Book

Review
Meltdown
Thomas Woods

Simina Stancu, A
series, Group 27, 1st
year
 Meltdown
Thomas Woods
Book review

In the first chapter, Woods notes that the fall of 2008 has brought uncertainty among the
Americans who have been assaulted with the concept that the free-market economy has
failed. This was due to the stock market that has fallen and companies started to close.
The solution appears to be more rules, a greater part of the government intervention, the
increase of money supply, increase of spending and debt. All of these were according to
Barack Obama, the late Bush Administration, Republicans and Democrats in Congress.
Then, the persons who have planned the policies which created the chaos are now
showing off as wise attendants to the nation capable of directing us to the way out.
On the same note, the government failure is employed as an excuse for the further
increases in the government power. The important persons who are leading the
discussions have been every time delivering wrong answers to all the significant
questions, but it is supposed that for now most of the talking heads have not been asked
the correct questions. These questions include the whereabouts of leverage, debt, excess
risk.

Woods finds that the main source of the present crisis lies in the mismanagement of the
money supply by the Federal Reserve Bank. His opinion is that the inflation of the money
supply by the Federal Reserve, lead to credit expansion which induced an impractical
boom of the real estate housing based on lending out mortgages to customers who are not
qualified for this credit via quasi-governmental agencies such as Fanny Mae. The
activities of these agencies were themselves an effect of social engineering legislation by
both Democratic and Republican congressmen.
This is a perfect ironic example of how the current economic failure could be handled.
In his book, Woods give as an example the Depression of 1920-1921, when the
government did not do almost anything.
Many specialized economists who studied the depression were not able to argue why the
improvement was so quickly and steep although the Federal Reserves and the federal
government abstained from using any of the macroeconomic such as government deficits,
inflationary monetary policy and public works spending.
Benjamin Anderson stated in 1920-1921 that we have taken our losses, readjusted our
financial structure, put up with the depression and in August 1921 we were on our own
feet again. The return to the former condition in business production and employment
that began in August 1921 had as basis a radical readjustment of the credit weakness, an
extreme cut in the costs of production and on the free intervention of private enterprises.
All this was no based on governmental policy meant to make business better.
The federal government has not used budgets that were out of balance and selected the
option of increased expenditure. It was employed the perspective that government should
keep spending and taxation to the minimum and cut the public debt.
This solution brings a light on Woods’ association with the Austrian school of
economics, and actually he is a senior at the Ludwig von Mises Institute (in Auburn, AL),
whose name was took after one of its foremost economic theorists.
The Austrian school best adepts practice is based on the drastic difficulty, rising to almost
impossibility, of bureaucratic and centralized entities such as governments successfully
devise economic solutions and perspectives, since they will never be able to enter to the
various and many sources of economic activity in individual human opinions and
decisions.
Therefore, the activities of governmental trials to discipline markets and regulate
industries will lead to failure and most probably will make things worse.
The main great economist of the Austrians was the British economist John Maynard
Keynes, whose concepts and theories were of a big influence in a very damaging way
during the Great Depression, in the form of inflation, high taxation, big government
spending.
The unsuccessful policies to end the Great Depression have put a doubt on the
Keynesianism and the success of the Reagan years in following the supply theories of
Arthur Laffer and colleagues on the same line with Friedman and Mises appeared to put
in a bad light Keynes until the revival of his theirs in the current disastrous “priming the
pump” economic policies of Presidents Bush and Obama.
Woods has proposed several measures to address the current crisis, also called “the
phony, capital consuming kind of prosperity that comes from artificial credit expansion
or Keynesian ‘stimuli’…”
The first measure includes the firms to go bankrupt. A firm is still on the market unless it
declares bankruptcy. The capital equipment and assets continue to exist, but they are no
longer in the possession of those who have not succeeded to employ them in ways that
best satisfy the public and into the possession of those who are able to do a better job.
Another measure supposed the abolishment of Fannie and Freddie Mac. Government
engineering who advertises home ownerships to the persons that are not able to afford
them is one of the major causes of the current downturn.
Woods also stated that the bailouts should be stopped and the government spending to be
cut. Subsidizing the inefficient corporations can only lead to their closure and using
taxpayer’s money to do this is not ethical. The chaotic spending can only produce higher
taxes, prices, borrowing and prolongs of debt to future generations.
Another opinion of Woods consists of the ending of the government manipulation of
money, because the system that leads to the dollar to lose a great part of its value is not
the best of all possible systems.
Another measure is that Fed is the one responsible for elevating moral hazard into a
permanent feature of banking, so it should be put up for discussion.
The monopoly money should end. There are some persons who would like the return of
the gold standard to replace fiat money, or even privatize money. Keeping a stable
currency without a commodity standard is like keeping ethics with shifting Ten
Commandments.
In the seventh chapter Woods details all his reasons for the above opinions.
To conclude, Woods sustains that people are prepared to keep they eyes open to
reasonable ideas, if the people who stated them succeeded to forecast the current crisis, as
the Austrian school did. It depends on us to induce these ideas.