supported “persistent unemployment,” then there are few good words one could offer to describe Krugman’s position.