Friday, October 16, 2009
1. Consumers can't buy any big screen TV they want, but Hummer is still in business (for now).
2. Australian children under two aren't allowed to watch "too much" TV, says the state.
3. This story foreshadows what will happen when entitlement payments are slashed en masse... You see similar human behavior in this scenario as well.
4. The latest "right" to be bestowed by a government to its people is broadband internet. Upon creation of this new legal right, injustice is created all over the world.
5. FRONTLINE over at PBS does an excellent job of reporting on Obama's war in Afghanistan. It settled the debate for me of whether or not the US is engaged in nation-building.
Thursday, October 1, 2009
Early 20th century progressives dreamed of a "new man" and a new society, with the State being the apparatus to bring about social change. Mussolini was the champion of early progressives. Many American politicians and journalists applauded his blend of State and capitalism, saying that it was a more efficient means to bring the type of social change they desired. This sentiment still exists today, and it is quite open(see video @2:35).
Mussolini coined the term "totalitarianism". "Everything in the state, nothing outside the state." It is a seductive mirage, the idea that by using the guns of government man can mold himself into a new, more perfect being. The theme being that if only the people would submit their will to the government, we would all be better off. Everything - your life, your property, your ideas - in the state, nothing outside the state. That is the creed of totalitarianism.
But it is nonsense. Humans are individual moral actors, and any perfection of mankind has to emerge from the heart of each individual. No amount of external power can force perfection into the heart of any man. Reality flies in the face of the totalitarian philosophy. We cannot rely on the State to remove us from forces of nature. Yet this philosophy is part of American culture, and actually has been adopted by man for ages. Before it was kings, now it is the president.
What does this image, pregnant with emotion, mean?
Worship: 1. reverent honor and homage paid to God or a sacred personage, or to any object regarded as sacred. 2. O.E. worðscip, wurðscip (Anglian), weorðscipe (W.Saxon) "condition of being worthy, honor, renown," from weorð "worthy" (see worth) + -scipe (see -ship). Sense of "reverence paid to a supernatural or divine being" is first recorded c.1300. The original sense is preserved in the title worshipful (c.1300). The verb is recorded from c.1200.
Totalitarianism is marked by a reverence paid to its supposed supernatural ability to legislate man's perfection. The face of the American state is the president.
The following are a collection of videos that illustrate various forms of president worship.
I think North Korea really has this whole totalitarian thing down. I mean, they really nail it here:
I'll conclude with an observation and a question. No doubt there are varying degrees of government control. There is limited government, big government, and full blown North Korea "the General is our fatherly god" government. I am not saying that Obama is Kim Jong Il. What I am saying is that the same underlying belief exists in North Korea as it does in the United States: that we should be dependent on the government to protect us from nature, not merely force or fraud. I ask the question: if you don't think that our history and these videos constitute a form of government worship, at what point would you?
Thursday, September 10, 2009
Wednesday, August 5, 2009
2. Gary North explains why the Fed is afraid of Ron Paul - and the American people - very clearly. Highly recommended.
3. The UK government plans to install CCTV cameras in the homes of 20,000 "problem families". I kid you not.
4. John Stossel brings attention to a great Barron's article and the problem of the Cake Party. We will be eating spinach for some time, basically.
Thursday, July 30, 2009
2. Goldman Sach's record profits (and bonuses) are essentially subsidies. That is to say, their profits are taxpayer dollars.
3. John Stossel ponders outlawing cigarettes. Why not?
4. Capitalism, Jewish Achievement, and the Israel Test: Is Israel a capitalist beacon in the Middle East?
Friday, July 24, 2009
- The Fed’s discount window operations
- Funding facilities
- Open market operations
- Agreements with foreign banks and governments
Why should we audit the Fed?
In The Case Against The Fed, Murray Rothbard argues that the Fed enjoys a greater secrecy and independence than even the CIA.
The CIA and other intelligence operations areRothbard's first chapter is excellent, and highly relevant to this post. I would strongly recommend reading it in its entirety.
under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to
the public; but at least the people's representatives in Congress insure some accountability for these secret agencies.
The FederalReserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.
So: if the chronic inflation undergone by Americans, and in almost every other country, is caused by the continuing creation of new money, and if in each country its governmental "Central Bank" (in the United States, the Federal Reserve)
is the sole monopoly source and creator of all money, who then is responsible for the blight of inflation? Who except the very institution that is solely empowered to create money, that is, the Fed (and the Bank of England, and the Bank ofItaly, and other central banks) itself?
Ron Paul articulates:
Claims are made that auditing the Fed would compromise its independence. However, by independence, they really mean secrecy. The Fed clearly cherishes its vast power to create and spend trillions of dollars, diluting the value of every other dollar in circulation, making deals with other central banks, and bailing out cronies, all to the detriment of the taxpayer, and to the enrichment of themselves. I am happy to challenge this type of “independence.”
They claim the Fed is endowed with special intellectual abilities with which to control the market and that central bankers magically know what the market needs. We should just trust them. This is patently ridiculous. The market is a complex and intricate thing. No one knows what the market needs other than the market itself. It sends signals, such as prices, that should be reacted to and respected, not thwarted and controlled. Bankers are not all-knowing and cannot ignore the rules of supply and demand. They might act as if they are, but their manipulation of the market just ends up throwing it wildly off balance, which gives us the boom and bust cycles.
They claim the Fed must remain apolitical. No organization is apolitical that relies on the President to appoint the Chairman. In fact, it is subject to the worst sort of politics – power to create trillions of dollars and affect the value of every dollar in the country without the accountability of direct elections or meaningful oversight! The Fed typically enacts monetary policy that is favorable to particular administrations close to elections, to the detriment of long-term considerations. They do this partly because of the political appointee process for the Chairmanship.
Ron Paul recently articulated the conflict between the people and the Central Bankers in this appearance on MSNBC:
Over at Campaign For Liberty, Peter Orvetti asks "What's the Establishment Got to Hide?"
A dollar today is worth less than one-twentieth what it was worth on the day the Federal Reserve was created 96 years ago. Yet over all that time, the unelected Fed has never had to face the full scrutiny of our elected representatives that other powerful agencies must. Even our intelligence agencies must report to Congress -- but not the Fed, which has helped rack up an $11 trillion national debt, and an additional $13 trillion in dubious loans and bailouts.
The Fed will not say where that money is going. Chairman Ben S. Bernanke has refused to tell Congress, and why should he? There is no means to compel him, and no way to find out what he’s been doing. The Federal Reserve Transparency Act would change that.
C-SPAN covers an excellent debate with Tom Woods and others (including Warren Coats, former IMF official) on the pros and cons of auditing and abolishing the Federal Reserve. The basic positions are:
- Audit and abolish the Fed and replace it with private commodity money and private banking.
- Strip the Fed down to the sole task of protecting the value of the dollar.
- It is too impractical to end the Fed without creating economic instability, so another plan is needed.
The Smith Family Foundation hosts a very similar debate with George Selgin, Peter Schiff, Steven Axilrod (former member of the Federal Reserve's Board of Governors), and a political science professor from Columbia University:
I just want to point out that at minute 58 Axilrod exposes the political interests of the Fed and its Board of Governors.
Why shouldn't we audit the Fed?
Too Big To Bail makes the case that to audit the Fed is essentially to end it, and we should not forget that ultimately it was Congress that created the Federal Reserve system and as such they should be blamed for it. In other words, we are to blame for it, and blaming Bernanke and the Fed for our woes is misplaced anger. As he states,
Don’t get me wrong. I think the idea of a Fed and fiat currency, are bad ideas. I just think we should stop the classic congressional game where we create a problem and then complain about the Fed as if they are to blame. We created the beast and now are not happy with it. We can pull the plug whenever we want. But doing so would be an admission that we screwed up, not the Fed. The issues everyone has seems to be with the institution per se. And we created the institution.
So within the very framework that we set up, the Fed’s argument in favor of independence seems to make perfect sense. Of course, I question the whole framework, but given the situation, it does make sense.
Fed Chairman Ben Bernanke speaks on the issue, and claims that the audit would nullify Fed independence -
And from his article in the WSJ:
The Congress, however, purposefully--and for good reason--excluded from the scope of potential GAO reviews some highly sensitive areas, notably monetary policy deliberations and operations, including open market and discount window operations. In doing so, the Congress carefully balanced the need for public accountability with the strong public policy benefits that flow from maintaining an appropriate degree of independence for the central bank in the making and execution of monetary policy. Financial markets, in particular, likely would see a grant of review authority in these areas to the GAO as a serious weakening of monetary policy independence. Because GAO reviews may be initiated at the request of members of Congress, reviews or the threat of reviews in these areas could be seen as efforts to try to influence monetary policy decisions. A perceived loss of monetary policy independence could raise fears about future inflation, leading to higher long-term interest rates and reduced economic and financial stability. We will continue to work with the Congress to provide the information it needs to oversee our activities effectively, yet in a way that does not compromise monetary policy independence.
The Washington Post also thinks auditing the Fed is dangerous:
Though the bill has attracted 276 co-sponsors in the House and 17 in the Senate, it is wrongheaded in the extreme. By opening up the Fed's most sensitive interest rate and credit policies to public second-guessing, the bill would create a risk -- real and perceived -- of monetary policy bent to suit congressional overseers. This would destroy financial markets' faith in the Fed and, by extension, the value of the U.S. dollar, just as surely as a political "audit" of the Supreme Court's deliberations would undercut public faith in the justice system. ... The Federal Reserve Transparency Act is an unserious answer to a serious question.If I may, the serious question is the existence of the Federal Reserve itself. As I find more sources I will update this post and continue to compile them. I hope this is a good start for you, though.
Wednesday, July 22, 2009
These videos do a great job exploring the themes of Henry Hazlitt's "Economics in One Lesson". The barrier to entry that is minimum wage, unintended consequences of government intervention in markets, and the deleterious effects of welfarism on the human spirit.
Wednesday, July 15, 2009
"The House is also proposing a mandate on Americans above a certain income level: People would be penalized as much as 2.5 percent of their income for failure to buy health insurance."Isn't that convenient? Is there a business on the planet that wouldn't take advantage of the ability to levy a penalty on its non-customers for not choosing their product? How can ANYBODY claim that the Federal Government insurance plan will "compete" with private insurance companies when consumers are now penalized for not purchasing a plan?
If the government option is cheaper, everyone who is mandated to buy will likely choose that plan. This is about as competitive as putting ex-lax in the other teams' water cooler before hitting the field.
Imagine Best Buy telling Americans, "If you don't buy our TVs, DVDs, and video games, we'll send you a bill for 2.5% of your income." Of course, no one would pay that bill. Until Best Buy put out a warrant for your arrest...
Tuesday, July 14, 2009
Here's what the Fed has to say about the matter:
"The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."Maybe it is just me but that is confusing. Why is "owned" in quotations? So it is not a profit-making institution, but an independent entity within the government. If that is the case, why did a Federal District Court in California rule that the Federal Reserve is a private corporation? See here:
"Plaintiff, who was injured by vehicle owned and operated by a federal reserve bank, brought action alleging jurisdiction under the Federal Tort Claims Act. The United States District Court for the Central District of California, David W. Williams, J., dismissed holding that federal reserve bank was not a federal agency within meaning of Act and that the court therefore lacked subject-matter jurisdiction. Appeal was taken. The Court of Appeals, Poole, Circuit Judge, held that federal reserve banks are not federal instrumentalities for purposes of the Act, but are independent, privately owned and locally controlled corporations."It is worthwhile to read the ruling in its entirety, but "independent, privately owned and locally controlled corporations" doesn't seem to jive with "an independent entity within the government". Maybe the District Judge was confused. I certainly am. Lets see if this handy chart from the Richmond, VA Fed can help us...
"Each Federal Reserve Bank is a separate corporation owned by commercial banks in its region. The stockholding commercial banks elect two thirds of each Bank's nine member board of directors. The remaining three directors are appointed by the Federal Reserve Board."
"Examining the organization and function of the Federal Reserve Banks, and applying the relevant factors, we conclude that the Reserve Banks are not federal instrumentalities for purpose of the FTCA (Federal Tort Claims Act), but are independent, privately owned and locally controlled corporations."
So the member banks (commercial banks like Citi, JP Morgan, etc.) are the shareholders in the local Federal Reserve banks, and they appoint two-thirds of the board of directors which manage the local banks. Each banks' board of directors appoints a president, five of whom in turn sit on the Federal Open Market Committee. Stop me when I hit public ownership land, by the way. The Federal Open Market Committee is comprised of five presidents from regional banks, and seven members of the Board of Governors. The Board of Governors is appointed by the President and confirmed by the Senate. The Board of Governors appoints the other third of the board of directors at local Federal Reserve banks, and is advised by a Federal Advisory Council comprised of a representative from each of the twelve regional banks.
Aside from all the confusion, I don't see any public ownership in there at all. There is some public representation - the Board of Governors and their appointment of 1/3 of each banks' board of directors. That is not much. Anyway, who owns the Fed?
Here is an excerpt from an article written by former N.Y. Attorney General Eliot Spitzer on the cozy relationship between the N.Y. Fed and Wall St: (italics mine)
Spitzer appears to be suggesting that Geithner works more for Wall St. than he does for the Fed. This quasi-conspiracy theory about Geithner is also advanced by former Assistant Treasury Secretary Paul Craig Roberts (@ 2:50) :
"Given the power of the N.Y. Fed, it is time to ask some very hard questions about its recent performance. The first question to ask is: Who is the New York Fed? Who exactly has been running the show? Yes, we all know that Tim Geithner was the president and CEO of the N.Y. Fed from 2003 until his ascension as treasury secretary. But who chose him for that position, and to whom did he report? The N.Y. Fed president reports to, and is chosen by, the Fed board of directors.
So who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for—but did not receive—harsh examination from the N.Y. Fed."
The Federal Reserve system has all the pomp and veneer of a government institution:
- The name implies a Federal agency
- The public face, Chairman of the Board of Governors, is appointed by the President
- It was created in name of the "public interest", to protect the value of the dollar and provide economic stability
- Has regulatory power over other private corporations
- Non-profit organization
- Has a special .gov web address
Support Ron Paul's bill to audit the Fed. Why? 'Cause he pwns the Fed!
Wednesday, July 8, 2009
Monday, July 6, 2009
What system can generate such a circumstance? How can comparatively small states like New Jersey can produce more than the geographical area of Russia? Is it merely that New Jersey has more natural resources than all of Russia? Or that the people of New Jersey are smarter than the people of Russia? Or is it related to each states' respective proximity to the natural state of liberty?
From the index of economic and political freedom:
"State involvement in economic activity remains considerable, and institutional constraints on economic freedom are severe. Non-tariff barriers add significantly to the cost of trade. Inflation is high, and prices are heavily controlled and influenced by the government. Virtually all foreign investment faces official and unofficial hurdles, including bureaucratic inconsistency, corruption, and outright restrictions in lucrative sectors like energy. Corruption weakens the rule of law and increases the fragility of property rights and the arbitrariness of law enforcement."The answer is quite simple - the government acts as an obstacle to natural market activity. Price controls and excessive bureaucracy prevent individuals from disposing of their property how they see fit. A weakened rule of law and barriers to trade stifle risk taking and entrepreneurship. All of these things lower productivity. The truth becomes clear - it does not matter how many natural resources a country has, nor how intelligent the population is. If government will not allow people to trade freely with each other, guarantee the security of property and establish the rule of law, productivity and quality of life will suffer.
Thomas Jefferson, George Washington, and the rest of the founders took a different approach. They recognized both the economic and personal woes that emerge from a bloated State. The United States was founded on the principles of individual liberty and the rule of law, precisely what is lacking in Russia. Capitalism works, and one need to look no further than to compare New Jersey to Russia.
* It should be noted that New Jersey outproduces Russia despite being one of the most heavily taxed and regulated State's in the Union.
Wednesday, July 1, 2009
This man has some interesting insights into market behavior, inflation and deflation, and China's currency policy. No really, it is interesting!
State Capitalism (or fascism) in the USA
Murray Rothbard speaking in 1989 on "The Current State of World Affairs"
Friday, June 26, 2009
Cafe Hayek directed me to this essay, which I enjoyed thoroughly. It is the story of how a pencil is made, which seems boring at first, but the perspective taken illuminates the wonder of free markets beautifully.
Here are some excerpts:
You may wonder why I should write a genealogy. Well, to begin with, my story is interesting. And, next, I am a mystery—more so than a tree or a sunset or even a flash of lightning. But, sadly, I am taken for granted by those who use me, as if I were a mere incident and without background. This supercilious attitude relegates me to the level of the commonplace. This is a species of the grievous error in which mankind cannot too long persist without peril. For, the wise G. K. Chesterton observed, "We are perishing for want of wonder, not for want of wonders."
Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others. Now, you may say that I go too far in relating the picker of a coffee berry in far off Brazil and food growers elsewhere to my creation; that this is an extreme position. I shall stand by my claim. There isn't a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how. From the standpoint of know-how the only difference between the miner of graphite in Ceylon and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can be dispensed with, any more than can the chemist at the factory or the worker in the oil field—paraffin being a by-product of petroleum.
I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on. But to these miracles which manifest themselves in Nature an even more extraordinary miracle has been added: the configuration of creative human energies—millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding! Since only God can make a tree, I insist that only God could make me. Man can no more direct these millions of know-hows to bring me into being than he can put molecules together to create a tree.Don Boudreaux adds,
Whenever I hear or read someone proclaim that "the market doesn't work," I try (if the situation permits) to ask him or her how is it that an ordinary pencil exists. Its production requires the cooperation of literally millions of people from around the world. Not one in one-thousand of these people know each other. Many of them, were they to meet, would positively hate each other. And yet, pencils exist in appropriate abundance, and can be acquired almost free of charge. (If you're in the United States, go up to strangers on the street, in shopping malls, or at your school or workplace and ask for a pencil. You'll not wait long before someone gives you one without expecting it to be returned. I do this experiment frequently; it works.)To be fair, lets not forget to consider the statist take on this whole process:
I think there is a product out there for each person that will make the idea of "I, Pencil" clear to them. For me it is the existence of the grocery store. The myriad of products, some at incredibly cheap prices, oftentimes appear miraculous to me. The cost of a plastic bag at Wegmans, I am told by the cashier, is 25 cents. The cost of a can of corn, on sale, is 39 cents. That a can of corn - with all the division of labor that went into growing and harvesting the corn, the canning process, designing the label, and being shipped throughout the country - costs marginally more than a plastic bag is in my mind a great wonder in the world.
But, but you need a government person to supervise the transaction. So first we must pass laws, and then create the departments of pencils. Then when someone's pencil tip breaks, they will call their senator and demand government do something about breaking pencil tips. A new set of regulations will appear, with the promise that this time it will fix the problem. The cost of pencils go up, sales go down, and the pencil lobby descends on Washington to add pens to the regulations. The department of pencils gets bigger, but pencil tips keep breaking and wearing out.
I will let someone else finish the story, as it never ends. (from comments @ Cafe Hayek)
Thursday, June 25, 2009
1. Thidwick the Big-Hearted Moose, an illustrated tale.
2. While the Fed is getting more power, no one is forcing them to face the consequences of a recent cover up.
3. Spezify is a very interesting new search engine. Compare it to Wolfram Alpha and Bing. Or the classic.
4. Legislators in Cali want to pay for their debts in IOU's. My question is, who in their right mind would lend them money?
Wednesday, June 24, 2009
1. Don't utter the dreaded "D" word...
2. John Stossel's blog.
3. As Universities go bankrupt, online universities spring up with reduced overhead and offer a "real education".
4. Just so we are clear, the taxpayer is still bailing ou... er, subsidizing car companies. Green economic fascism at its finest.
Monday, June 15, 2009
Some time ago a former KGB agent predicted the breakup of the USA. At the time I scoffed at his prediction, and wrote it off as a bitter rant from someone who wished the USSR was reunited and a global power. Yet after some thought (and reading Watchmen) I realized that there is no magical quality to the USA. There is absolutely no reason why the empire could not falter and dissolve. Here are some real organizations and signs about the roots of a new secession/States' rights movement not seen in my brief lifetime.
1. The Wall Street Journal on the dynamics of liberty and secession, and the future of the States in America.
2. The Christian Exodus, a secessionist movement based in S. Carolina. In their words: "The initial goal was to move thousands of Christian constitutionalists to South Carolina to accelerate the return to self-government based upon Christian principles at the local and State level."
3. The Patrick Henry Caucus was formed to organize legislators and find ways to strengthen the 10th Amendment. In their words: "We affirm that the federal government may exercise only those rights and powers that are specifically granted unto it by the Constitution and no others. We reassert the sovereignty and rights of the individual states."
4. The Free State Project was organized to concentrate the efforts of liberty-loving folk in one state, and use the political system to preserve and reinforce self-government. In their words: "...the fullest practical effort toward the creation of a society in which the maximum role of civil government is the protection of life, liberty, and property."
5. The Second Vermont Republic is, in their words, "... a nonviolent citizens' network and think tank opposed to the tyranny of Corporate America and the U.S. government, and committed to the return of Vermont to its status as an independent republic and more broadly to the dissolution of the Union."
There is a common thread in all of these organizations. Many Americans still identify with the concept of self-government. If there is one principle that the USA was founded upon, it is self-government. There is a strong undercurrent of conservatism in the USA. Democratic states (Vermont) and Republican states (New Hampshire) both desire to preserve their right to self-governance. The WSJ article makes a compelling case that things would be better if what we know to be the Union were broken up into several nation-states. I tend to agree.
Thursday, June 11, 2009
1. Australian police will now also be "carbon cops". Excerpt:
"The Government is effectively saying to us, 'Ignore other crime types'," Australian Federal Police Association chief Jim Torr said. ... Mr Torr said breaking carbon trading laws would be like breaking other laws. "These offences will constitute another federal crime type, along with narcotics importing, people smuggling and all the rest of it, that the AFP will be expected to police," he said. "I can see very complex, covert investigations . . . a lot of scientific expertise required."2. Macroeconomists can basically say whatever they want. Excerpt:
But macroeconomists can almost always claim to be right, no matter what happens. If they recommend Policy X and the economy weakens, they can say it prevented a complete disaster. If they say Policy X will hurt and things improve, they can say without it, things would have been even better. Being a macroeconomist means never having to say you're sorry.3. Apparently we are embarking on massive new price fixing.
4. In further proof that things are really crazy, here is a meat dress.
Wednesday, June 10, 2009
Found this over at Economics Junkie. A very clear illustration of how foolish and hopeless bubble blowing can be.
Written by Robert Prechter:
I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject so let’s try one.
It may sond crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing it with tax money. To everyone’s delight , it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy. Sales again slow, so it lowers the price to $900 each. People return to the stores and buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn. Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory - ironically now made fact - the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don’t care if they’re free. They can’t find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can’t afford to buy gasoline , so many of the Jaguars rust away to worthlessness. The number of Jaguars - at best - returns to the level it was before the program began.
The same thing can happen with credit.
It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit production plants all over the country, called Federal Reserve Banks. To everyone’s delight , the banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so it lowers the price to 1 percent. People return to the banks and buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit. Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory - ironically now made fact - the economy will recede. People are working three days a week just to pay the interest on their debt so the banks can keep offering more credit. If credit stops moving the economy will stop. So they start giving credit away at zero percent interest. A few more loans move through the tellers’ windows, but then it ends. Nobody wants any more credit. They don’t care if they’re free. They can’t find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can’t afford to pay interest on their debts , so many bonds deteriorate away to worthlessness. The value of credit - at best - returns to the level it was before the program began.
Tuesday, June 9, 2009
The following quotes come from a very interesting speech by Roderick T. Long, called Rothbard's "Left and Right": Forty Years Later, given at the Austrian Scholars Conference in 2006.
[T]here developed in Western Europe two great political ideologies … one was liberalism, the party of hope, of radicalism, of liberty, of the Industrial Revolution, of progress, of humanity; the other was conservatism, the party of reaction, the party that longed to restore the hierarchy, statism, theocracy, serfdom, and class exploitation of the Old Order…. Political ideologies were polarized, with liberalism on the extreme "left," and conservatism on the extreme "right," of the ideological spectrum.Herbert Spencer:
How is it that Liberalism, getting more and more into power, has grown more and more coercive in its legislation? For what, in the popular apprehension and in the apprehension of those who effected them, were the changes made by Liberals in the past? They were abolitions of grievances suffered by the people…. [T]his was the common trait they had which most impressed itself on men's minds…. [T]he welfare of the many came to be conceived ... as the aim of Liberalism. Hence the confusion. The gaining of a popular good, being the external conspicuous trait common to Liberal measures in earlier days (then in each case gained by a relaxation of restraints), it has happened that popular good has come to be sought by Liberals, not as an end to be indirectly gained by relaxations of restraints, but as the end to be directly gained. And seeking to gain it directly, they have used methods intrinsically opposed to those originally used.Long:
In short, Spencer's analysis is that liberals came to conceptualize liberalism in terms of its easily identifiable effects (benefits for the masses) rather than in terms of its essential nature (laissez-faire), and so began to think that any measure aimed at the end of benefits for the masses must count as liberal, whether pursued by the traditional liberal means of laissez-faire or by its opposite, the traditional Tory means of governmental compulsion. In short, liberalism became the pursuit of liberal ends by Tory means.Rothbard:
Libertarians of the present day are accustomed to think of socialism as the polar opposite of the libertarian creed. But this is a grave mistake, responsible for a severe ideological disorientation of libertarians in the present world. As we have seen, conservatism was the polar opposite of liberty; and socialism, while to the "left" of conservatism, was essentially a confused, middle-of-the-road movement. It was, and still is, middle-of-the-road because it tries to achieve liberal ends by the use of conservative means…. Socialism, like liberalism and against conservatism, accepted the industrial system and the liberal goals of freedom, reason, mobility, progress, higher living standards for the masses, and an end to theocracy and war; but it tried to achieve these ends by the use of incompatible, conservative means: statism, central planning, communitarianism, etc.
Originally liberalism was a movement whose goal was the promote the common good. The means of achieving the common good was through liberty, not through state control. Over time liberalism came to mean achieving the common good through state control. This is a confusion of means and ends, of indirect and direct, and ultimately of freedom and tyranny.
2. "The Federal Reserve intends to hire a veteran lobbyist as it seeks to counter skepticism in Congress about the central bank’s growing power..." Apparently Ron Paul is having an effect.
3. This interview with Gerald Celente conjures images of Ozymandias in Watchmen with all his video feeds. Excerpt: "Washington has declared 'Economic Martial Law'. Wall Street is putting Main Street out of business. The key to watch is Christmas sales. They’ll fail. Christmas will be when reality sets in."
4. A Socratic dialogue on free markets and social welfare. One of the studies quoted therein:
A conservative estimate of the welfare gain to a moderately skilled worker in the median country of our sample moving to the US is P$10,000 per worker, per year, roughly double income per capita of the developing world in aggregate.Barriers to entry in labor markets keep people poor and unemployed. Unintended consequence, of course.
Friday, June 5, 2009
That being said, it is important to take a look at what Keynes himself said about the consequences of inflation:
By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls . . . become 'profiteers', who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished not less than the proletariat. As the inflation proceeds . . . all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless. (from pages 220-233 of The Economic Consequences of the Peace (1919))
Some will point out that he begins by stating that a "continuing process of inflation", and that perhaps a one time stimulus would be good. Let's look at the value of the dollar after we completely abandoned commodity money in 1971. (chart from here)
Look at what happened to the cost of living when the USA went off the gold standard. We are clearly in a "continuing process of inflation". Let's look at the lower part of the graph for some interesting events in US history.
- 1860-1865: Funding the civil war creates massive inflation.
- 1913-1920: The Fed is created, an agricultural depression occurs.
- 1930-1940: The Great Depression.
- 1940-1945: Funding WWII.
- 1970-1980: End of Bretton-Woods
- 1980-present: Stable 2-3% inflation
To your left you'll see a table charting the declining value of the dollar since the creation of the Federal Reserve in 1913. The dollar lost 50% of its value (you need twice as many dollars for the same purchasing power) between 1913-1920, 1920-1970, 1970-1980, 1980-2000. From 1913-2008 the dollar has lost ~95% of its value.
Now that continuing process of inflation is clear, lets revisit some of the consequences that Keynes' spoke of:
- Governments can, in a hidden way, arbitrarily confiscate the wealth of their citizens.
- Typically the poor and middle class lose money while foreign and domestic banks and other financial institutions profit from inflation.
- When the poor and middle class see this arbitrary rearrangement of riches, it is blamed on capitalism.
- Eventually the relationship between creditors and debtors is so distorted that the debtors will never possibly be able to pay back what they owe, and so the two terms become essentially meaningless.
Keynes is saying that inflation can be dangerous. Not in the mere sense that people will lose value of their money, but that it undermines the entire system of capitalism! Nowadays, deflation is a dirty word. In the not so distant future inflation will be the dirty word. The truth is that there are no dirty words in economics, but in politics. This is what is happening in the USA. Furthermore, the politicians are acting on the assumption that we are not in a "continuing process of inflation" and thus a one time "stimulus" would possibly work. Keynes implies that is an exceedingly dangerous assumption.
Wednesday, June 3, 2009
1. New Federal regulations for 2009 cost taxpayers over $1,000,000,000,000 (trillion)!
2. Third-largest US life insurance company buys $400 million worth of gold, for the first time in its 152 year history.
3. "Our wallet is empty. Our bank is closed. Our credit is dried up." - Arnold Schwarzenegger, and California, face reality.
4. 3 great videos: Smart car vs. normal car, the future is now, and a tremendous display of artistic abilities.
Tuesday, June 2, 2009
2. Gerald Celente is excellent in "Looking Back On The Greatest Depression".
3. John Stossel compares economic stimulus to "Pyramids, earthquakes, and wars".
4. Russel Roberts over @ Cafe Hayek doesn't understand why the media cares so much about Obama's personal expenditures. The more the better, right?
5. Peter Schiff's first "political" talk. He tells the Libertarian Party candidates not to run in the Libertarian Party. Worth a look.
Sunday, May 31, 2009
2. Russian perspective on American Marxism in 2009.
3. Bond vigilantes. Excerpt:
“There’s becoming an embedded inflationary premium in the bond market that wasn’t there six months ago,” Gross said yesterday in an interview at a conference in Chicago.The US government is stuck in a very dangerous situation. They have chosen to prop up existing financial institutions with trillions of dollars, yet there are only three ways to get that money: raise taxes, borrow it, or print it. After decades of deficit spending the USA is now unable to raise taxes without strangling growth, borrow money without investors demanding higher interest rates, or print money without risking severe inflation.
The simplest solution is to face the reality that there is no money left for entitlements. The people and the government are to blame for attempting to live beyond their means for so many decades. Germany is cutting spending massively - Obama is spending $634 billion as a down payment on universal health care entitlements. It does not appear to me that the US government is even considering facing the reality that there is no money left for entitlements.
4. The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.
Someone will have to pay for this. Maybe this generation, maybe the next generation, but reality will eventually make its presence felt. Unfortunately in this case it will not be gentle.
Wednesday, May 27, 2009
2. Balanced perspective of wealth discrepancy in the USA.
3. Where did the TARP money go?
4. Treasury yields rise (see chart), China worried but agrees to keep buying US debt. Of course it doesn't make much of a difference because we'll always have someone to buy our debt.
Friday, May 22, 2009
1. The top 10 libertarian science fiction stories.
2. Time Magazine doesn't take kindly to Peter Schiff.
3. Ed Schultz (who?) "debating" Ron Paul on the merits of the Department of Education and Department of Agriculture.
4. Downgrade, downgrade, downgrade, and then maybe downgrade some more!
Thursday, May 21, 2009
In keeping with the general theme of this web log, I would like to illustrate the principle that Frederic Bastiat so keenly illustrated in his parable of the broken window. A good economist will take into account the effects of an action or policy on all groups, across all time scales. With that in mind, let's take a look at a new policy proposed by Rep. Alan Grayson (D) from Florida.
The Paid Vacation Act will:
"...require companies with more than 100 employees to offer a week of paid vacation for both full-time and part-time employees after they’ve put in a year on the job. Three years after the effective date of the law, those same companies would be required to provide two weeks of paid vacation, and companies with 50 or more employees would have to provide one week."Sweet! Who doesn't like vacation, right? The idea here is that more vacation days increase worker productivity and happiness, and result in people using less unnecessary sick days. These developments are claimed to stimulate the economy. They certainly sound good. What worker wouldn't want more paid vacation time? These workers would most probably be happier and may be more productive as a result.
Here is what we'll see if the bill is passed: more people on vacation and a boom in the travel industry. Will overall productivity increase? Let's look at what is unseen:
- Requiring businesses to provide paid vacation raises the costs for business because workers are being paid not to be productive. If the cost of business increases, it becomes more difficult for employers to hire new workers. Some workers might even have to be fired for the business to continue running at a profit. We don't see the workers retained or barred from entry.
- Employees are currently producing during what would become paid vacation. The money they earn from their production may not go to the travel industry, but it would go somewhere - and the community will be richer for it. For example, the workers in a TV manufacturing plant will have produced 100 televisions and have money in their pockets to spend on home improvements. Now the community has more TVs and job growth in the home building sector. We wouldn't see either of them.
Just for kicks, lets examine unintended consequences as well. Mandatory paid vacation time effectively subsidizes an unproductive activity, and doesn't remove the incentive for people to use sick days. This is what happens when subsidies are introduced into the marketplace: demand goes up because the good is perceived as "free". Once workers get a taste of paid vacation time they are likely to demand more of it. Thus a more likely scenario is that people will begin to use both paid vacation and sick days, and in time demand an increase in the number of paid vacation days. The article cited unwittingly points out the truth of this.
"France currently requires employers to provide 30 days of paid leave."The Paid Vacation Act will restrict employment capacity, lower productivity, and restrict the community's ability to accumulate wealth. At least we'll see more Americans taking vacations during these tough times.
Wednesday, May 20, 2009
“Little by little, business is enlarged with easy money. With the exhaustless reservoir of the Government of the United States furnishing easy money, the sales increase, the businesses enlarge, more new enterprises are started, the spirit of optimism pervades the community. . . . Bankers are not free from it. They are human. The members of the Federal Reserve board will not be free of it. They are human. . . . Everyone is making money. Everyone is growing rich. It goes up and up, the margin between costs and sales continually growing smaller as a result of the operation of inevitable laws, until finally someone whose judgment was bad, someone whose capacity for business was small, breaks; and as he falls he hits the next brick in the row, and then another, and then another, and down comes the whole structure.”Who knows if he had heard of the Austrian Business Cycle Theory, but for someone speaking during the creation of the current US central bank, he had a clear vision of what would happen in 2008. This reference was made known to me by a good speech from Thomas Woods.
1. "He who controls the present, controls the past. He who controls the past, controls the future."
2. Why auto sales will skyrocket.
3. Where gold comes out of ATM's.
4. Current conditions or just a bad dream?
Sunday, May 17, 2009
Borrowing from Fredric Bastiat, here is today's edition.
Take a look at this map illustrating where stimulus dollars are planned to go for highway reconstruction and infrastructure. Billions of dollars are allocated in this map, for the purpose of "jumpstarting the economy". Kind of like stimulus checks, only made of asphalt. Stimulus asphalt.
When these projects are completed, this is what you will see. Smooth new highways and bridges, and we'll all thank the government for it. What we will never see, however, is where the billions would have gone otherwise. You'll never see a new first home being bought, the new small business, the new investments in technology and medicine, or any other choice of the marketplace. Maybe those businesses and investments would have failed, but we will never know.
Thursday, May 14, 2009
The original scenario analyzed the economy of a single man isolated from others. What dynamic emerges when we introduce more people into the picture? There are two possibilites: either each man fends for himself and is responsible for producing all of his needs, from housing to food to health, or there is a division of labor. As society transitions from a single man to a village, each productive citizen specializes in a particular good or service. One man may become a fisherman, another may harvest wheat berries, still another may tailor clothes. This division of labor improves the quality and variety of goods for everyone.
Yet there still exists a logistical problem. How does the fisherman acquire his new trousers (because back then they didn't wear pants they only wore trousers)? He trades his fish directly to the tailor. This is known as barter exchange. This will solve the problem for some cases of exchange, but it soon becomes apparent that not everyone wants what the other party is offering. If the tailor has no taste for fish, then the fisherman will be pressed to find a new commodity that does suit the tailor's taste. So the fisherman finds out that the tailor wants butter, trades some of his fish with the dairy farmer for butter, returns to the tailor and exchanges his butter for the new threads. Problem solved. This process is called indirect exchange and in this case the butter is the medium of exchange.
Notice how the medium of exchange in this case was itself a useful commodity. This is an important point to remember.
An interesting question can be raised at this point. Are all mediums of exchange created equal? Is there any significant difference between the various possible mediums? In his book "What Has Government Done to Our Money?", Murray Rothbard says the answer is no. He explains that the commodities that are chosen as the medium of exchange are more marketable than other commodities. In other words, they are readily sold. He lists several categories that make one commodity more marketable than another: Divisibility, durability, and transportability.
In the example above, butter is used as a medium of exchange with excellent divisibility, poor durability, and fair transportability. A cow might be considered to have poor divisibility, but strong durability and transportability. It is clear that over time certain commodities will rise to the top, and those will be the ones with the greatest marketability. Rothbard argues that gold and other precious metals eventually become the most widely used commodity as a medium of exchange. Gold and other precious metals wind up becoming money. The truth is that all of these various commodities are money, but not all monies are created equal, because they are not all equally marketable.
To illustrate the properties of money lets examine one more scenario. Assume we live in a society where gold is the preferred medium of exchange. Lets say that a new technology emerges which confers a tremendous social benefit but must use gold. If the net effect of this new technology sufficiently damaged the marketability of gold, a different commodity would inevitably take its place. Perhaps platinum, or maybe tungsten carbide. In other words, the marketplace would choose a new medium of exchange to compete with gold. History does bear this out with the emergence of silver and copper coins.
To summarize: Money is always a commodity in itself, and the commodity that finds itself in greatest favor for use as the medium of exchange is one that is most marketable at that time. Money is not confined to one commodity, the marketplace will use whatever varieties of money necessary to expedite trade.
This is a satisfying account of the origin of money, but there are still questions. What is our money? How do we make the leap from commodity money to paper money? Lastly, we still haven't gotten any closer to understanding John Adams' statement. We will look further into these questions next time.
1. We're gonna spread happiness and freedom, we're gonna change it, we're gonna rearrange it, we're gonna change the world. Yes we can! (Other leaders have cheering squads to greater and lesser degrees obviously, but I couldn't find anything for other US presidents. If anyone does please send me a link.)
2. Fred Thompson absolutely kills it here breaking down exactly why spending more money will get us out of debt. He summarily ends the debate between Austrians and Keynesians. Hilarious.
3. A satirical look at the "Glorious Revolution of 1917", using the medium of cartoon.
4. A powerful short story about individuality, by Kurt Vonnegut.
PS - here's a fruit bat. So cool.
"The most recent twist in this strange tale comes from Monash University in Australia. Researchers there have theorized that some unexplained ship sinkings may have been caused by giant bubbles of methane. These bubbles are released occasionally when methane hydrate melts. If one of these bubbles comes up underneath a ship, the ship will briefly lose buoyancy (since its sitting on gas instead of water). Depending on the location of the bubble (experiments suggest that off to one side is the most dangerous), the ship may capsize. In fact, a sunken vessel has been found in the North Sea in the center of a large methane eruption site called the Witches Hole. As if drowning isn't bad enough, imagine your last sensation being the overpowering smell of rotting eggs..."The author is referring to sewer ice. Oh and just for fun here's a picture of a rogue wave: