History

GDP: Who Needs It?

Warren Gibson Current Events, Economics, History, Liberty

“For so it is, oh my Lord God, I measure it, but what it is that I measure I do not know.” –St. Augustine

Gross Domestic Product (GDP) gets a lot of attention these days. It’s fair game for bloggers, talking heads, perhaps your local barber.  While most agree that higher GDP is better than lower, there are problems, some better-known than others. Some theorists have considered the concept hopeless, such as Austrian economist Oskar Morgenstern, who called GNP (the predecessor to GDP) “primitive in the extreme and certainly useless.” Lamenting the idea that the whole of a nation’s economic activity could be captured in a single number, he said that “very few men, even few economists, or should I say regretfully, especially economists, have a real appreciation and understanding of the immense complexity of an economic system.”

Let’s get the formal definition out of the way. GDP is the market value of all final goods and services produced in a particular country in a given year. The federal Bureau of Economic Analysis computes this number and releases it quarterly. The level of GDP is used as a basis for evaluating other things, like the national debt, which currently stands at about 85 percent of one year’s GDP in the United States. GDP growth rates are closely followed. These are inflation-adjusted, seasonally adjusted, and annualized, and are of course supposed to tell us how well the economy is doing.

Simon Kuznets gets credit for the first serious attempt to calculate national income figures, publishing his first work on the subject in 1941. Following in his footsteps, calculation of GDP and other “national income accounts” has become a core area of the economics profession. The explosion of economic and financial news has thrust GDP into the limelight in recent years. Continue reading →

From the Comments: Militias and the Second Amendment

Brandon Christensen Current Events, History, Law , ,

Longtime reader (and blogger) Hank Moore has been on a roll lately. In response to a condescending (and fact-free) comment made by a Leftist concerning gun rights, Hank responds with this:

That is very interesting that you would bring up the militia. Were you sincere and knowledgeable on this matter you might know that THIS, the militia, more properly to keep the militia from becoming a rabble and to circumvent the need for a standing army, was the main point of the Second Amendment. Not gun ownership.

The right to own whatever you could legally acquire without causing harm to someone by way of that acquisition was (and is) already an inalienable right, protected not only by the Constitution’s very structure (negative law) but by the Ninth and in a sense Fourth and Tenth Amendments as well.

The Second Amendment threw in that much-hyped line about the right to bear arms precisely so people like you wouldn’t interpret “well-regulated militia” as anything other than what it was (FYI, it had absolutely nothing to do with “conquering the frontier”). That is, a group of local men banding together when the need arose to protect what’s theirs (including their guns). But that is exactly what you have done. Misinterpreted it. But not because the language of that particular Amendment is so unclear (although I do wonder if their is a language barrier between collectivists and people who like to mind their own business, and no I don’t refer here to that obnoxious limey Piers Morgan’s pretentious accent), but because as a whole, the document the Constitution has fallen into disuse. In the era of positive law and positive rights, why even have one?

The answer is so that you (the politician or the lobby or the activist) can appeal to people who know deep down that arbitrary power is morally reprehensible, and thus bitterly cling to some semblance of a social contract; but who still have stupid ignorant ideas (by this I mean gun-control) that they want to shove down everyone else’s throat. Oh, and our founders wouldn’t know what you meant by military style weapons. Do you mean the military-style weapons that they used to defeat the British and would have been mercilessly slaughtered without? Or do you mean today’s military-style weapons that only certain classes of benign uniformed government-employees are permitted to own under your reading of the Second Amendment?

Anybody out there care to answer Hank’s questions? Well done! Here is Hank’s blog one more time. Do check it out.

America and Firearms (Explained to Overseas Readers)

Jacques Delacroix Current Events, History, Law, Liberty, Politics , , , , , , , , , , ,

The other day, I am watching the news on TV5, the international French language network. I am doing this to get away from the spectacle of the impending economic disaster in the US where I live. This is shortly after the massacre of school children in Connecticut. One item draws my attention: The cute, airhead French female announcer (or “anchorette”) states that last year about 28,000 people in the US lost their lives to guns.

Here we go again, I think. More half-assed information that is worse than no information at all. I have witnessed European media disseminating misleading information about the US for more than forty years. This time again, I have to intervene to help overseas of observers of the international scene who want to know about reality and who might happen to read this blog.

I can’t tell you how often I have witnessed the following: European commentators making sarcastic, superior comments about some American event or custom, or some American way of doing things and then, their society adopting uncritically the same American event, or custom, or way of doing things ten years later, or even later. Right now, for example, I would bet you anything that one of the novelties on French radio is 1990s American popular music. That would be especially true on the channel that calls itself without batting an eye-lash, “France culture.”

The tendency of Europeans to copycat the United States is so pronounced that it even affects social pathologies, the last thing you should want to imitate. Accordingly, it seems that the French expression for “serial killer” is: “serial killer.” N.S. ! (Would I make this up?) Continue reading →

The Mystique of Hedge Funds

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

Hedge funds are controversial these days. Though it’s unlikely that the average citizen or the average congressman could say just what hedge funds do, many are certain they must be reined in by additional regulation because they can—and do—cause widespread damage to our financial system. Almost everyone takes it for granted that regulation of some sort is the solution, ignoring the possibility that at least some of the problems are actually caused by regulation.

What is a hedge fund? The name implies hedging, a strategy that reduces risk. If you bet on several horses in a race, you are hedging your bets—spreading your risk. You can buy gold to hedge against inflation. You can sell interest-rate futures to hedge the risk that rising interest rates would pose to your bond portfolio.

The first hedge fund was created in 1949 by Alfred Jones. He believed he could pick stocks that would outperform and those that would underperform the overall market. But Jones didn’t know where the overall market was going, so he would buy his expected outperformers and sell short the expected underperformers. He thereby insulated his portfolio from general market moves, which would affect about half his holding positively and half negatively.

Most present-day hedge funds don’t do much hedging, but the name persists. Instead, they engage in a bewildering variety of trading methods, including buying on margin (using borrowed funds) and selling short (selling borrowed assets so as to profit from a price drop). They trade stocks, bonds, options, currencies, commodity futures, and sophisticated derivatives thereof. Some try to anticipate global political or economic events, while others seek opportunities in specific industries or companies. Continue reading →

Forward to the Failed Past

Fred Foldvary Current Events, History, Politics , , , , , ,

Some politicians like to use the slogan, “forward.” Sometimes it is more emphatic: forward!

But one may well ask, forward to what? Time and the current of events are always moving us forward already, so evidently the forward-seekers want to change the existing flow sideways. The slogan “forward” has often been used by those who seek greater state-imposed collectivism. As propaganda, “forward!” sounds better than “leftward!” or “towards ever greater statism!”

Several publications of socialist parties during the 1800’s were titled “Forward.” Lenin continued this tradition when he founded the Bolshevik newspaper “Vpered” (or “Vperyod”), which is “forward” in Russian. German socialists had already published the periodical “Vorwärts,” and the German national socialists continued the use of the slogan. Several communist and socialist parties still use “Forward” as the title of their publications. Continue reading →

Race and Ethnicity

Jacques Delacroix History , , , ,

My Facebook friend, VXA who is a disgruntled Afghan immigrant but quite smart some of the time asks this question: What’s the difference between race and ethnicity?

I am a sociologist by trade and I think I know the answer.

Both are vague terms. Race is a well established habit to classify people according to certain selected physical characteristics. The physical features are selected generally according to their usefulness within a given social agenda. Thus the presence or absence of  hair on the second knuckle of the index finger never is selected because it’s not useful. Skin color and hair shape often are because they allow for quick classification.  Medieval Europeans had no category “negro.” They would describe people in physical terms without assigning them to a  social category “Du Guesclin, the Marshall, was very dark of skin and hair.” It turns out that famous French historical figure was probably a man of some African blood. He would have been considered “colored” in Georgia in 1850. Same goes for Pushkin, the Russian national poet. Continue reading →

The Israeli-Palestinian Mess: Some Historical Context

Brandon Christensen Current Events, History, Liberty, Religion , , , , , , , , , , ,

I just finished up an anthropology course on the Middle East as a culture area, and for reasons beyond my explanatory power, I got to look at the Israeli-Palestinian conflict a bit more in depth. A brief narrative of the Israeli-Palestinian conflict follows.

The historical context of the Israeli-Palestinian conflict can best be understood by breaking it up into three separate but interrelated segments: the collapse of cosmopolitan empires, the emergence of nation-states, and seismic shifts in demography that accompanied collapse and rebirth.

The post-World War I era can be defined largely in terms of the collapse of the cosmopolitan Austro-Hungarian and Ottoman empires. The spectacular collapse of these centuries-old empires has been attributed to the policies of democrats in western Europe and the President of the United States at the time, Woodrow Wilson, by a number of historians. The underlying idea being promoted by Western elites for central and eastern Europe was that of national self-determination, a belief that each ethnic and linguistic group should have the right to govern itself within a free and democratic state. The movement was intended to break the back of “despotism” in eastern and central Europe (as well as the Near East), but the policies unleashed instead a hotheaded nationalism amidst pockets of power vacuums prevalent throughout the now-dead empires. Continue reading →

Abe Lincoln and the Historical Record

Brandon Christensen History

A new article is out on Abe Lincoln’s plans to ship former slaves to some part of the world’s tropical regions rather than make them U.S. citizens. From the New York Times:

But stepping back a moment, the assumption that Lincoln must have shunned colonization by 1865, and that the debate revolves around identifying its time of death, betrays a misplaced burden of proof and an incredibly narrow argumentative scope.

We can be defense lawyers, or we can be historians.

The whole article is fascinating, and I know that there are a few of you who read Tom DiLorenzo and are eager to get some dirt on Honest Abe.

The author of the piece is an Englishman who specializes in 19th century American history. For some reason that seems weird to me.

Globalization: Its Context and Its Virtues

Brandon Christensen Books, History , , , ,

In my spare time I try to read literary masterpieces and popular non-fiction. The latest book that I’ve picked up is Charles Mann’s 1493: Uncovering the New World Columbus Created. I picked it up because the author’s previous work 1491, had a profound impact on my way of thinking about the world. The new book doesn’t disappoint. An excerpt:

One way to summarize [scholar’s] efforts might be to say that to the history of kings and queens most of us learned as students has been added a recognition of the remarkable role of exchange, both ecological and economic.

[…] In some respects this image of the past – a cosmopolitan place, driven by ecology and economics – is startling to people who, like me, were brought up on accounts of heroic navigators, brilliant inventors, and empires […] It is strange, too, to realize that globalization has been enriching the world for nigh on five centuries.

Indeed. I want to use this quote to level two separate criticisms, one at the Left and one at the Right. Continue reading →

Around the Web: “I’m Stuffed” Edition

Brandon Christensen Current Events, Economics, History, Links , ,

I’m so full from food and dessert it’s not even funny. I’m back home in NorCal, too. I hope your holiday has been everything that mine has and more.

  1. Immigration: Giant low-hanging fruit.
  2. Have you ever heard of Opera, the browser? I have, and I tried it out at one point, but Google’s Chrome is where its at. Anyway, Opera is the most used browser in Belarus…and no where else. Find out why, in the Atlantic.
  3. Some literary history. From FEE.
  4. China in Revolt.
  5. Contra #4, Hayek in China.

Happy holidays to you all, and tell your moms I said ‘hi’!

 

Warren Harding’s Fiscal Cliff

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

The economy is in rough shape right now but suppose it were even worse: unemployment at 12% rather than 8%; GDP falling at a 17% annual rate rather than rising slowly.  A close advisor to the President counsels an array of interventions to stimulate the economy but is ignored.  Instead, the President cuts Federal spending in half and engineers drastic reductions in income  tax rates for all groups.  Meanwhile the Federal Reserve, rather than cranking up the printing presses for a round of monetary stimulus, snoozes through the whole year.

Now there’s a fiscal cliff for you.  If today’s thinking about the fiscal cliff of Jan. 1, 2013 held true, surely such policies would tank the economy big-time.

The foregoing scenario actually happened.  The year was 1920, the President was Warren G. Harding and his close advisor was none other than Herbert Hoover, who as President from 1929 to 1933 would have his way – raising taxes, jawboning wages, and slapping a killer tariff on the economy, thereby doing a great deal to turn the rather mild downturn of 1929-30 into the Great Depression which, with lots of help from Franklin Roosevelt, would plague the nation for another decade.

So what happened in Harding’s time?  Things were pretty rough for a while but by the summer of 1921, signs of recovery were already visible.  The following year, unemployment was back down to 6.7% and hit 2.4% by 1923 (source: Thomas Woods, “The Forgotten Depression of 1920″).  A budget surplus arose resulting in a noticeable decline in the national debt.  Business confidence soared and the 1920’s boom was off and running.

President Harding has gotten a bad rap from history because of the scandals that erupted during his administration as well as his chronic womanizing and his passion for the bottle.  But in the countdown of 20th century Presidents that I might do for this blog should I ever get ambitious, I will start with Harding as the least bad President of that sad century and work my way down from there.  I’ll let you  guess who I will honor as the Worst President of the Century.

How does the looming fiscal cliff compare with the policies of 1920?  In case you’ve been hiding under a rock lately (not a bad way to ride out the election campaign!), the fiscal cliff is the set of automatic tax increases and spending cuts that were agreed to when the debt ceiling was raised in 2011.  Congress decided to force its future self to act by lighting a time bomb that it would surely – surely! – defuse before it could go off.  The fuse has now burned to within 1/8 inch of the bomb.

The bomb’s tax increases and spending cuts would reduce the deficit by an estimated $600 billion in one year.  That may be the most accurate estimate but it’s only an estimate.  Congress can set tax rates but tax revenues depend on the size of the tax base.  If highly productive people, those who would take the biggest hit, decide to Go Galt, the tax base could shrink.  And as Jeff Hummel likes to point out, tax rates, particularly the top marginal rates, have varied drastically over the years and yet tax receipts have not varied much from 20% of GDP, excepting the World War II years.

Not only might tax receipts fall short, but expenditures could rise if additional welfare payments such as unemployment benefits or food stamps were to rise.

But let’s assume the fiscal cliff happens and the deficit is indeed reduced by $600 billion. Using figures for the fiscal year just ended, we would still have a $400 billion deficit which would have to be financed by borrowing.  As always, this would be new borrowing, on top of the borrowing needed to roll over the daily stream of maturing debt.  And we mustn’t forget the Social Security Trust Fund which until last year has mitigated the deficit by “investing” its surpluses (FICA tax revenues minus benefit payments) in Treasury securities.  Those FICA surpluses have now turned to deficits which for the present are offset by interest payments on Trust Fund holdings but will eventually require the Trust Fund to stop rolling over maturing securities and, should the trend continue, to deplete its holdings entirely.  All of these developments exacerbate the main federal deficit.  The same applies to the much smaller Medicare Trust Fund.

So I say, with a glance over my shoulder at 1920, bring on the fiscal cliff!  Let the cuts happen, thereby ending a lot of wasteful and harmful spending – particularly “defense” spending.  Let tax rates rise; people will work around them.

But it won’t happen because too many special interests will rise up to prevent it:

  • There are enough military personnel, military contractors, their suppliers, relatives and hangers-on to prevent significant cuts in defense spending.
  • The 27% cut in Medicare physician fees will lead doctors to brush away their Medicare patients like flies, sending those patients hobbling off to howl at their their Congressmen.
  • Millions of middle class people will gasp when their tax preparer tells them they’ve been caught in the dreaded Alternative Minimum Tax trap.  Others will escape the trap only to find that their ordinary income tax rates have risen substantially.
  • Still more millions will see their FICA (Social Security) tax rate revert to the 2010 rate of 6.2% from the current 4.2% “stimulus” figure.

The fiscal cliff won’t happen, at least not all of it, except perhaps for a brief period in January which will be fixed retroactively.  And so, though I hate to say it, I think the longer-term odds of pulling out of our fiscal death spiral are pretty slim.  Many think the government will resort to the time-honored remedy of the printing press, but Jeff Hummel has made a solid argument as to why this option won’t work and why there will be a default on Treasury securities instead.

Hummel also urges economists to do whatever they can to warn people not to count on government largess.  Most young people have written off Social Security for their future and that’s a good thing.  (Not so good for Social Security recipients like me who are increasingly unemployable yet hope to live another 25 years.)  We must take responsibility for our own health care, first by watching our health habits and second by cultivating a personal relationship with a physician, perhaps offering him or her cash payments.  We should be leery of Treasury Securities or of banks, mutual funds, etc. that rely heavily on these securities.  Sock away a few gold and silver coins.

We’re in for a rough ride, I fear, over the next few years.  But the sun will still rise and tangible assets will remain.  Provided enough of us have taken precautions, social unrest will be manageable and maybe, just maybe, the cancer that is called Social Democracy will be shaken off once and for all.

Foldvary on the Concept of “Forward”

Brandon Christensen Current Events, Economics, History, Politics ,

Co-editor Fred Foldvary has an excellent post on the historical meaning of the Obama campaign’s choice of the word “Forward” as its political slogan. He writes:

The issue here is not about any political campaign, but the social concept of “forward.” Socialism is, first of all, a family of concepts. Some socialists seek greater statism, the control of society by the state. Other seek “social democracy,” whereby people vote on the major policy options. There are also socialists who seek to put the means of production, land as well as capital goods, in the hands of worker cooperatives.

Usually the “forward” thinkers seek, if not as an ultimate goal, then as the instrumental goal, a governmental control at least of the “commanding heights” of the economy: the financial system, the highways, education, medical care, and retirement pensions. Socialists seek strong controls on the remaining private production, and they also seek an equalization of wealth through a massive redistribution, with highly progressive taxation.

But the world has already experienced the results of “forward” policies in the failed economies of the old USSR, the China of the 1950s and 1960s, Cuba, North Korea, and Eastern Europe. The “forward” socialists seek a progression to the failed past. Of course they claim that their brand of socialism is different from that of the collapsed USSR, but the evidence of history reveals what was attempted in practice world-wide, even when it differs from hypothetical doctrines.

And this, too:

Instead of “forward,” a better metaphor may be “upwards.” Upward takes us to a higher place, and also to the origin of a flow such as a river. But how do we know which way is “up”?

Do read the whole thing, and what do you guys think of Dr. Foldvary’s suggestion of moving “upwards”?

“Gold and Money”

Brandon Christensen Current Events, Economics, History, Liberty , , , , ,

That’s the title of this piece in the Freeman by our very own Dr. Gibson. In it, he suggests:

Let’s turn down the heat a bit and look into some propositions about gold. That should lead us to some reasonable ideas about whether or how gold might return.

Indeed. I’m  tempted to copy and paste the whole thing, but just check it out.

PS I’ve been a very busy man lately, but I’ve got a bunch of almost-finished writings in the works. Stay tuned!

The Rationality of Anti-Antisemitism; The Currency Issue Made Simple

Jacques Delacroix Current Events, History, Liberty , , , , , , , , , ,

The most interesting thing I have read in years about anti-Semitism is in the Wall Street Journal today. A poll in Europe indicates that 50% of Spaniards have a somewhat unfavorable, or a very unfavorable impression of Jews. The percentage in Germany is 25, in France it’s 20, in the UK, it’s 10. There are large number so Jews in France and in the UK.

What makes Spanish anti-Antisemitism interesting is that there are no Jews to speak off in Spain. All Spanish Jews were expelled from the country in 1492. The bulk of those who did not die in the expulsion went to the Ottoman (Turkish) Empire were they were welcomed by the Sultan. Others scattered around Muslim North Africa and Italy. Until WWII, many Turkish and Balkans Jews spoke 15th century Spanish. I knew a Spanish-speaking Turkish Jew at Stanford in the sixties myself. His last name was Cardona.

Between 1939 and the 1970s, the Fascist regime of Francisco Franco promoted a brand of Catholicism that was unfriendly to Jews, as “Christ killers.” For most of the intervening period the Inquisition promised to make life miserable enough for Jews that they did not come back.

So, here you go: The ultimate judgment on the rationality of anti-Antisemitism: The less the chance that you ever met a Jew, the more likely you dislike Jews. At least, that’s true in Europe. Continue reading →

The Year is 1534, and…

Brandon Christensen Books, History , , , , ,

…a great deal of Spanish conquistadores are trying to cut up Mexico into personal spheres of wealth and property.  I am reading Robert S. Chamberlain’s 1966 book The Conquest and Colonization of Yucatan, 1517-1550, and so far what I have gleaned from it has been great.  Check out this passage:

“Attempted conquest with small numbers and insufficient support for expeditions […] were the result of overconfidence on the part of [the would-be conquistadores…] They had a total misconception of the character of many of the Maya.  [Two of the conquistadores] had seen a few Spaniards destroy Montezuma’s imposing empire and bring it under the yoke.  They were firmly convinced of the invincibility of their arms in face of any odds, and, underestimating the determination and military capacity of the Maya, they believed they could easily be subjugated.

Furthermore, until it was too late, [the conquistadores] failed to understand that many caciques gave fealty only as a temporary expedient, and that they intended to appeal to arms at the first opportunity […] Many mistakes could have been avoided had the [conquistadores] accurately appraised the character of the people with whom he had to deal.”

Now, since the writing of Chamberlain’s book, new statistics and revision of the historical account of the Spanish conquest of the Aztec Empire (referred to by specialists as the Triple Alliance rather than the Aztec Empire) has fleshed out his writings.  Instead of a handful of Spaniards that brought down the Triple Alliance, it was a combination of Spanish forces and tens, if not hundreds, of thousands of indigenous soldiers from rival states that crushed the Triple Alliance.  The vast majority of the indigenous soldiers were commanded by indigenous military officers. Continue reading →