Month: February 2013

Possession

Jacques Delacroix Economics, Liberty , , , , ,

Part One: Drying up the tax fountain

I suspect many people have troubling getting a good grasp of the on-going conservative struggle to prevent large-scale takeover of the economy by the federal government. I think there are two main obstacles to their understanding.

First, the idea of the virtuousness of the market as a regulator and organizer of economic life is difficult to communicate. It’s an abstract idea and it does not correspond well to people’s own experience. In their personal life, people think that when good things happen it’s a because someone (some one) made good decisions. First, it’s Mom, and then, it’s the “leadership” of the many organizations within which they live, schools, churches and especially employing organizations. To an extent, the one is themselves.

In daily life, there are few occasions to reflect upon the fact that the myriad decisions made by anonymous decision-makers, including bad decisions, aggregate into good outcomes. The market processes involved are both too magical-seeming and too abstract.

At any rate, for some reason, schools and universities do a bad job of explaining these processes. Liberal Arts teachers don’t understand them themselves and they are hostile to them. Most of them are born socialists. If you eat the King’s bread long enough, you become a monarchist.  Continue reading →

Credit Booms Gone Wrong

Fred Foldvary Economics, History , , , , , , , ,

Recent research by economists Moritz Schularick and Alan M. Taylor have confirmed the theory that economic booms are fueled by an excessive growth of credit. They have written a paper titled “Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008“, published by the National Bureau of Economic Research.

A major cause of the Great Depression was a credit boom, as analyzed by Barry Eichengreen and Kris Mitchener in their paper, “The Great Depression as a credit boom gone wrong” (BIS Working Paper No. 137). Eichengreen and Mitchener cite Henry George’s Progress and Poverty as providing an early theory of booms and busts based on land speculation. They also credit the Austrian school of economic thought, which in the works of Friedrich Hayek and Ludwig von Mises, had developed a theory of the business cycle in which credit booms play a central role. Henry George’s theory of the business cycle is complementary to the Austrian theory, as George identified the rise in land values as the key role in causing depressions.

An expansion of money and credit reduces interest rates and induces a greater production and purchase of long-duration capital goods and land. The most important investment and speculation affected is real estate. Much of investment consists of buildings and the durable goods that go into buildings as well as the infrastructure that services real estate. Much of the gains from an economic expansion go to higher land rent and land value, so speculators jump in to profit from leveraged speculation. This creates an unsustainable rise in land value that makes real estate too expensive for actual uses, so as interest rates and real estate costs rise, investment slows down and then declines. The subsequent fall in land values and investment reduces total output, generates unemployment, and then crashes the financial system.

We can ask whether this theory is consistent with historical evidence. One strand of evidence is the history of the real estate cycle, which has been investigated by the works of Homer Hoyt, Fred Harrison, and my own writings. Another strand is the history of credit booms, as shown by Schularick and Taylor, who assembled a large data set on money and credit for 12 developed economies 1870 to 2008. They show how credit expansions have been related to money expansions, and how financial innovations have greatly increased credit. Because economic booms are fueled by credit expansion, Schularick and Taylor note that credit booms can be used to forecast the coming downturn.

Followers of Henry George have focused on the real estate aspect of the boom and bust, while the Austrian school has focused on credit, interest rates, and capital goods. A complete explanation requires a synthesis of the theories of both schools, but these recent works on credit booms have not recognized the geo-Austrian synthesis. In order to eliminate the boom-bust cycle, both the real side (real estate) and the financial side (money and credit) need to be confronted.

Current Austrian-school economists such as Larry White and George Selgin have investigated the theory and history of free banking, the truly free-market policy of abolishing the central bank as well as restrictions on banking such as limiting branches and controlling interest rates. In pure free banking, there would be a base of real money such as gold or a fixed amount of government currency. Banks would issue their own private notes convertible into base money at a fixed rate. The convertibility and the competitive banking structure would provide a flexible supply of money along with price stability. The banks would associate to provide one another with loans when a bank faces a temporary need for more base money, or a lender of last resort.

Both the members of the Austrian school and the economists who have studied credit booms have not understood the need to prevent the land-value bubble by taxing most of the value of land. That would stop land speculation and eliminate the demand for credit by land buyers.

But the credit-bubble theorists have not understood that financial regulation and rules for central banks cannot solve the financial side of credit bubbles. Credit booms always go wrong. As the Austrians have pointed out, there is no scientific way to know the correct amount of money or the optimal rates of interest. Only the market can discover the rate of interest that balances savings and borrowing, and only the market can balance money supply with money demand.

Thus the remedy for the boom-bust cycle is both land value taxation and free banking. Land speculation would not be as bad without a credit boom, but will still take place as land values capture economic gains and land speculators suck credit away from productive uses. But also, a credit boom with land-value taxation will still result in excessive construction and the waste of resources in fixed capital goods, reducing the circulating capital need to generate output and employment, as Mason Gaffney has written about.

Economic bliss requires both the public collection of rent and a free market in money.

[Editor’s note: this essay first appeared on Dr. Foldvary’s blog, the Foldvarium, on April 4 2010]

Equal Pay for Equal Work: The New/Old Trojan Horse; Unfairness

Jacques Delacroix Current Events, Law, Politics , , , , , ,

I am a sore loser. Thoughts of re-emigration dance around in my head. However, I am too old. And the very mechanism that I fear is trapping this whole society has entrapped me: I am dependent on Medicare which is not transportable. I am a ward of the federal government which took loads of my money for forty years and turned it against me, like a two-bit dope-dealer. Like other conservatives I know, I am tempted by the option of personal, psychological secession from the new Obama Peronista United States. But, finally, there is nothing to do right now but to continue to sound a voice of reason and of conscience in the hope that it will reach some of the inner children Pres. Obama has been singing to.

(Personally, I make it a practice to take my inner-child out every so often and to beat his ass.)

President Obama won re-election handily not by winning arguments but by side-stepping deftly vital issues of the solvency of this society, present and future, and of the role of government in restricting our freedoms. (There was also quite a bit of slime he threw at hapless Romney but that was secondary in his victory, I think.) After his inauguration speech I wonder if he is going to succeed in side-stepping central matters again by raising silly issues such as that of homosexual marriage. (I don’t use the word “gay” because it carries a political agenda. I am not against homosexuals, however. I don’t even think they have a greater chance of burning in Hell than I do, for example.) Continue reading →

I Have Been Summoned (Poll!)

henrymoore Law, Liberty , , , ,

So I have Jury Duty tomorrow morning. Early. I don’t know any of the details of the trial. I’ve been dreading it all week long but have gradually come to accept that there is no way out of it (or at least out of showing up the first day) so I might as well make the most of it. The problem is I don’t know what to expect. Will the lawyers cross examine me first? Or did that form I filled out a few months back suffice to make me a good juror (this is Montana after all, I’m sure we don’t have big-city standards)? I don’t think the form contained enough information about me for the prosecuting and defense teams to decide I am a good juror.  So I am inclined to think that there will be additional questioning. And if so, that would be my ticket out of it because if just one team of attorneys thinks that I would make a decisive, respectable, impartial juror, the court will probably dismiss me. And I would likely never be summoned again. To be honest, I don’t think I would make a “good” juror because I don’t like authority all that much. Not cops. Not judges. Not elected officials. And I absolutely loathe lawyers with rare exception. If they ask my opinion about any of of these things should I tell them or hold back?

Should I be honest (assuming they ask me the right kinds of questions) and tell them I think their courtroom — no, their entire system — is running a racket? This would basically be the cowardly way to reclaim my rights to my own person because they can’t do anything to you for expressing an opinion. The less cowardly way would be to refuse to show up, but that could put me in a world of trouble since all commands handed down by the state are in essence backed by the barrel of a gun. Talk about judicial fiat! (Pardon the monetary lingo.) Continue reading →

Rare Earth Elements: Stockpile or Markets?

Warren Gibson Economics , , , , , , , , , ,

Quick, what do you know about lanthanum, praseodymium, neodymium, or dysprosium? If you said they are chemical elements, you are right: numbers 57, 59, 60, and 66, to be exact. They and their neighbors on the periodic table, collectively “rare earths,” were once mere curiosities tucked in between barium and tungsten. Now they’re having their day in the sun, thanks to new technology, as did uranium and plutonium when atomic energy was developed. The military may begin stockpiling them.

Good idea or not?

My first encounter with these elements was a project that developed high-tech shock absorbers to protect a replacement camera for the Hubble telescope during the camera’s rough ride to orbit. These devices, called M-Struts, pioneered the use of permanent magnets for shock mitigation. The only material our team found that would provide sufficient magnetic flux density (a measure of the strength of a magnetic field at a given point) was a rare earth alloy, NdFeB (neodymium-iron-boron). This material could only be procured from China.

M-Struts were a one-off project that had no discernible effect on the demand curve for neodymium. But now the demand curve is crowding up against the supply curve largely because of rare earth applications in “green” energy devices such as wind turbines (extra points if you knew that). Continue reading →

Around the Web

Brandon Christensen Current Events, Links
  1. North Korea: the new capitalists
  2. The rise and fall of Market Monetarism
  3. Listen to the fascists sing: a sublime parody
  4. The Caucasus: Another Regional War in the Wings. Don’t forget who is playing here: Russia, Turkey, Armenia, Azerbaijan, and Iran.

 

Pigeonholing Pigs

henrymoore Law , ,

[I thought of three other less offensive titles: Generalizing Gendarmes, Caricaturing Cops, Stereotyping Smokey. But I had already made up my mind.]

As you no doubt know, especially if you are a reader in the LA area, there is a crazed ex-cop on the loose by the name of Christopher Dorner. I think it is only a matter of time before Dorner is caught. We don’t know how that will play out. But it probably won’t be as simple as arresting James Holmes (Aurora, Colorado theater shooter). This piece is not intended to be about that, and so it will gradually move away from it. I bring it up at all only because its writing was prompted, in part, by an argument I had with someone about whether a shooter such as Christopher Dorner, that is, a cop is more dangerous than a shooter who isn’t a cop. I stated that, naval and police training aside, I thought that he was because cops tend to have a mentality of being above the law (I think this is not the result of them becoming police, but rather the reason they become police), which makes them psychologically more capable of calculated brutality than just some civilian who goes nuts. This was back when the story first came out although many important details were already known. His manifesto was one of those details so I knew what he was about and that he probably wasn’t going to be shooting people at random. He has targets. So, in that sense he is less dangerous to most people around him than a random shooter would be.

But probably more dangerous in the context of a manhunt. A shooter with a mission and a plan, even if his plans are in the process of being thwarted, is more dangerous than a guy who has already emptied his clip in a crowded theater or a school and then tries to slip away. The guy that just opens fire at random might kill more people than the guy with a few targets in his sights, but he is no longer in control of the situation. And if he is stopped before he can empty his clip, he might never have really been in control in the first place. If there are any cops or armed civilians around, he will be stopped, often before he can cause as much damage as he otherwise could have, given his arsenal. Continue reading →

Telling the Truth and Tarentino, Liberals, the Secretary of State, and the President

Jacques Delacroix Current Events, Politics , , , , , , ,

I have a liberal friend with whom I have fairly frequent serious discussions. He thinks of himself as a moderate liberal, even a centrist because his owns guns and his guns are dear to him. Yet, he voted for Obama and he can give a spirited defense of every aspect of Obama’s policies and actions. That’s a test, in my book.

He told me once, but only once, that the administration’s program of at-a-distance- assassination-of-the-untried was not a problem for him. He dos not see how assassinating an American citizen, for example, on the presidential say-so, could be a problem, ethical or judicial. He does not discern a slippery slope. That too is a test.

He and I have had repeatedly two bases of disagreement. First, we have different values, of course. Thus, he insists that it’s fine for him to use the vote to take my money by force in order to give it to someone that he, my friend, thinks deserves it more than I do because he, the other guy, does not have health insurance.

I disagree.

Note that this is an actual example of a fundamental value difference because my liberal buddy does not have to go there to achieve the same results. He could try, for example, to convince me to give up some money on the basis of expediency: It’s unpleasant, even messy to have the uninsured dying on my front lawn for lack of medical care. (As they do all the time, of course.) Or, he could persuade me on fellow-human grounds. He does not feel like doing either because, I think, he has no moral qualm about taking my earnings by force for a cause he judges good. That’s a big difference between us. Continue reading →

Global Warming: Be Skeptical

Warren Gibson Current Events, Liberty

I have been teaching advanced high school physics as a substitute teacher recently and enjoying it very much. But I was disturbed by what I saw in the text chapter entitled “Waves, Light and Climate Change.”

First of all, I don’t think a discussion of climate change belongs in an introductory chapter on light and its wave properties. Elementary texts should stick to firmly established science and mention complex, controversial issues as footnotes if at all. The authors thought otherwise – not only did they tack this topic onto the light/wave chapter, they headed the chapter with this alarmist quote:

Quite simply, I think it is no exaggeration to say that climate change is the biggest problem our civilization has ever had to face up to in its 12,000 years, because it requires a collective response.

What does “collective response” mean? Such bland phrases often translate into coercive wealth grabs by politicians. More importantly, the notion that human activity is having or will have a significant deleterious affect on our environment, which is what “climate change” means these days, is not firmly established at all in my view. (I have no expertise in climatology.)

There is a spectrum of viewpoints on global warming, ranging from outright denial at one extreme to hysteria on the other. Neither position is defensible. At one extreme, I was very disappointed to hear Ron Paul, a long-time hero of mine, describe global warming as a massive hoax. It’s not. The other extreme is represented by quotes like this, one of many printed in the margins of the physics text:

We are playing Russian Roulette with our climate … the Earth’s climate system is an angry beast subject to unpredictable responses …

Some facts that are not in dispute:

  1. There are “greenhouse gases” in the atmosphere that block some of the re-radiation of solar energy; that is, light that bounces off the earth’s surface and would otherwise escape into space. This blockage increases atmospheric temperature, other things being equal. Without any greenhouse gases, so much solar energy would be re-radiated that we would freeze to death.
  2. The primary greenhouse gases, in order of their importance are H2O (water vapor), CO2 (carbon dioxide), CH4 (methane) and N2O (nitrous oxide).  Water vapor is self limiting – when its concentration reaches saturation, it rains. So there is no point in to trying to reduce atmospheric water vapor concentration. So if global warming is significant and we want to do something about atmospheric greenhouse gas concentrations, we have to concentrate on CO2.
  3. It is a fact that concentrations of CO2 have increased substantially, from about 280 parts per million in pre-industrial times to about 380 at present. Most of this increase can be attributed to burning of fuels.
  4. The arctic ice sheet has exhibited marked melting in recent years. But some reports have ice increasing in the antarctic.
  5. Solar flares are a major driver of climate change on earth.

Now it gets murky. To begin with, it is very difficult to generate a meaningful average temperature for the entire earth. Temperatures vary widely from place to place and from time to time. Therefore extreme care must be taken in aggregating and interpreting temperature data.

Secondly, computer modeling is a very tricky business. I know; for many years I did computer modeling of systems far simpler that the entire earth’s atmosphere, and there are lots of pitfalls, notwithstanding the sophistication of contemporary methods. In finite element analysis or computational fluid dynamics the analyst lays an imaginary gridwork over the system in question, with independent variables like temperature and pressure at each node point. He makes simplifying assumptions about the behavior of variables between grid points and may end up with hundreds of thousands of simultaneous equations to be solved repeatedly as the virtual clock is stepped forward in time. If the grid is too coarse or the time steps are too large or the assumptions too gross or the starting conditions are inaccurate or the integration algorithms are not robust or the software has bugs – the whole undertaking can go haywire.

Third, increases in temperatures or sea levels must be put in perspective. A small amount of warming – one or two degrees C – would be a benign outcome for almost all of us – perhaps reduced heating costs or shifts in agricultural production. A one foot increase in sea level would be trivial almost everywhere.

But what about the strange weather we’ve been having? Given the media propensity for focusing on disasters, it’s no wonder it seems that way but hurricane intensity, for example, compares with that of past seasons. Recent weather isn’t particularly strange.

We need to think through all sorts of approaches, including geo-engineering, and conduct cost/benefit analyses for each. The end goal – human welfare – must always be kept in sight. I highly recommend Bjørn Lomborg’s thoughtful book, “The Skeptical Environmentalist.” Lomborg is a careful scientist who acknowledges the reality of global warming and pleads for careful examination of all plausible approaches.

Lastly, we must realize that this is a global problem. Anything the U.S. might do to reduce CO2 emissions would be dwarfed by increased CO2 emissions in China, where automobile ownership is surging and new coal-fired power plants are being built. Certainly California’s program, which went into effect this year, will have no noticeable effect on global concentrations, unless it sets an example that the Chinese decide to follow. Even if they do, cap-and-trade schemes such as California’s may not work out as theory says they should. Such has been the record in Europe.

Taking Guns by Executive Order

Jacques Delacroix Current Events, Liberty , ,

I wrote recently about one of the American attitudes and set of beliefs about private ownership of firearms. (“Guns” ; “America and Firearms…“).

I need an addendum in view of current developments.

First, I want to confess that I wouldn’t be all that opposed to banning high-capacity magazine guns and rifles that can be turned into the currently illegal assault weapons, if I thought that would be the end of it. Nevertheless, I would never agree to such ban in the current cultural context. That’s because I think American gun-banning organizations are mostly in bad faith.

Let me put it in more clear words: I suspect they lie all the time. They are not merely after my so-called “assault weapon” (already illegal). If I let them have anything, I think, they will be after my duck shotgun next. Then, they will want the handgun that never leaves my house. Then, they will demand that I turn over the b.b. gun (very small-bore compressed-air rifle) that I use to sting marauding raccoons in the ass. (I do this because they insist in defecating en masse under my grape arbor, near where I sit outdoors in the summer. If they learned to shit on the neighbor’s lawn for example, I would let them be.)

To summarize: Gun control advocating organizations are liberals-led organizations. Not all liberals are liars but liberals leaders almost all are liars. That’s in addition to having no respect for the US Constitution. Continue reading →

Religion and Liberty

Brandon Christensen Current Events, Liberty , , ,

I’m not a religious person. I have an unconventional Mormon background but rejected the faith of my parents for a large number of reasons. I’m not hostile to religion, either. At least, I try not to be (it’s hard sometimes!). I’ve seen first-hand what religious organizations can do for humanity. When I was living in a Ghanaian village of no more than 300 people, I had access to no more than two hospitals in the village. One was run by the Seventh-Day Adventists, and the other I cannot remember (the SDA hospital was closer). It was most likely a Catholic one. Religious organizations representing Islam, Judaism, Christianity and even Buddhism were ever-present in Ghana, and they all provided much-needed skills and supplies to that magnificently socialist state.

I attribute my atheism and my libertarianism to my skeptical nature. If you can prove to me that God does indeed exist, or that paternalism is good for me and my fellow man, then I will turn on a dime. I don’t know very much about anything, after all.

Anyway, religion has been under attack in the West since the Enlightenment. There are both good and bad reasons for this. One of the best reasons is that religious authorities often burned dissidents at the stake for opposing their claims to authority. In much of the world today, especially in some Muslim regions, non-believers are subjected to stonings, beheadings, and torture when the authority of the ecclesiastical class is challenged. However, in today’s Western world, the war on religion is a rather petty affair. Most skeptics don’t want to argue about the existence of God, they simply want to denigrate believers at best, and persecute them at worst. Continue reading →

Gold as Implicit Money

Fred Foldvary Economics , , , , ,

Economics encompasses two realities, the explicit and the implicit. The explicit is visible, obvious, recorded, and quoted. Explicit expenses are paid to others and recorded by accountants. The explicit is also called “nominal,” since that is what is named. For example, nominal interest is what a bank says it is paying, and the money it pays to depositors.

But there is also an implicit realm that is also real. Indeed, the implicit is more real than the explicit. What is explicit is often merely the superficial appearance. But things are often not what they appear to be. The reality beneath is implicit, not visible, not quoted, and not recorded, yet it is the true reality. Economists often use the adjective “economic” to designate the real thing in contrast to the explicit number or the accounting data.

An enterprise has explicit and implicit expenses. The explicit expenses are recorded by bookkeepers and accountants. The implicit expenses are non-recorded opportunity costs, such as what the owner of a business would have earned elsewhere, or what the assets of the firm would yield if sold and converted to bonds. The real cost of oil is not what the buyer pays but also includes the implicit costs of pollution damage not paid for by the customer.

Real interest is the nominal interest minus the inflation rate. Economic profit is accounting profit minus implicit expenses. Real GDP is nominal GDP (in current dollars) adjusted for inflation. Economists deflate prices and include implicit costs to get at the implicit reality. Continue reading →

Around the Web

Brandon Christensen Current Events, Links
  1. Forget Asia: Time to Pivot to Europe
  2. Islam and Constitutionalism
  3. Ever heard of the Serer religion?
  4. India: The Neverending Saga

Gold and Money, II

Warren Gibson Economics, Liberty , , , , , ,

Last [blog post], we examined some propositions about gold as money, drawing from theory and history. [In] this [blog post] we ask whether and how gold might once again serve a monetary function.

Money of any sort, commodity-based or not, derives its value in large part from what economists call a “network effect.” Like a fax machine, whose value depends largely on how many other people have fax machines, we value money because other people value it. We feel confident our money will buy us what we need tomorrow. A strong network effect means that something drastic has to happen before people will give up their familiar form of money.

Something drastic was happening when U.S. Rep. Ron Paul’s Gold Commission was set up in 1979. By the time the commission’s report was issued in 1980, inflation had reached alarming levels: The consumer price index was at 14 percent and rising. The prime rate was over 20 percent, and in 1980 silver exploded to $50 an ounce and gold surpassed $800 (about $2,300 in today’s dollars). Bestselling books urged people to buy gold, silver, diamonds, firearms, and rural hideouts.

We now know that inflation was peaking and that the silver price spike was a fluke caused by a failed attempt to corner the silver market. But none of this was apparent at the time, so it was reasonable to wonder whether our monetary system would survive. What did happen, of course, was that the new Fed chairman, Paul Volcker, stepped on the monetary brakes hard enough to break the back of inflation. Two back-to-back recessions resulted but were followed by a long period of recovery in which both inflation and interest rates dropped steadily. The Gold Commission was largely forgotten, though the U.S. Mint did get into the business of producing gold coins in a big way. Continue reading →

Gold, Interest, and Land

Fred Foldvary Current Events, Economics, Liberty , , , ,

Three seemingly unrelated variables are in fact deeply connected. Gold has been the most widely used money, and in a pure free market, gold would most likely come back as the real money. Free-market banking would mostly use money substitutes such as bank notes and bank deposits, but these could be exchanged for gold at a fixed rate. Free banking would combine price stability with money flexibility.

Interest is ultimately based on time preference, the tendency of most people to prefer present-day goods to future goods, due to our limited lifespan and the uncertainty of the future. In a free market, the rate of pure interest would be based on the interplay of savings and borrowing. Interest is not just income and payment, but has a vital job in the market economy. The job of the interest is to equilibrate or make equal the amounts of savings and borrowing. This also equalizes net savings (subtracting borrowing for consumption) and investment. Investment comes from savings, and the job of the interest rate is to make sure that net savings is invested. Continue reading →