"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

Tuesday, November 29, 2011

Steve Keen as Santa Claus

Steve Keen, an Australian [not Austrian] economist, has a great idea to save us all. Bring in a Santa Claus with a big bag of money and hand out cold cash to everyone.

Sounds like a great idea, no? Over at mises.org, someone asked about it, and I quote his q in full:

Steve Keen gave an interview on Hard Talk a few days ago in which he called for a "modern debt jubilee" where the government "gives money" to the citizenry who are required to use it to pay mortgage debt if they have any, and can spend it however they wish otherwise. He claims this is the way we can avoid the  "grinding twenty years" and associated social unrest needed to unwind the current global mess. He doesn't give any numbers, just the concept and qualitative arguments for it.

I have a lot of respect for Austrian economics, what little I know of it. I wonder if a learned Austrian could comment on the wisdom or folly of Keen's proposal. I can imagine it would be politically very popular with voters.

His explanation of the plan starts at about 7 minutes into the above You Tube video.

What can I say? That Santa Claus is really a Grinch in disguise. Here's my answer to his q:

You don't have to know much AE to see the folly of this scheme.

Let me paste a bit from my blog about what money is:

How does one make money? By working. In other words, you only have money  if you have first produced something worthwhile, which is what working is . After you have done your share, being productive, then you get money. The money in your wallet allows you to go out there and reap the rewards of your productivity, by consuming what you want. 
The point of this obvious little exposition is that before you spent any money, you have contributed to the wealth of the nation by producing something. Otherwise you wouldn't have the money to spend.
In short, having a dollar in your wallet is at once a Certificate of Productivity [a proof that you actually contributed to the nation's wealth],  and a License to Consume [which is why we want money in the first place, to spend it]. Your consumption will not reduce the wealth of the nation, because you have already increased the wealth [by working for the money] before you ever took any wealth for yourself [by spending the money].
But what happens if the supply of money is increased? This means, in practice, that the govt prints new money for itself, either paper money or digital money. They are giving themselves a License to Consume with that new money, but it certainly is not a Certificate of Productivity. They did not contribute anything to the economy to get that money; they just printed it up for themselves.

So what happens if we do as Keen suggests? Without having produced, everyone will go out and consume. It will be like a plague of locusts hit the country. There will be little left of anything. Prices will then naturally go up, by the law of supply and demand.

After the initial spending binge, we will be worse off than before, because there will be less to go round. Every day will be like Black Friday, with people fighting in the stores over what little is left.

Now there might be one earthly place we can look to salvation in such a situation, and it's called China. Maybe they will be stupid enough to take our piles and piles of dollars and sell us things in return. After all, they have been doing it for years. But if our economic policy is going to be "Let's pray the Chinese keep on playing the fools", then we are being fools ourselves.

Wednesday, November 16, 2011

Copying Some English History from Macaulay

It's about Charles the Second, whom the people had brought back from exile in France to be their king, after deciding they hated the military dictatorship of Cromwell's army.

Charles could not care less about the people, or about keeping his word, and in 1670 decided that he would secretly join France and make war on the Dutch, despite England's popular treaty with that country.

But war needs money, and they were under a gold standard then. He could not print as much as he wanted, nor could he tax the people without consent of Parliament.

We give the floor to Macaulay, my words of explanation in brackets:

The first object of Charles was to obtain from the Commons supplies which might be employed in executing the secret treaty...They [Charles' lackeys] soon perceived, however, that, though the House of Commons was chiefly composed of Cavaliers [the party loyal to the King], and though places and French gold had been lavished on the members, there was no chance that even the least odious parts of the scheme arranged at Dover [where the treaty with France was signed] would be supported by a majority.

It was necessary to have recourse to fraud. The King professed great zeal for the
principles of the Triple Alliance [with Holland], and pretended that, in order to hold the ambition of France in check, it would be necessary to augment the fleet. The Commons fell into the snare, and voted a grant of eight hundred thousand pounds. The Parliament was instantly prorogued; and the court, thus emancipated from control, proceeded to the execution of the great design.

The financial difficulties however were serious. A war with Holland could be carried on only at enormous cost. The ordinary revenue was not more than sufficient to support the government in time of peace. The eight hundred thousand pounds out of which the Commons had just been tricked would not defray the naval and military charge of a single year of hostilities. After the terrible lesson given by the Long Parliament [that the Parliament would behead you if you messed with their power of the purse], even the Cabal [=Charles' Cabinet] did not venture to recommend benevolences [=forced contributions to the sovereign] or shipmoney [an obsolete tax going back to Saxon days to pay for defense of the country].

In this perplexity Ashley and Clifford proposed a flagitious [look it up] breach of public faith. The goldsmiths of London were then not only dealers in the precious metals, but also bankers, and were in the habit of advancing large sums of money to the government. In return for these advances they received assignments on the revenue, and were repaid with interest as the taxes came in. About thirteen hundred thousand pounds had been in this way intrusted to the honour of the state. 

On a sudden it was announced that it was not convenient to pay the principal, and that the lenders must content themselves with interest. They were consequently unable to meet their own engagements. The Exchange was in an uproar: several great mercantile houses broke; and dismay and distress spread through all society.

Meanwhile rapid strides were made towards despotism. Proclamations, dispensing with Acts of Parliament, or enjoining what only Parliament could lawfully enjoin, appeared in rapid succession.

OK, fascinating bit of history, but what's it doing on this blog? It spoke to me, that little story. It brought to life all I've been reading about these last few years about govts and money.

Tuesday, November 15, 2011

One guy at ESPN Gets It a Little, Michael Wilbon.

Here's what he writes [emphasis mine]:

Please, stop with how the players are looking for a "fair deal."
What's fair is what the market will bear. If you don't have control, which is to say if you don't own the means of production, you can't alone define what is fair.

Couldn't have said it better meself.

His whole tone, but for a few things here and there, shows an understanding of what America is about. Good on you, Mr Wilbon.

Child Rape Used to Promote Socialism at Grantland.com

Here are the key lines, from grantland.com:

It happens because institutions lie. And today, our major institutions lie because of a culture in which loyalty to "the company," and protection of "the brand" — that noxious business-school shibboleth that turns employees into brainlocked elements of sales and marketing campaigns — trumps conventional morality, traditional ethics, civil liberties, and even adherence to the rule of law. It is better to protect "the brand" than it is to protect free speech, the right to privacy, or even to protect children.

Sigh. Where are the facts to back this up? This is the age of internet, Charles P. Pierce, provide a link.

If Mike McQueary had seen a child being raped in a boardroom or a storeroom, he wouldn't have been any more likely to have stopped it, or to have called the cops, than he was as a graduate assistant football coach at Penn State.

This is just his not so humble opinion,with no evidence whatsoever.  We will soon show that Penn State [the key word here is "state", meaning funded by the taxpayer] is much different from boardrooms and staterooms. But first, let's let grantland ramble a bit more:

With unemployment edging toward double digits, and only about 10 percent of the workforce unionized, every American who works for a major company knows the penalty for exercising his personal freedom, or his personal morality, at the expense of "the company."

Quite a few factual errors here. Charles P. Pierce, we know you are upset, but keep your focus. Check your facts.

First of all, unemployment has long ago passed double digits, if we use the measurements applied during the Great Depression, not the govt propaganda numbers.

Second, among people who have jobs paid for by the taxpayer, like Penn state employees, union membership is at 35%. Private sector membership is a piddling 7%, [because unions always bankrupt the companies they work in, just like they are bankrupting the govts as we speak].

Third, Mr Charles P. Pierce is implying that if only more workers were unionized, then they would be more moral and free. This contradicts the entire history of unions in the United States, which were and are a pack of violent, lying, thieves and often murderers.

But we digress. The main thesis of this humble article is that Penn State is what it is, a safe haven for pedophiles, precisely because it is NOT a business, not a "company". Because a company has to please the consumer, or it goes out of business. At the first hint of scandal, the company will make good and sure it's "brand" is not hurt, not by hushing the situation up for decades, but by firing the pedophile [unless the unions Mr Charles P. Pierce is so fond of don't allow it]. They have too much at stake.

Can you imagine if a McDonald's, for instance, was known to be a breeding ground for pedophiles, who keep their jobs for decades while actively doing their thing? It would instantly go out of business.

Contrast this with Penn State, which gets it's money parasitically from the taxpayer. They have a known pedophile in their ranks, and they think they can get away with a prayer and a football game to end the incident. And why? Because they get their money no matter what the consumer thinks.

So Mr Charles P. Pierce, your anger is justified, and I share it. But don't toss the baby with the bath. Pedophiles at Penn State have nothing to do with free market companies, and with the blessed decline of unions in the private sector.

[P.S. I was unable to inform Mr Pierce about my article, since I am not a member of Facebook]. 

Friday, November 11, 2011

Important Point from Human Action about Marxism

Mises gets the italics [with all emphasis mine], I get the regular font,:

Socialists and interventionists call profit and interest unearned income,
the result of depriving the workers of a considerable part of the fruits of their
effort. As they see it, the products come into existence through toiling as
such and nothing else, and should by rights benefit the toilers alone.

I'm sure we have all seen that argument, right?

Yet bare labor produces very little if not aided by the employment of the
outcome of previous saving and accumulation of capital.

In other words, the worker is offering his work right now, true. But the capitalist worked hard in the past, and what's more, did without. He saved his hard earned money, meaning he did not go out and party with it, but rather under consumed in order to buy things for his business. It is thanks to his efforts and his suffering that the worker does not have to work with his bare hands, which would earn him little to nothing.

The products are the outgrowth of a cooperation of labor with tools and other capital goods directed by provident entrepreneurial design.

In other words, brains are worth money, too. Besides the worker and the capitalist [the guy who underconsumed so the worker would have tools to work with], there is another partner here who deserves a little something, the entrepreneur. He is the brains behind the whole scheme, the Steve Jobs, if you will. If not for him, the worker would sit there picking his nose, and the capitalist would have a pile of money and not know what to do with it.

The savers, whose saving accumulated and maintains the capital, and the entrepreneurs, who channel the capital into those employments in which it best serves the consumers, are no less indispensable for the process of production than the toilers.

At this point all those Marxists out there should toss away their red flags and look for jobs. But for some reason I doubt this will happen.

It is nonsensical to impute the whole product to the purveyors of labor and to pass over in silence the contribution of the purveyors of capital and of entrepreneurial ideas. 

What brings forth usable goods is not physical effort as such, but physical effort
aptly directed by the human mind toward a definite goal. 

The greater (with the advance of general well-being) the role of capital goods, and the more efficient their utilization in the cooperation of the factors of production, the more absurd becomes the romantic glorification of the mere performing of manual
routine jobs

Tell it like it is, Ludwig!

The marvelous economic improvements of the last two hundred
years were an achievement of the capitalists who provided the capital goods
required and of the elite of technologists and entrepreneurs. 

The masses of the manual workers were benefitted by changes which they not only did not generate but which, more often than not, they tried to cut short.

The only possible response to this by a Marxist, I am guessing, is what they always answer with, irrelevant name calling. We look forward to hearing something logical, lefties. Have at it.

Thursday, November 10, 2011

The Paradox of Thrift

There is a great discussion going on at reddit, and since I have my own blog, Iĺl discuss it here. The first post:

From what I understand of Austrian economics, you guys use praxeology, or the study of human action using pure logic, to come to conclusions.
I also understand that you guys believe that humans act in their own self interest, rationally, with intent.
Keynes believed the same thing. He said that during a recession, people lose money and jobs (by definition), and that if a person is losing money, or fearing his job, he will cut back his budget. Since one man's spending is another man's income, another person will lose income as a result of this. That person will cut back on his spending, and will cause another person to lose income as a result. This is referred to as the paradox of thrift.
So let me ask you: why haven't Austrians deduced the paradox of thrift using Austrian methods?

Good stuff, no? If I don´t spend my money, someone will be out of a job, which will put someone else out of a job, and so on forever. This never ending downward spiral can shut down the whole country, or even the whole world. No wonder the Keynesians insist that spending makes the world go round.

Is there a flaw here? There sure is, in the very first sentence. Letś look at it again.

During a recession, people lose money and jobs, by definition.

Note that there is no attempt whatsoever to explain  why people are losing money and jobs. Indeed,  Keynes writes in his famous book that it is just sheer human stupidity that suddenly affects large masses of humanity, and makes them stop spending money. These things just happen, he says. Must put a stop to it, or those silly asses will bring down the whole country with their ridiculous thrift.

Thus economics is the study of mass hysteria, a branch of abnormal psychology.
They didn´t spend.

Aren´t you glad Smiling Dave is here to explain the real reason recessions happen? AE [=Austrian economics] says recessions are caused by what common sense says they are caused by, money and resources wasted. Just as if you threw your money out the window you would have a personal recession, so too if the country as a whole throws its money out the window creating parasitic jobs as opposed to productive jobs, the wealth of the nation decreases. And what causes people to create vast amounts of parasitic jobs? Money printing, as Austrian business cycle theory explains. This article goes into it a bit.

In short, a recession begins before we even know itś there, when people are getting jobs that spell their own doom. They are being hired to parasitic, non productive jobs, which will lead to their getting fired sooner or later. Parasitic jobs cannot last.

In other words, Keynes' so called paradox of thrift description of people getting fired left and right is 100% correct. Except that far from describing a problem in the economy, it is describing a solution to a problem, the problem of too many people having parasitic jobs. Those guys being fired ¨deserve" to be fired, in the sense that they are in unproductive jobs.

Thatś the first flaw in Keynes' paradox of thrift. He is seeing something with out knowing what it is. To him all those people getting fired is a disaster to be averted at all costs; to someone who knows whatś what, it is a healthy economy fixing itself by eliminating useless parasitic jobs.

The second flaw is that he didn´t think through what will happen to all those people out on the street. He assumed they are all doomed forever to be unemployed. But actually what will happen is that they will get productive jobs, probably at a lower wage than their inflated parasitic salary, and they will make us all richer. [Unless there are laws preventing this from happening, such as FDR introduced in the 30ś and Obama is doing now].

There is a final flaw, one we have talked about repeatedly in this humble blog. Job losses are not caused by lack of spending in general, but rather by lack of spending in some particular area, the one where the parasitic jobs are. Because if Mr A. doesn't spend his money, the money doesn't disappear. He puts it into a bank. The bank doesn't hide it under a mattress either, it lends it out to people [or nowadays to the govt, which is a whole 'nother problem]. I discuss this at length, with appropriate quotes from the greats, Hazlitt and Rothbard, right here [see point 2].

So back to the original question. Why didn´t those Austrians figure out the paradox of thrift, using the very methods they are so proud of? We know the answer now. They did indeed figure it all out, and put it in the proper context as well.