"Most people are in arrested development and cannot use logic." Jacob.
"Competition and capitalism are hated to-day because of their tendency to destroy poverty and privilege." William Hutt
"America is unique in that our economy is totally dependent on global charity." Peter Schiff

Monday, September 19, 2011

Random Myths.

A very good friend of mine posted some thoughts on his blog which saddened me. The only way he could make such statements, I imagine, is because he was fed the official party line and has never heard the other side. Smiling Dave has to help him out. So, in no particular order, his thoughts in italics, and my responses in normal font:

0. The disparity between rich and poor is rising.
This may be true, but makes two assumptions. One that it's a bad thing, which remains to be shown. Say that everyones wealth goes up 1,000%. The disparity has increased, but everyone is much better off.

Second, we have to distinguish between a free market and fascism, which is the economy we have here in the USA. It's economic fascism and its consequences that people are really complaining about [rightfully], although they do not know it. [I know my good friend is not complaining about fascism, because he later says that the govt has helped the people by its meddling in the economy.]

Oddly enough, many other aspects of fascism are also noticeable in the US. The militarism, the secret police, the death of freedom. George Orwell would be homesick for the world he envisioned in his classic 1984 if he would somehow land in ours.

To quote Wikipedia:
Fascists thought that private property should be regulated to ensure that "benefit to the community precedes benefit to the individual." Private property rights were supported but were contingent upon service to the state. For example, "an owner of agricultural land may be compelled to raise wheat instead of sheep and employ more labour than he would find profitable."

Fascists opposed the laissez-faire economic policies that were dominant in the era prior to the Great Depression. After the Great Depression began, many people from across the political spectrum blamed laissez-faire capitalism, and fascists promoted their ideology as a "third way" between capitalism and communism.

According to historian Tibor Ivan Berend, dirigisme [=intense govt meddling] was an inherent aspect of fascist economies. The Labour Charter of 1927, promulgated by the Grand Council of Fascism, stated in article 7: "The corporative State considers private initiative, in the field of production, as the most efficient and useful instrument of the Nation", then continued in article 9: "State intervention in economic production may take place only where private initiative is lacking or is insufficient, or when are at stakes the political interest of the State. This intervention may take the form of control, encouragement or direct management."

In short, Fascism is the govt "directing" private businesses. The govt doesn't actually own businesses, but just tells them what to do. Add to this the fact that big businesses routinely and legally bribe the govt to give them all kinds of economic advantages, which is just another guise of Economic Fascism, and we have the mess we are in.
1. The very rich want high interest rates. 
This depends on whether they are borrowing or lending money. Rich borrowers, such as someone running a business who needs money to expand, will want low interest rates. Rich lenders, etc.

2. The govt is helping the economy by keeping interest rates low.
This is really saying [unknowingly] that the govt is helping us by taking all our money away.

Let me explain. How does the govt lower interest rates? By the Federal Reserve Bank lending money at very low rates. But the Fed is not sitting, Uncle Scrooge like, on piles and piles of money. Every loan it makes comes from money that did not exist before the loan took place. It is all [digitally] printed money.

In other words, "keeping interest rates low" is just a euphemism for "printing lots and lots of money".
We are all familiar with the law of supply and demand. In particular, it applies to money. The more money there is, the less its value, meaning its purchasing power. So keeping interest rates low means reducing the purchasing power of the money we have saved up, and that we earn by working.
There you have it. "Keeping interest rates low" is not helping us at all. It is taking all our money away.

3. The govt cannot keep interest rates low indefinitely. 
Yes and no. In theory, there is nothing to stop them, nothing to prevent a flood of newly printed money to keep on being lent at next to nothing. In practice, there might be something that will stop them, meaning riots in the streets when hyperinflation hits. But that is contingent on intelligent rioters who understand how the hyperinflation happened. They might foolishly believe it is China taking away all our oil that is making oil prices rise. Or price gouging oil companies. Or Republicans who are out to destroy us all.

4. A business has a goal of making money for the shareholders and owners. Thus, their goals are anything but being "for the people".
Here we will use that wonderful website, fmylife.com, to help us out. Here's a typical entry from their workplaces stories:
Today, I was working when I delivered the standard "Hello, how are you?" to a customer. He took the opportunity to tell me about his deceased wife, his estranged children, and his anal tearing. After a while, I tried to help someone else, and he complained to my manager. I was written up. FML.

The point of the story, and of hundreds like it, is that businesses bend over backwards to keep the customer satisfied. Because although they may be greedy and only interested in making money for the shareholders and owners, they cannot just walk out into the streets and shovel up the money from some pit. They have to take it out of our wallets. And they can only do that if we are so happy with what they offer us in exchange that we gladly, voluntarily, give them our money.

You see where this is going. Like the horse who drags the cart and master because of the carrot dangling before his eyes, a business does everything it possibly can to please us because of the carrot. We have cleverly hooked up their greed and turned it into a mighty engine for giving us what we want.

To sum up, a business has a goal of making money for the shareholders and owners. Thus, their goals are precisely being "for the people", because that's how you make money.

[Of course, govt meddling can ruin this, but that's another story]

5. Modern auto plants use automation to such an extent that there are almost no people there. Clearly, they are not interested in people, or in giving them jobs.

These are true statements, but the hidden implied statements they hint at are very wrong. There are so many of those that we will have to continue in a future blog.


  1. "According to historian Tibor Ivan Berend, dirigisme [=intense govt meddling] was an inherent aspect of fascist economies."

    And other historians dispute that. Fascism was a complex movement, and fascist economics differed.

    Mussolini originally pursued standard neoclassical laissez faire policies:

    "From 1922 to 1925, Mussolini's regime pursued a laissez-faire economic policy under the liberal finance minister Alberto De Stefani. De Stefani reduced taxes, regulations, and trade restrictions and allowed businesses to compete with one another. But his opposition to protectionism and business subsidies alienated some industrial leaders, and De Stefani was eventually forced to resign."


    (2) The Austro-fascism of the Dollfuss and Schuschnigg regime in Austria pursued classical deflationary neoclassical policies:

    “In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. ... In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people. On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War.”

    Evan Burr Bukey, Hitler's Austria: Popular Sentiment in the Nazi Era, 1938-1945 (University of North Carolina Press, 2000), p. 17.

    And as for Austro-fascism, none other than Ludwig von Mises himself was an adviser of dictator Engelbert Dollfuss:

    “Gerhard Jagschitz …. wrote his doctoral dissertation on Engelbert Dollfuss, the Austrian Chancellor who tried to prevent the Nazis from taking over Austria. During this period Mises was chief economist for the Austrian Chamber of Commerce. Before Dollfuss was murdered for his politics, Mises was one of his closest advisers.”

    Hans-Hermann Hoppe, “The Meaning of the Mises Papers,” Mises.org, April 1997.

  2. LK,
    I asked the guys about Mises and Dolfuss. You can see their replies at the mises.org forum [the old one]. The thread there is called "Mises a Hypocrite?"