Stephen Hicks, Ph.D.

Collected posts on the financial crisis

Links to my posts over the last three years on the causes of the crisis. This is an ongoing project, and I’ll add new items to the Financial Crisis page as they are posted. Ten posts:

1. What is the US economy? Introduction. Before blaming the economic crisis on either government regulation or free enterprise, we need to know what kind of economic system the U.S. had before the crisis. A survey of the relevant factors in identifying the degree of capitalism or socialism then in place.

2. Deregulation? The Federal Register’s size: Data on one measure of government regulation — page counts of its publication of new rules each year.

3. When was the financial sector deregulated? Data on two measures of regulation: The size of the federal government’s annual budget for regulating the financial and banking sector, and the total number of government employees regulating that sector.

4. The Subprime Mortgage Crisis: A simplified flowchart of subprime mortgages’ contribution to the crisis. Presidents, congressmen, Fannie Mae, and lenders’ changing incentives.

5. Pathologies of the mixed economy (or, How we got into this frackin’ mess): A big-picture overview of the development of our mixed economy. Integrating developments in ethics, economics and political history, and public choice. A video-lecture version.

6. Money and monetary systems: An introductory contrast of private/competing money systems to our government/monopoly money system. Includes an analogy of books to money: Books are to the intellectual realm what money is to the economic realm.

7. Has the Federal Reserve been a failure? A report on a conference paper given by economic historians George Selgin and Lawrence White comparing the Fed’s original mission with its track record over the twentieth century.

8. What is the OWS complaint? A question for those venting their frustration at Wall Street rather than Pennsylvania Avenue.

9. Warren Buffett and the power of corporations: On the crucial distinction between political power and economic power.

10. John Allison on the financial crisis: I can’t take any credit for this excellent talk, but the former CEO of BB&T had a front-row view of the events leading up to and during the crisis. I also can’t take any credit for economist George Reisman’s depressingly clear overview explanation.

[Return to the Financial Crisis page. Return to the Business and Economics page. Return to the StephenHicks.org main page.]

Full interview with John Allison posted

My full interview with John Allison has been posted at the Center for Ethics and Entrepreneurship’s site. The center’s Kaizen newsletter recently published an 5,800-word abridgement of the interview, but those interested can now read the full 14,000-word story.

The theme of the interview is Entrepreneurial Banking, about which Allison is perfectly positioned to speak. During his 20-year tenure as CEO, BB&T’s assets grew from $4.5 billion to $152 billion and, almost more impressively, BB&T has weathered the financial storms of the last few years comfortably and remains healthy and one of the largest banks in the nation. A related post on Allison is here.

More Kaizen interviews with leading entrepreneurs are at my site here or CEE’s site here.

Kaizen 17 — the John Allison interview

The latest issue of Kaizen [pdf] features my interview with John Allison, recently retired CEO of BB&T bank. The theme of the interview is Entrepreneurial Banking, about which Allison is perfectly positioned to speak. During his 20-year tenure as CEO, BB&T’s assets grew from $4.5 billion to $152 billion and, almost more impressively, BB&T has weathered the financial storms of the last few years comfortably and remains healthy and one of the largest banks in the nation. A related post on Allison is here.

Also featured in this issue of Kaizen are the latest CEE student essay contest winners — Jennifer Harrolle, Alyssa Baggio, and Derek Garcia — the Philosophy Department’s Walhout Prize winner, Nathaniel Branch, and a report on guest speaker David R. Henderson, and other news from the Center for Ethics and Entrepreneurship.

If you would like to receive a complimentary issue of the print version of Kaizen, please email your name and postal address to CEE [at] Rockford [dot] edu.

More Kaizen interviews with leading entrepreneurs are at my site here or CEE’s site here.

The House that Uncle Sam Built

This is an excellent overview of the politicized economics, by Peter Boettke and Steven Horwitz, along with an introduction by the excellent John Allison. The abstract:

“The Great Recession (or the Great Hangover) that began in 2008 did not have to happen. Its causes and consequences are not mysterious. Indeed, this particular and very painful episode affirms what the best nonpartisan economists have tried to tell our politicians and policy-makers for decades, namely, that the more they try to inflate and direct the economy, the more damage the rest of us will suffer sooner or later. Hindsight is always 20-20, but in this instance, good old-fashioned common sense would have provided all the foresight needed to avoid the mess we’re in.
“In this essay, we trace the path of the recession from its origins in the housing market bubble to the policies offered to cure the aftermath.”

Here is a direct link to the PDF of the article at the Foundation for Economic Education’s site.

John Allison on the financial crisis

John Allison recently retired as Chairman and CEO of BB&T Bank. During his 20-year tenure as CEO, BB&T’s assets grew from $4.5 billion to $136.5 billion [correction: $152 billion]. Almost more impressively, BB&T has weathered the financial storms of the last few years comfortably and remains healthy and one of the largest banks in the nation.

Allison has produced a 1:10-hour video lecture on the financial crisis. He brings to it his insider’s expert knowledge on banking practices, government monetary policy and regulation over the last few decades, and his first-hand participation in leading BB&T through the complicated economic and political realities as the financial meltdown began. Well worth your time.

Clips 1-8:

Rand in the New York Times

The New York Times published a wide-ranging piece on John Allison and the controversies over Ayn Rand’s philosophy and influence: (“Give BB&T Liberty, but Not a Bailout”, August 1, 2009).

It’s a mix of solid and straight-up reporting along with slightly off and completely wide-of-the-mark interpretations. Here’s a short letter I sent off to the Times’s editor this morning.

Dear Editor:

Ayn Rand is a pro-government thinker, contrary to the opening caption in your extended article. Saying that Rand is “anti-government” is like saying she is anti-battery-acid. Battery acid is very useful — when its power is properly focused and contained. Outside those confines, it is corrosive.

Sincerely,

Stephen Hicks, Ph.D.

Professor of Philosophy
Executive Director, The Center for Ethics and Entrepreneurship

Rockford College
5050 East State Street
Rockford, Illinois 61108

The increasing(ly clear) relevance of Ayn Rand

“Read the news today? It’s like ‘Atlas Shrugged’ is happening in real life,” as this Facebook group points out.

Many intelligent observers have noted the connection, which has led to sharply increased sales of Atlas and prominent coverage of Atlas’s themes in Business Week, Forbes, the New York Times, the Economist, The Wall Street Journal, and other major publications. And from across the pond comes this British magazine’s tribute and commentary on Ayn Rand’s significance. (Thanks to Bob H. for the link.)

Amity Shlaes’s recent piece in Bloomberg is well worth reading: Atlas Is Shrugging With a Growing Load. Shlaes is the author of a recent history of the Great Depression and so is well positioned to offer commentary on our times. A pair of key quotations from Shlaes’s piece:

On punitive taxation: “In 1986, a year when Atlas Shrugged sold between 60,000 and 80,000 copies, the top 1 percent of earners paid 26 percent of the income tax. By 2000, that 1 percent was paying 37 percent, and Atlas Shrugged sales were at 120,000. By 2006, the top 1 percent carried 40 percent of the burden.”

On government fiat money and deficit financing, quoting Rand: “Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’”

Today’s events are a consequence of political, economic, and, more importantly, philosophical principles adopted by the most influential thinkers and doers of the last several generations. The antidote, accordingly, requires that this and the next generation’s most influential thinkers and doers change their philosophical course.

For follow-up material on Rand’s philosophical analysis of the roots of the crisis and the antidote, I recommend the following.

For general readers, here is my introductory overview of Ayn Rand’s biography and ethics at the Internet Encyclopedia of Philosophy.

For all readers, here are two recent anthologies of essays on Atlas Shrugged, one edited by Professor Edward Younkins and the other edited by Professor Robert Mayhew.

For a technical, book-length discussion of Rand’s ethical theory, here is Tara Smith’s Ayn Rand’s Normative Ethics. For further discussion of Professor Smith’s book, here is my review [pdf], published in Philosophy in Review, and Carrie Ann Biondi’s extended review [pdf], published in the most recent issue of Reason Papers.

For a philosophically-informed analysis of the crisis by a top-level financial professional, I recommend John Allison’s analysis. Allison is Chairman of BB&T and one of the great businessmen of our generation. Evidence: BB&T is one of the major banks that is still very healthy. Like Todd Zywicki, I recently heard Allison speak on the origins of the financial crisis and how BB&T avoided being sucked into the mess, and I recommend his analysis highly.

As we are suffering through yet another hard experiential lesson about collectivism and enforced altruism, let’s resolve to learn the lesson clearly and in principle so that the next generation will see more encouraging signs like these.