When even Keynesians disagree

September 28, 2009

Sometimes you have to really laugh at at the Keynesians.  Sure, we tend to think that they are all Princeton professors who moonlight at a major metropolitan newspaper masquerading as a polemicist.  But oftentimes they are purported believers in the free market.  Case in point:

Al Angrisani, the former assistant Labor Department secretary under President Reagan, doesn’t see a turnaround in the jobs picture for entry-level workers and places the blame squarely on the Obama administration and the construction of its stimulus bill.

“There is no assistance provided for the development of job growth through small businesses, which create 70 percent of the jobs in the country,” Angrisani said in an interview last week. “All those [unemployed young people] should be getting hired by small businesses.”

There are six million small businesses in the country, those that employ less than 100 people, and a jobs stimulus bill should include tax credits to give incentives to those businesses to hire people, the former Labor official said.

“If each of the businesses hired just one person, we would go a long way in growing ourselves back to where we were before the recession,” Angrisani noted.

“They should carve out $100 billion right now and create something like $5,000 to $6,000 job credits that would drive the hiring of young, idled workers by small business.”

No doubt, he would classify himself as a capitalist, a free market supporter.  Perhaps.  But let’s look deeper at this pure Keynesian nonsense.

Granted, this article was really about the dire straits younger (I will never say “workers”, a marxist appellation) job seekers face.  While he does get this part right:

Angrisani said the stimulus money going to extending unemployment benefits is like a narcotic that is keeping the unemployed content — but doing little to get them jobs.

He says nothing of the minimum wage, nor the atrocious union labor policies which effectively block out entry level labor.

I agree, wouldn’t it be nice, golly gee, if all those small businesses would hire just one more employee, then we’d be out of this disaster.  But what is going to make them add one additional unit of labor.  My guess is when the cost of the additional unit is lower than additional benefits, or something along those lines.

Once again, Keynesian thought is full of fallacious assumptions and logical holes.  Will “tax incentives” work?  No.  Carving out an extra $100 billion?  No.

See, what the Austrian school understands, what should be so obvious, is that job growth is the result of, not the cause of, economic growth.  What drives economic growth is capital accumulation and expansion.  Simply adding more labor (yeah, Keynes’ one factor input.  You really have to wonder if he longed to live in the 11th century.) is adding less productive units to production.  Period.

Now, before someone asks about under-utilization, yes, unused capital needs labor.  And yes, the additional labor units might be just as marginally productive.  However, that’s not really the issue.  What has driven the unemployment rates up, what is so depressing about the current economic situation is the state of investment.

Now, I have many times here covered the importance of investment (see mises.org literature please, for much greater analysis) and how the terrible malinvestment the last decade has decimated the economy.

No incentive to hire is going to work.  No extra monies (besides, where does the money come from?  Do we just print it?  Do we borrow it?  Do we tax others?  C’mon, haven’t we gotten past the “gov’t can just spend money and …” argument?) is going to do anything other than delay the readjustment process.  Period.

The only thing that is going to create employment opportunities is investment and increases in the capital stock.  This article is only too imbued with the fallacious Keynesian spending/jobs/growth ideas which is clear in specifically ignoring business investment.

The most significant point about this article, is its greatest deficiency: the lack of understanding of what brought us to this condition.  The Austrians take a causal-realist appraoch to economics.  What Austrians understand (again, while swimming in a Keynesian cesspool) is that before you can address the results, you must understand the causes.  And the cause of all this is massive state intervention into the labor, capital, and money markets.

Now, I don’t need to go into (any more than I’ve already done numerous times here) how the leviathan state and monopolistic fed have so distorted economic decisions.  By now, it should be clear.  If not, go into my archives, or (much!!) better yet, spend a few hours (which will turn into a few days, and then some) at the mises.org repository.

Interventions caused the distortions, so by reason then, more interventions are necessarily the cure?

I just happen to find amusing all those Keynesians who really think that intervention IS free market economics.

And you’d enjoy the same life today?

September 23, 2009

I’ve often been asked that question about a libertarian world. I answer no, I’d enjoy a much richer, happier, freer, and more peaceful life.

First, what would a “libertarian world” look like?  Or, to paraphrase a couple of colleagues queries, “okay, so you’re in charge” or even better “okay, we do things your way”.

I can only laugh, or maybe cry, at their ignorance.  Well meaning folks all, even intelligent and educated, but nonetheless woefully misinformed.  One thing is clear in a libertarian world, neither I, nor anyone, would “be in charge”.  Corporations?  Hardly.  Without a massive state to subsidize with mercantilist policies, imposing high taxes and regulations that destroy competition, fund the bailouts, pass and enforce special legal privileges that only lobbying leviathan can deliver, “corporations” would be at the mercy of the consumer.  Consumer sovereignty I believed Mises called it.  The only thing I’d be in charge of is myself.

As for doing things “my way”, again, the only person who’d do things my way is me.  Laws would never be construed to encourage, or prohibit, the peaceful and mutually beneficial transactions between private, consenting parties.  No wealth nor product would ever be stolen from one and given to another.  No laws nor regulations would exist to direct resources towards any particular interest favored by one or more political groups.  My way would be only mine.  While all sides seem intent on forcing others to bend to their will, that’s the exact opposite of a society based on liberty.  It would be marked by what is NOT done, and more specifically, what is not done to people.

I know the arguments coming.  Who would build the roads, police the streets, teach the children?  Yes, there is a need for a state to some degree.  Professor Block has made an outstanding case for privatization of roads.  I find many of his arguments fascinating and relevant.  However, on some issues, yes, even libertarians have disagreements.  I cite only one example: interstate 5.  The value to California is enormous (at least the section that runs from north Los Angeles to Sacramento.  As for “interstate” however, lest anyone forget the real reason for the interstates system: the cold war.  The need to be able to transport the military was the primary concern.  That one could drive across the country was hardly a concern.)  The economic incentive to a private firm to build such a highway seems to me at the least, non-existent.  Thus, I accept the need, in a few and narrowly defined instances, for the state to build public roads.

And of course, the road directly fulfills, from my perspective, a fairly legitimate use of government expenditure.  Not in every case to be sure, but in some. Considering the public use nature of roads, and as long as the roads are funded directly by taxes, then yes, that state would have a role.

There are other areas for sure, namely courts to adjudicate contractual issues between parties as well as address violence and coercion among its citizens.  Most importantly, these magisterial offices would be as close to its citizens as possible, and be directly accountable to them as well.

The hardest concept to understand is that the state would be such a small factor, perhaps even invisible, in people’s lives.  That is the saddest part of all, the massive intrusion into our lives, affecting almost everything we do.  How much of our day is spent dealing with forms of taxation, regulation, and other policies all designed to interfere with, modify, alter, or punish us in subtle and nefarious ways?  How much effort and time is invested by groups and other interests trying to exert their influence via the machinations of government?  How sad it is we take for granted that anything that government does is acceptable provided it’s democratic.

As I write this, my kids are watching the Hannah Montana movie.  The plot revolves around a fundraiser to save a family farm from foreclosure.  But get this, the reason the farm is in jeopardy is that the owners are unable to pay…the taxes.  And how sad, how terribly sad, that that would be, could be, and most definitely is, a plausible story line.  Worse, it isn’t even a story line, but awful reality for so many.  The greatest threat in their lives, to their liberty and property, is the state.

And if I had “my way”, that wold be a most ridiculous story line, one so far fetched that not even a 9 year old girl would buy the plot.

And in that world, people would be free to make their own way, to pursue their dreams, exploit their talents, and be completely in charge of their own affairs.  And how would that make us wealthier?

For that I turn to Aristotle, who perhaps more than anyone else perfectly understood the nature of man and a society based on private property:

When the husbandmen are not the owners, the case will be different and easier to deal with; but when they till the ground for themselves the question of ownership will give a world of trouble. If they do not share equally enjoyments and toils, those who labor much and get little will necessarily complain of those who labor little and receive or consume much. But indeed there is always a difficulty in men living together and having all human relations in common, but especially in their having common property. The partnerships of fellow-travelers are an example to the point; for they generally fall out over everyday matters and quarrel about any trifle which turns up. So with servants: we are most able to take offense at those with whom we most we most frequently come into contact in daily life.

These are only some of the disadvantages which attend the community of property; the present arrangement, if improved as it might be by good customs and laws, would be far better, and would have the advantages of both systems. Property should be in a certain sense common, but, as a general rule, private; for, when everyone has a distinct interest, men will not complain of one another, and they will make more progress, because every one will be attending to his own business. And yet by reason of goodness, and in respect of use, ‘Friends,’ as the proverb says, ‘will have all things common.’ Even now there are traces of such a principle, showing that it is not impracticable, but, in well-ordered states, exists already to a certain extent and may be carried further. For, although every man has his own property, some things he will place at the disposal of his friends, while of others he shares the use with them. The Lacedaemonians, for example, use one another’s slaves, and horses, and dogs, as if they were their own; and when they lack provisions on a journey, they appropriate what they find in the fields throughout the country. It is clearly better that property should be private, but the use of it common; and the special business of the legislator is to create in men this benevolent disposition. Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser’s love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property. These advantages are lost by excessive unification of the state. The exhibition of two virtues, besides, is visibly annihilated in such a state: first, temperance towards women (for it is an honorable action to abstain from another’s wife for temperance’ sake); secondly, liberality in the matter of property. No one, when men have all things in common, will any longer set an example of liberality or do any liberal action; for liberality consists in the use which is made of property.

No comment is really necessary.  Has anyone ever said it better?  And to think, that was 2500 years ago.  Nothing has changed.  Man is corrupted by the state, and only lives in peace in its absence.  That would be “my way”.

Calling Winston Smith

September 23, 2009

Give dear leader some credit.  At least he does understand exactly what he’s doing

For us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is…that we’re not going to have other people carrying your burdens for you anymore.

Right now everybody in America, just about, has to get auto insurance,. Nobody considers that a tax increase.

You just can’t make up that language and decide that that’s called a tax increase.

Well, give the guy his due.  He full well understands the exact problem with health care.  As I’ve said before, there is not one person in America who a) is uninsured and b) cannot acquire health care.  In fact, that is the very principle behind “pooling”, as I’ve already discussed too.

Now, wouldn’t that be a compliment?  Hardly.  However, forcing everyone to purchase insurance does exactly what he says he wants to end.

Orwell couldn’t have done it better.

Oh, and how might he force everyone to purchase health care?  I hoping rats aren’t part of the agenda.

Football and fake money

September 17, 2009

It’s that time of year again.  Football season.  Nothing is more grand, nothing is more perfectly the epitome of a free market (okay, there’s salary caps and collective bargaining, and … okay, maybe it’s not.  But still, the game is.), competition, and winning.

The reason I love football so much is that it is pure competition.  Coaches want to win, and to do so, they must maximize their resources.  They must choose the best players, cannot discriminate as they would otherwise suffer, and must produce or get fired.

The game is really simple: you try to move the ball the other team tries to stop you.  Get the ball over the end zone, score more points than the other team, you win.  Period.

The referees act as the state ought to.  They simply ensure a level playing field, and nobody gets an advantage.  And in effect, the best referees are actually invisible.  They don’t interfere with the game, don’t tell the teams what they can, must, or can’t do.

One feature of the game, that has a direct relationship to economics, is the playing field.  It is called the gridiron, in reference to the yard lines that span the width of the field across the entire field of play, 100 yards in length.

Now, how does the playing field reflect economics?  Simple.  It is in essence the “money supply” of the game.  Everything is measured in yards: first downs, penalties, every statistic with the exception of scoring.

Money is the life blood of a modern capitalist economy.  Without it, it would be impossible to take advantage of division of labor or trade.  It would impossible to calculate the complex capital structure, neither could we effectively coordinate savings and investment.

Thus, money’s role as a medium of exchange facilitates trade between peoples, states, and countries.  Money’s role as a unit of account makes possible the multitude of economic calculations among and between consumers and producers.  And lastly, most importantly, money’s role as a store of value enables savers and investors to coordinate their actions via the interest rate mechanism.

As for a medium of exchange, regardless what happens to the value of money, people will exchange money for goods and services.  Even after the Roman Emperors so debased their currency, and Roman citizens began to horde gold, they still used the worthless tokens with the Emperor’s face stamped on it.  (Though the army still demanded payment in gold only.)  Even if worthless, it is still far easier to use video game tokens than actually carry your wares around.  The double coincidence of wants is a powerful deterrent to barter systems.

However, tamper with the money and it’s use as a unit of account deteriorates.  Miscalculations and misallocations of resources occur, and do so at an increasingly harmful rate the more the currency is debased.

Worst of all is when the store of value function is affected by debased currency.  The greater the debasement, the greater the discoordination betweem savings and investment.  And the results, as we’ve seen the last year or so, are disastrous.

So, let’s return to our football field.  The field is, and has always been, 100 yards long.  A first down is and has always been 10 yards.  We’ll call yards, for sake of argument, dollars.  And, since the yard is fixed, we can consider it equivalent to a commodity currency.  Thus, there are no more, nor fewer yards available.

Thus, as a medium of exchange, as teams move up and down the field, the are trading yards.  As a unit of account, they know exactly how many yards to go for a first down, and that directly affects their play calling and personnel decisions.

As a store of value, it is not necessarily the game, but in the stats where this is most important.  We’ll address this in a short while.

So, with a playing field based on a commodity currency, such that 100 yards today is the exact same as 100 yards twenty five years ago, we could say there has been no inflation.

Let’s now introduce the new commissioner whom we’ll simply call Ben.  (yeah, real creative I know!!)  He decides that to make the game better he needs to add more yards to the playing field.  But, here’s the problem.  The fields aren’t any longer.  There is no more land available, in other words, no more productive capacity.  So, creating more yards, i.e. money, doesn’t enlarge the field.  Then, what happens?

Austrian economics teaches us that inflation is increases in the money supply.  Rising prices are the result of inflation.

When new money enters the economy, that is inflation, but at that moment in time, prices haven’t yet risen.  So, the first to acquire the money benefit from the new money at old prices.  As the money circulates, prices do rise, and those who receive the money later, suffer.  They receive ostensibly the old nominal dollar value yet in newer, less valuable dollars.

And what makes this process even more troublesome, is that it is asynchronous and not universal.  In other words, prices don’t all rise simultaneously, and they don’t do so in all sectors or markets.

Now, Commissioner Ben decides to make the field 150 yards long.  Since the field is not physically longer, he simply creates more yards “out of thin air”.  Now the field is 50 yards “longer”, in other words, there are 50 more yards available.  In effect, what happens is now a yard is worth only 2 feet as opposed to 3 feet.

So, now what?  Well, is a first down still 10 yards?  Is it the same physical distance (30 feet) or the new monetary distance (20 feet)?  If it’s the physical distance, than a first down now is “15 yards”.  If it’s the monetary distance, then in actuality, it is only 6 2/3 yards.  But that would be rather preposterous, so of course it would be the physical.

What about the chains?  They would obviously remain the same if they are using physical, not monetary, distance.  But what about penalties?  Is offsides still 5 yards or  7 1/2?  And how are players and coaches supposed to accurately know game situations?  2nd and 8 yards to go isn’t the same as last year.  The decision making process is interfered with.

And as the game progresses, do we measure the running back’s gains in yards physical or monetary distance?  Is a 100 yards rushing effort really a good game any more?  Does a 300 yard passing day mean the same thing?

Well, Commissioner Ben is at it again.  He decides that if 150 yards was good, 200 yards is better?  But the field isn’t any longer.  So now this weeks games are played with yards being 18 inches long instead of the usual 36.  Or is it actually 24 inches, since a yard was 24 inches last week.  Any ideas?

Now, we’re still confronted with the 10 yards for a first down dilemma.  But, now, to make matters worse, where three weeks back 2nd down and 8 was 2nd down and 8, last week it 2nd down and 8 was 2nd down and five.  Which means you need more “yards” to go the same distance.  Which means you’re calculations of play calling and personnel are mixed up.

This week, it’s even worse.  2nd and 8 is more like 2nd and 3, or was it 2nd and 8 is…you now, I can’t keep track of exactly what the ratio is and what the original or most recent “yardage” was or is.

Well, the chains are the same length, so you know how far physically you have to go.  But pretty soon you haven’t any idea how many yards (dollars) you are going.  How do you figure all that out?

Now, it gets even better.  We know that many player contracts are based on the amount of their rushing, passing, or receiving  yardage.  Ah ha, now you see the problem.  Historically, a 1000 yard rushing season is considered excellent.  But, if a yard is 3 feet all season long, then no problem.  But, as the yards keep shrinking, i.e. losing value, suddenly a 1000 yards season is perhaps a physical 350 yard season, hardly comparable.  (now, anyone who plays in the NFL and rushes for 350 yards rushed for 350 more yards than I ever did.  They made it, and no slight should ever be meant they the rushed for “only” 350 yards.  They worked tremendously hard to get there, and deserve all the credit for making it.  This is simply just a silly example.)

So, the contract will create problems for the owner, and of course, it will need to be renegotiated.

Then there’s the store of value, which as we’ve already seen, even in a season, leads to many problems.  But, what about the retired players, those whose accomplishments and legacy are part of the game’s proud past?

Well, if the single season rushing record is roughly 2100 yards, doesn’t it stand that the inflation makes record keeping pointless.  Surely, 2100 yards, if a yard is but half it’s original measure, is a fairly easy goal.  Not physically, but monetarily.

And what about during the season inflation?  Surely the first games when a yard was 3 feet should count more than when they were 2 feet, and much more than when they were 18 inches, and so on.  How could we accurately define the season rushing leader?

Of course, the ultimate point of the game is to score points, and a touchdown hasn’t changed in value, nor a field goal.  Thus, the only measure that truly counts hasn’t changed.  But then again, the 6 pints for a touchdown is a nominal figure.  It could be 1, as in you scored 3 (touchdowns) they scored 2 (touchdowns).  It would be no different than how many physical items you have, their price being meaningless.

But, it’s not necessarily the end result, it’s the game play that is terribly affected.  I’m sure, given a more detailed and lengthy analysis, many more contingencies and disruptions could certainly be detailed.  But just in this short analysis, one can easily see just how distorted the game can become.  And it isn’t just a minor on field inconvenience.  It affects seasonal and contractual issues as well.  It affects the rules, causes numerous calculation errors, and interferes with the decision making process of all participants, both in the present and in the future.

Even worse, how can one expect to agree to contracts based on performance, which many are, when the valuations of performance are constantly shifting?

Lastly, it simply ruins the game.  And when you think about what the fed has done the last several years, it does seem rather apropos doesn’t it?

Tea for two…million that is

September 14, 2009

I was amazed by the tea party over the weekend.  Estimates are that over two million people were at the rally in DC, plus many thousands attended other local rallies across the country.  It has certainly taken the political establishment by storm.

What is shocking to the establishment is that the protesters are demanding nothing.  Nothing that is as far as theft and redistribution are concerned.  It is heartening indeed to see people demand their government NOT do, as opposed to the usual.

This is going to come as a shock to all of the DC contingent, with the exception of one very brave and wise man in the House.  But the people do not want socialism in any of its various forms, do not want them to steal from others, do not want them to intervene into any or all sectors of the economy.

I am well aware that many probably don’t want the mortgage interest deduction revoked, even if it meant a simple flat tax.  I’m opposed to the flat tax, or any income tax.  I doubt many there would wish the income tax abolished.  Some of the leading voices against obamacare are on medicare, i.e. already on socialized medicine.  And I doubt many in attendance would want the % of dollars spent on medicine by government, already at 46%, to be none at all, which is what I feel is necessary and propert.

But, it is a grand start.  Many see the disaster looming along with the disaster already under way.  Many support the auditing of the Fed, perhaps even it’s dissolution.

If two million were there, a conservative estimate would probably be that for every one present, another 10 feel similarly.  Or more.

Tu ne cede malis – Never give in to evil

sed contra audentior ito – But proceed ever more boldly against it

The Mises family of scholars have worked diligently for a long time.  Though few there were I’d gather truly informed of the Austrian school’s work (just pick up ANY high school or college economics text.  Is there any mention at all of Mises, Hayek, Rothbard, et al. or the ABCT?  No.) , the ideas are getting to them.

Once I explained, regarding the American revolution, that it wasn’t the taxes that were the real issue.  No, the citizens in Britain were paying more than we were.  It was something deeper that the taxes represented.  They demonstrated to the colonists that they were being taxed by a foreign government.

The thing with the colonists was that by the mid 18th century, most people living in the colonies had buried their parents here and given birth to their children here.  In fact, for most of the people, they nor their parents had ever set foot in Britain.  They for the most part no longer saw themselves as “British”, not in the sense that one generally assumes.

By the mid 18th century, the colonies had almost full autonomy.  There was very little real British intervention or oversight.  So, the alliance or relationship, was an easy one.  But, the fragile sinews were easily broken.

Thus too the case today.  We are still the nation of producers, individuals, risk takers.  We are still a nation, who at its core, believes in liberty and property.  Maybe not as we did, or as we ought to, but it’s there.  And maybe too many today feel that they have a right to another’s property.

I don’t think the battle’s been won, and certainly not the war.  Far too many sat idly by as leviathan grew, incrementally, massively, destructively, and inexorably.  Far too many were complacent for too long.

Is there time to turn it around, to restore free markets, sound money, property rights, and ultimately, liberty?

I hope not.

And we wonder why dear leader’s urgency

September 10, 2009

9/10/09 poll

Seventy percent (70%) of likely voters now favor a government that offers fewer services and imposes lower taxes over one that provides more services with higher taxes, according to a new Rasmussen Reports national telephone survey.

On the other hand, 99.81%* of members of the House and Senate favor more government spending, more government control, higher taxes, debased currency, and inflation.

* 534/535 = 99.81%? I’ll leave it the reader to figure out the one.

The time for debate is…always

September 10, 2009

It must be axiomatic.  The faster leviathan wants to get something accomplished, and without any debate, the more egregious and destructive to wealth and liberty it will be.

So, dear leader says the time for bickering is over.  He trivializes honest discourse and legitimate concerns.  In other words, if you speak out, you stand in the way of “progress”.

And if you stand in the way of progress, well history tells us the awful tale.

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