capitalism

Capitalism for the Intelligent but Ignorant – Part One: the Constraints

Jacques Delacroix Economics

Jacques Delacroix's avatarFACTS MATTER

First, the obvious that hardly anyone talks about: If you have not taken at least two good courses in economics, it’s not likely that you understand even the basics of capitalism. If you have, when you were 19 and suffering from severe testosterone poisoning (male or female) it’s still likely that you don’t understand much. There are exceptions: It’s possible to teach oneself through assiduous reading of a good newspaper such as the Wall Street Journal. I don’t know how many people do this although I did, to a large extent. It took me about ten years.

Don’t blame yourself at all. Capitalism is a topic that should be taught every year throughout junior and senior high school. It never is. Also teachers of introductory economics often do a very bad job of it for reasons we need not go into here. A few do more harm than good…

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Around the Web

Brandon Christensen Links , , , , , , , , , , , , ,
  1. Paupers and Richlings: Piketty’s ‘Capital’ by Benjamin Kunkel (h/t Mark Brady)
  2. The neoconservatives have ramped up their attacks on Rand Paul. This means his foreign policy ideas are winning out, of course. Neoconservatives have also begun blaming libertarians rather than liberals for the failure of their Iraq war campaign
  3. Liberals and libertarians have been finding common ground in the US House of Representatives
  4. What does the BRICS bank mean? From Dan Drezner
  5. Want to solve the border crisis? Give free drugs to addicts. This is from Marc Joffe, and includes a very thoughtful analysis of charter cities and how they can help improve the institutional problems that would still plague Central America even if the drug war were to end
  6. Help! I’m a Marxist who defends capitalism

Riding Coach through Atlas Shrugged: Chapter 2 – Whistling In the People’s Key.

Adam Magoon Books, Liberty, Philosophy , , , , , , ,

Part One

50th Anniversary edition pages 20-32

Chapter Summary – We are introduced to Dagny Taggart, brother of James, who reflects on neo-classical music, throws her family name around a bit, cuckolds her brother’s business, and smokes, also Kellogg turns down an offer he can’t refuse.

Dagny is one of the characters who I am somewhat familiar with due to cultural osmosis. Her strong willed antagonism, her intelligence and stubbornness, her anger, her misery, and her smoking. All things that I expected that were confirmed in her first chapter in Atlas Shrugged.

What I didn’t expect however was the amazing paragraphs about Richard Halley’s symphony.

“It was a symphony of triumph…”

the notes of the symphony

“spoke of rising and were the rising itself.”

Emphasis mine. The way Dagny is enveloped by the symphony, it consumes her, and just for a moment she can do nothing but feel when she hasn’t in so long.

Then it is revealed that she is merely hearing it being whistled from across the train car by some blond brakeman. If one man whistling one part of that symphony can fill Dagny with such joy then what effect would a full orchestra have on her, on the people, on society?

That feeling is the very thing I hope to gain from this project. The sense of wonder that Dagny is overwhelmed with and a reminder that

“[T]his is why the wheels have to be kept going, and this is where they’re going.”

The brakeman is interesting as well. Rand’s description of him as a worker with no loose muscles was very telling to me. This blue-collar laborer is the one carrying the tune that is Dagny’s hope. This is in stark contrast to the train conductor for example who doesn’t seem to care about the problems he faces and simply hopes everything will work out.

He jerked his head up at the red light. “I don’t think the signal is going to change. I think it is busted.”

“Then what are you doing?”

“Waiting for it to change.”

I almost wonder if this theme of hard working but uneducated versus apathetic educated middle class will continue. I always felt that Rand was somewhat anti-laborer, that those who were not entrepreneurs were merely leaches on the productive members of society but I am beginning to think that impression may have been unfounded.

Speaking of entrepreneurs there were two major economic principles stated in this chapter. First was Dagny exemplifying the attributes of an entrepreneur when she makes the call to use Rearden Metal for the new railroad tracks. When James protests the use of the new metal she tells him that she is making the call using her own judgment, knowledge, and personal experience. She is willing to assume the risk for this venture based on a gut feeling and her own personal belief that it will work. It is important to notice that she doesn’t deflect responsibility or assume some other person or entity will absorb any losses if she is wrong.

The second economic point was in regards to monopolies. A great exchange takes place between Dagny and James that goes as follows:

“It isn’t fair,” said James Taggart.

“What isn’t?”

“That we always give all our business to Rearden. It seems to me we should give somebody else a chance, too. Rearden doesn’t need us; he’s plenty big enough. We ought to help the smaller fellows to develop. Otherwise, we’re just encouraging a monopoly.”

“Don’t talk tripe, Jim,”

“Why do we always have to get things from Rearden?”

“Because we always get them.”

“I don’t like Henry Rearden.”

“I do. But what does that matter, one way or the other? We need rails and he’s the only one who can give them to us.”

“The human element is very important. You have no sense of the human element at all.”

“We’re talking about saving a railroad, Jim.”

“Yes, of course, of course, but still, you haven’t any sense of the human element.”

“No. I haven’t.”

This exchange exemplifies the free market vs anti-property positions on monopolies but misses one crucial point. This anti-monopoly activity is driven solely by the free choice of the individual. Taggart is perfectly able to restrict his business from any source he chooses for any reason he chooses and this is the pure libertarian position on the matter.

Now, don’t get me wrong, he is making a poor entrepreneurial choice since Associated Steel has repeatedly failed to deliver on the contract and from a purely economic standpoint Dagny is correct. From a libertarian standpoint however, both are correct.

James is totally justified running his business into the ground for any reason he chooses and Dagny has every right to seek out new opportunities. Assuming of course she owns part of the company or has been granted the authority to act in the company’s name. The latter is the case here as far as I can tell.

I would also like to point out that other non-humanistic arguments against monopolies are almost universally false. Predatory pricing for example has essentially never happened successfully even in the case that made it illegal.

Now for the negatives.

Primarily I feel like James is a bit too obvious as a villain, he is almost too petulant and whiny. I just don’t buy that anyone would follow him and that the board of directors would have kicked him off years ago. I suppose Rand is pushing the whole feudalism thing. How many nations have fallen because of a weak King or Queen?

Also, I just don’t know how to feel about Dagny yet. The quirkiness is what bothers me the most. Sitting on the arm of the chair, her snarkyness and her general self-importance. I am not sure how much I am going to like her character yet but there is plenty of book to go so we shall see.

Finally I have to give the last story beat in this chapter credit. The final conversation Dagny has with Kellogg was an amazing piece of the mystery that literally gave me chills of anticipation. Where are these people going? Why are the best and brightest suddenly missing but still creating? And most importantly…

Who is John Galt?

Another Liberty Canon: Arendt

Barry Stocker History, Philosophy, Politics , , , , , , , , , , , , ,

Hannah Arendt (1906-1975) was one of the more influential writers on political thought during the twentieth century. Born in Germany, her political views and Jewish origins (she was also Jewish in identity though not in religion) meant not only that she had to leave Germany after the Nazi takeover, but that she had to escape from Gestapo interrogation. A period in Paris was ended by the 1940 German invasion, which led to another escape from detention, and her final destination of the United States. She was able draw on this direct experience of totalitarianism and antisemitism to write The Origins of Totalitarianism, one of the classic works on this topic, which also considers the role of political anti-Semitism, as distinct from older religious prejudice, in the formation of the modern phenomenon of totalitarianism.

Arendt reached beyond an academic and scholarly audience in her most widely ready book, Eichmann in Jerusalem: A Report on the Banality of Evil, based on her journalistic reporting on the trial of one of the major administrators of the Holocaust, Adolf Eichmann. Though the book did much to draw attention to the extreme horror of  Holocaust, and and its history, which strange as it might seem now was not the object of a great deal of public or scholarly discussion in the immediate postwar period, also led Arendt into a morass of angry criticism and even hatred, in part for supposedly trivialising Eichmann’s criminality. However, the point of referring to the ‘banality of evil’ was not to say that the Holocaust was trivial, or to deny Eichmann’s criminality, but to suggest that as a person he was more of a small minded conformist than a grandiose anti-hero of apocalyptic evil.

From the point of view of Arendt’s work in political theory, her writing on the Holocaust and totalitarianism, contributed to her understanding of modern politics in its darkest possibilities, which were distinct from older forms of tyranny. That understanding itself drew on the breadth of her historical approach, including literary and cultural interest, which went back to the Ancient Greek beginnings of western political thought. Her understanding also included the ethical and religious thought of late antiquity, as can be seen in her doctoral dissertation, Love and Saint Augustine. She had a general appreciation of the whole of human life, with regard to consciousness and action, which is behind The Life of the Mind and can be found in some of her political theory, most obviously The Human Condition.

Arendt’s interest and appreciation of ancient politics, particularly the democracy of city state Athens,  sometimes leads to her being labelled a nostalgic and a believer in anti-individiualistic integrated communities. This can only be a parody though, Arendt thought that there might be some things to learn about modern politics through comparison with antiquity, but she did not advocate a return, and her interest in antiquity was in those communities like Athens and the Roman Republic, where we can see individualism growing and a decline in community based on adherence to tradition and to communal assumptions.

Arendt thought that the Athenians had achieved liberty of a significant kind for the aristocracy, and to some degree for the lower classes, on a real but limited basis in which some had the leisure to think and argue about the rules and laws of the city state. That form of library rested on ‘heroic’ and patriarchal values according to which the home and family are the place of economic production and therefore the place of necessity.

Liberty was understood with reference to the tradition of  heroes going to war or to a more recently evolved habit of widespread public free speech about public affairs. Arendt did not argue for this as the all time ideal, but as a moment with some ideal aspects, which was bound to fail. Partly it failed because law was understood as custom and communal obligation, rather than as concerned with contracts between free individuals.  In her historical analysis, the Romans made progress on the legal front, because they saw  that law can and should evolve with regard to the best ways of grounding freely chosen contracts,  while also failing to maintain political liberty as the republic gave way to Imperial autocracy

Arendt emphasised that the Roman model inspired modern movements for liberty, particularly the French and American Revolutions (the comparison is made in On Revolution). Though she wrote about the motives and early actions of French revolutionaries with great sympathy, she pointed out that it had all ended in revolutionary terror and then country-revolutionary autocracy, so that the American Revolution had created a better model, as shown in the long lasting nature of the Constitution. She both respected that achievement and pointed out that it rested on assumptions about the dominance of a land owning class, so that it could not in itself provide all the answers for modern liberty, even it established an enduring framework, which survived major shifts in the location of economic wealth and the sources of political power.

For Arendt, the modern capitalist world undermined the idea of a strict separation between a private realm of economic production, based on family ownership and use of land, as economic activity became what happened in factories and other enterprises, with regard to national and world markets. The social-cultural result was an undermining of the antique assumption that intellectual life is superior to, and dominant over, physical activity and economic life. It also  resulted in states that seemed more remote from traditional forms of allegiance and everyday customs, because the state became increasingly something concerned with legislative and administrative activity that aimed to enable production and trade, so for the first time establishing the state as something that aims to constantly elevate material wealth and ‘national welfare’. Arendt, in this way, argues that commercial society tends to create its own statist reaction.

Arendt equivocated to some degree about whether capitalism was to be preferred to socialism, but in political writing emphasised enhancing individuality and a spirit of competition and that can only be seen as directed against the expanding administrative state, particularly as she argued for more separation between political questions and social welfare questions. She looked for ways in which modern political participation could focus on the best parts of the antique legacy: public speech focused on the conditions of liberty rather than on expanding state activity, contests for esteem in the public sphere rather than levelling down egalitarianism.  Perhaps her equivocation about socialism can be seen as leaving the way open for ‘socialism’ as defined by left libertarians, markets without a state that promotes politically inspired concentrations of wealth and power. She was certainly a prominent critic of Soviet style state socialism.

Arendt had a grasp based in rather classically oriented political theory, of how capitalism tends to produce statist reactions to itself, which parallels the more political economy and economics oriented work of Austrian economics and Virginia Public Choice theory on  the rise of the administrative state and rent seeking.  Together with her interests in how to avoid antique tyranny and modern totalitarianism, this makes her a great twentieth century pro-liberty voice, particularly for those interested in the historical, psychological, moral, and literary aspects of political thinking.

All of Arendt’s major contributions to political thought are mentioned above. A good starting point for those new to Arendt might be the essays collected in Between Past and Future or The Promise of Politics. 

Another Liberty Canon: Nietzsche

Barry Stocker History, Liberty , , , , , ,

The political interpretation of Friedrich Nietzsche (1844-1900) is a constantly fraught issue. Amongst other things he has been taken as an anti- or non-political thinker and as responsible for the worst aspects of German politics in the twentieth century. However, that latter view is not supported by any Nietzsche scholars.

The reasons for that include his opposition to the anti-Semites of his time (after a youthful leaning in that direction with regard to culture rather than race) and his opposition to the militarist-statist-nationalist aspects of Prussian and German politics in his time, again after early leanings towards culturally oriented nationalism. The tendency to put culture above the state and take it as something of a replacement for politics was constant.

The anti-politics is itself not incompatible with some kinds of libertarian and classical liberal thinking, though in Nietzsche’s case it goes along with a constant inclination to talk about power, the state, and other politically charged issues. He was stateless for most of adult life, as he had to renounce Prussian citizenship to take up a Professorship in Basel, Switzerland in 1869, not long before the King of Prussia became the Emperor of a newly unified Germany, dominated by Prussia. Nietzsche himself was in any case from a part of Saxony, annexed by Prussia early in the nineteenth century.

In any case, Nietzsche did not present himself as a Saxon or a Prussian after leaving Germany and only lived in Germany after 1889, when he was incapacitated by paralysis, now generally believed to the the result of a brain tumour, and was looked after by his mother and sister.  Nietzsche did not have any citizenship after moving to Basel and though it was easier to travel round Europe in those days  without a state issued passport, it is still a remarkable position.

Nietzsche was not completely free of racist assumptions, but hardly to a degree at all unusual for his time, and he did not see race as a suitable basis for analysing the Europe of his time, since he thought races had become completely mingled in antiquity. He was inclined towards various forms of elitism, sometimes in a quite extreme way as when he claimed admiration for the Indian caste system, though in a very brief provocative way.

On the whole his elitism was devoted towards the self-creation of an individuality of great strength, great plural possibilities and the capacity to unify those possibilities in creation and in a creatively lived life. He had anxieties about mass culture and the rise of democracy, but there is not much to separate his substantive concerns from the general concerns of liberals of the nineteenth century, as in Alexis de Tocqueville’s analysis of the ‘tyranny of the majority’ and democratic mediocrity in culture in Democracy in America.

Nietzsche is sometimes referred to as the definitive anti-liberal, but a lot of this rests on associating liberalism with egalitarian (i.e. left, progressivist) liberalism. If we look at the classical liberals from Locke to Mill (who is a bit transitional between the two broad liberal approaches), we of course see that egalitarianism at least with regard to distribution of income and property, is not a central goal. There is growing interest in expanding legal and political equality beyond an aristocratic elite to the population as a whole, and criticism of aristocratic, monarchical, guild, and merchant-financial wealth where linked to political-monopolistic-protectionist privileges.

Nietzsche regards threats to personal, intellectual and cultural excellence as a possible outcome of democracy, but is also critical of the traditional state, referring to it sometimes as monstrous, and allows for the possibility of it becoming much reduced through transferring functions to the private economy. He was concerned that liberalism might betray liberty by building institutions which constrain the original liberal ideas. So he was not a complete critic of liberalism, but rather sets out ideals of self-development and individual flouring which are likely to be constrained by the state.

Though he mentions the possibility of replacing state functions with private economic activity, he was critical of commercial spirit. He feared that commercial orientation tends to reduce individual capacities, because of the ways in which it leads to individuals concerning themselves with the wants of other individuals. For most pro-liberty people, this is Nietzsche accurately identifying something good about capitalism and then rejecting it, which does at least leave Nietzsche as a good analyst.

Beyond this though, Nietzsche who never advocates a socialist economy or a return to pre-capitalist economics, is doing something similar to his criticism of liberal political institutions. He is showing that liberal commercial society both sets up an ideal of strong individuality, which it needs and then undermines it through the constraints of economic life. So the reason for a critical attitude towards capitalism is recognition of the tension between the kind of individuality produced by earlier societies which revolves around struggling with nature for survival and often wars with other states, and the kind of individuality produced by working to provide more than the mere means of survival for others in societies based round rising economic prosperity.

This tension was recognised by classical liberal thinkers like Adam Smith and Wilhelm von Humboldt.  Nietzsche takes further the concern that individualism requires an individual self-directed struggle for increased physical and psychological capacities, and that the culture of commercial society produces an economic elite that seems hardly distinguished from the mass in its personal style and culture, so fails to provide any example of greatness and excellence in these respects.

A classical style liberal of the twentieth century, Joseph Schumpeter (most famous as author of Capitalism, Socialism and Democracy, 1942), argued that individualistic capitalism tends to undermine itself through the creation of corporate bureaucracies, where commercial constraints may become separate from much decision making, and where individual creativity is stifled. Many liberty oriented thinkers have noted the tendency of capitalists to undermine capitalism by seeking a privileged relation with the state, so accepting the mediocrity of state imposed uniformity.

Nietzsche was hyperbolic and expressive and little informed about economics, but the hyperbole has a precise aim in drawing our attention to problems, and Nietzsche’s cultural capacities (including a strong interest in natural sciences) made him sensitive to some features of capitalist and democratic societies, which need to be counteracted if excellence is to flourish.

If one thinks that liberty merely, only, and purely means lack of state constraint, Nietzsche’s thoughts may not seem so meaningful. However, if we see liberty as including not only restraints on state power, but the value of individual pursuit of excellence for its own sake and to produce individuals who are not conformist and state-centered, then Nietzsche must be one of the great thinkers about liberty.

As with Kierkegaard, it is difficult to recommend a single major Nietzsche text on political thought. On the Genealogy of Morality tends to be the starting point for discussion of his political ideas, but covers many other topics, and Human, All Too Human contains his thoughts on the possibility of a reduced state in a commercial society. Untimely Meditations, Dawn, Thus Spoke Zarathustra, Beyond Good and Evil, Twilight of the Idols, The Anti-Christ, Birth of Tragedy, Ecce Homo, and The Gay Science are the other books of Nietzsche, and all contain passages discussed by commentators on Nietzsche and politics.

Slavery and the footnotes

Brandon Christensen History, Religion , , , , , , , , ,

I came across this old essay on slavery by economist Gordon Tullock (h/t Tyler Cowen) and what struck me (aside from an excellent presentation of the economics of slavery) was this footnote on the inevitable dissolution of Marxism (this paper was written in 1967):

It may be that the dissolution is not the first step toward the total elimination of this powerful religion, but merely a breaking away of the talmudic encrustation of the true scribes and pharisees of the Second and Third Internationals. Such a development is not uncommon in the history of other religions. My personal opinion is that the disintegration which we now see is more fundamental, however, and I doubt that Marxism will survive the century as a living faith.

In my own experience in the classrooms of powerful and plebeian universities alike, Marxism has indeed disintegrated into virtually nothing. Marxism has, rather, become a sort of an embarrassing older uncle that professors chuckle about in a manner that is more reminiscing than bitter. They all realize that Marxism led to very bad things, but they are unable to acknowledge that capitalism – Marxism’s Other – has brought about peace and prosperity for untold billions.

It would be wise for us, therefore, to continue to focus on this dead religion. Deep-seated beliefs are hard to let go of, even after these beliefs have been shown – theoretically and empirically – to lead to horrors of the worst kind. “Yes,” the embarrassed former adherents grudgingly admit, “communism has failed miserably, but socialism has not. It has not even been tried, and besides, it is capitalism that is responsible for the world’s ills today.”

This is not obstinance. This is deceit, plain and simple.

So how do we go about combating obvious deceit (rather than the sophisticated theories of 20th century Marxists)?

I think the answer is to just debunk their examples on a case by case basis, in as public as a forum as you can muster. Famines in east and central Africa, for example, have often been attributed to capitalism because of the policies of the World Bank and IMF. Libertarians ought to agree with most of this, and then simply point out that the World Bank and the IMF are central planning agencies designed, created, and supported by governments in the West. Once this fact -which is not quite as simple as it appears – is acknowledged, you can go from there and take a public choice route, an Austrian route, or even a populist libertarian route to explain why capitalism is not responsible for famines.

Wars, genocides, ethnic cleansing campaigns, etc., can all be explained (and eliminated) if libertarians focus on the role of the State in all of these ills rather than on the theoretical or empirical weaknesses of socialist explanations and proposals.

Abstract Ideas Don’t Deserve Patents [NY Times]

Adam Magoon Current Events, Law, Liberty, Philosophy, Politics , , , , , , , , ,

In preparation for something special that I will finally complete this week (Rothbard willing) lets talk about this editorial from the New York Times.

 

The article starts accurately enough explaining the US government’s monopoly power of ideas saying:

The Constitution gives Congress the power to grant inventors a temporary monopoly over their creations to “promote the progress of science and useful arts.”

 

I am actually shocked at the strong language used here, the four letter word “monopoly” is rarely used in reference to any government service.  At least in polite company.  I would also like to point out the subjective language quoted from the constitution.  “Useful arts”.  Useful to whom?  To the inventor?  To consumers?  To the government?  To humanity?  Like most state activities the ability to decide what is “useful” is left to bureaucrats in service to the government rather than in the free market where useful services will generate profits and those that generate disuse (or disutility) are met with losses.  Back to the article though:

“But in recent years, the government has too often given patent protection to inventions that do not represent real scientific advances.”

 

No argument there.  The “copyright troll” phenomenon is more than enough to make this libertarian squeamish.  Where is this editorial going I wonder?

  “The issue in this case, Alice Corporation Pty. v. CLS Bank International, is whether using a computer to implement a well-established economic concept can be patented. The court should rule that such ideas are not eligible for patent protection.

 

Alice Corporation obtained four American patents that cover a method of settling trades between investors in currency and other financial markets. The approach depends on a neutral middleman to make sure traders complete the transactions they have agreed to. The corporation, which is based in Australia, has accused CLS Bank, a London-based company that settles foreign exchange trades for investors around the world, of infringing its patents.”  

To make a long story short the US patent office granted the Alice Corporation a copyright on a form of interaction between a buyer, a middleman and a seller.  An absurd concept to be sure.  Now the question is what does the editorial suggest?

“The Supreme Court should make clear that nobody should be allowed to claim a monopoly over an abstract idea simply by tying it to a computer.”

I agree; but why stop there?  Why the artificial endpoint of “abstract ideas tied to a computer”?  If we shouldn’t allow patents on abstract ideas what would the author suggest if we proved that all ideas are necessarily abstract and therefore not able to be owned, sold, or monopolized?  Would he follow his logic to the conclusion that perhaps all patents are invalid?

Irrationality, Self-indulgence, Childishness, Bizarre Beliefs, and Innovation: From the Belly of the Beast

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

I have lived for many years the People’s Socialist Green Republic of Santa Cruz in California, right in the Belly of the Beast. That’s not its real name actually, just the name it deserves. It’s a university town of about 50,000. A large campus of the University of California sits on the hills overlooking the town. The campus has several distinguished university departments, including Marine Biology and Astronomy. However, many more of it undergraduates believe in Astrology than know anything at all about Astronomy.

It’s a Bobo-land where LUGs prosper and the boys are quiet, timid, retiring, sweet, and too frightened to do the job that Mother Nature commanded for them. (LUG= Lesbian Until Graduation. I swear I have known several, young apparent lesbians who showed up a couple of years after school with a husband, a male husband, I mean. There is a logic to it: Lesbianism is the highest degree of feminism. It brings you a great deal of political prestige on campus. But then, soon, nature and convention re-assert themselves and everything returns pretty much to what the young woman’s parents always wished for, a dual income family, children, etc. Note that I have said nothing about or against lesbians by natural inclination.) The University of California at Santa Cruz has a healthy “Department of Feminist Studies,” not “Women’s Studies,” not “Feminine Studies, ” “Feminist,” with an “ist” indicating perhaps a certain lack of scholarly detachment!

Savvy faculty members of 70s vintage (like me) with more or less phony doctorates they invented have used this mass of ignorant, semi-literate, easily revolted, sometimes revolting, overwhelmingly middle-class young people to take over the running of the city. (Note for overseas readers: In California, you can pretty much register to vote anywhere where you have lived for I don’t know how long. I couldn’t even find it on the Internet. No identification is required or even permitted to actually vote. )

Picture it: a mass of voters who have no permanent stake in the city, whose parents in many cases pay their very indirect property taxes (via rent) determine who shall rule the city. When these voters graduate or go on Spring Break, permanent residents like me are left to live with their preferences. I hasten to say that their preferences are not always objectionable even when they are debatable. One example of the latter is covering the city hall parking lot with solar panels, an operation unlikely to be ever audited. I mean that I am not dead-set against such an experiment. I would just like to know how much it cost and how much power it actually produces. If it cost $500 per permanent resident of the city and it generates just enough power to light the city hall for three months, I am against it, dead-set against it. If it cost $50 per resident, anything goes, I think. Well, I will probably never know.

I will never really get old in Santa Cruz because I live here in a time warp. It’s still the sixties here and maybe the seventies. The radical professors go back to my time in graduate school. Some are young enough to have been “trained” by my graduate school colleagues when the latter became professors. They rule, often with the help of wealthy downtown businessmen who used to be hippies or Trostkysts, or both. The climate is a retro-mixture of the simplistic vulgar Marxism of those who have not read a single page of Marx, and of old New Age unexamined beliefs. There was a small demonstration downtown, just yesterday with signs reading: “Capitalism must die so we may live,” and also, “Four days work for five days pay.” (Why as many as four days, I wonder, why not three, or two?) What percentage of the young demonstrators could give definition of capitalism that’s not a mere slogan, I ask myself? (The answer is in Jacques Delacroix’s “Capitalism.” The Blackwell Encyclopedia of Sociology. Blackwell Publishing. Vol. 2, Malden, Mass. 2006.) I would bet the answer is close to 0%, or even less!

In Santa Cruz, there is a brisk local trade in chunks of quartz, loved for their esoteric properties. Their properties are so esoteric, no one is able to explain to me what they are. Earth Day is celebrate here in a lively way. If anyone ventured to declare that one of the two original Earth Day founders, Ira Einhorn, beat his girlfriend to death and left her to dry in a trunk in a closet, he would be accused of slander so absurd as to prove madness, my madness. Incidentally, Einhorn, who had fled to France for fifteen-plus years, was defended to the end against extradition by the French Green Party. Does it show that greenies have a criminal bent? No, it indicates that they lack ordinary criticality. By the way, I knew the other founder, Dennis Hayes, when we were both undergraduates. I am sure he did not murder his girlfriend. That’s half of the founding team. We can’t all be perfect.

Here, in Santa Cruz, I am surrounded by irrationalisms of several categories. They range from otherwise dead varieties of communism, varieties dead everywhere else on earth, including North Korea, to environmentalist cults, through a large number of diet fads the least of which is veganism. Often, I think that my wife, my daughter, my toddler granddaughter, myself, and a handful of friends are the only rational and fact-bound people around.

Why do you live there, JD if you are so critical, if it’s so painful, they ask? Several answers. First, Santa Cruz maybe the only place on earth with beautiful, uncrowded beaches within a forty-five minute drive of Silicon Valley, a strong engine of economic development, of jobs, of technical innovation (perhaps, the strongest engine anywhere in the world). Second, it’s a very beautiful location (Big Sur is next door). Third, there are fish in the ocean only one mile from my house.

Fourth, the stranglehold of the university on the town is not all bad for me personally. It creates a kind of modern serfdom all to my advantage as a mature consumer. There is an inexhaustible local supply of young people who need a job but who are not about to go pick strawberries two miles away, as everyone knows. As a result, hardly anybody here earns more than ten dollars an hour. This basic economic fact makes for well-staffed bookstores, coffee shops, restaurants. Santa Cruz is better endowed with those attractions than any town of its size that would rely on seasonal tourism of non-elite variety. (My town’s main tourist attraction is the Boardwalk, a permanent carnival -a “Luna Park”- attracting blue-collar families and recent immigrants from poor countries who live in and near Silicon Valley.) There is presence of a permanent middle class of professors determined to live la vida loca even and especially if they are ardent Marxist. This fact helps  Santa Cruz  support restaurants that would probably not be found here without them. The movie theaters are better than average for the same reason. We actually also have three brick-and-mortar bookstores, one of which, Bookshop Santa Cruz, is downright lavish. I am often annoyed in this town; I am seldom in excruciating mental pain.

Fifth, with a median age that must hover next to 25 (I did not bother to check,) there is a fantastic music scene around me. I am of an age where I am wont to doddle to sleep in front of the TV fairly early but I like to know that there is good music to be had should it strike my fancy to remain awake. In fact, the rich night musical scene often bleeds into the day time, within my reach.

In general, if you have an open mind however, it’s not always easy to dismiss the other airheads, I find.

On the rare occasions when I go to one of the several “natural” stores in town, I wonder at the sight of paper-thin, shabbily dressed young women clutching three dollars to pay for what looks like an equal number of organic, sustainably and locally grown salad leaves. I snicker secretly of course. Yet, yet, there is good scientific evidence that rats fed a starvation diet live longer than their brethren fed a normal diet. The young women may just be doing the right thing for the wrong reasons.

It’s unavoidable that I have friends who partake more or less fully of the local culture, of course. For one thing, I spend time in coffee shops. They don’t have coffee shops for old conservative curmudgeons, it turns out. If there were, I would probably not patronize them. There is a difference between being one and liking others of the same kind. Besides, old men in public places often try shamelessly to recruit you into their mutual misery clubs: Let me tell you about my arthritis, I will listen about your shingles. Second, I am a writer of sorts. That fact entails a need for services not always provided by narrow rationalists like me. (By God, even my car mechanic is a spiritualist!) So, for example, the person who will adeptly lay out my stories for printing is a friend who will also try to persuade me of the merits of various herbal medicines. (I Used to Be French: an Immature Autobiography is live in the Kindle Store)

Leave me alone, I protest, I go by science alone. I don’t think I have any choice on this. It’s science or it’s superstition from the days when life expectancy was about fifty. Of course, tea made from a flower in Asia the name of which I cannot pronounce is “natural,” but so is cobra venom; why don’t you try an injection of it, I ask my friend venomously? It’s sovereign against almost all ills and pains.

And then, I read an article in a trusted newspaper (the Wall Street Journal 5/3/5/14). The author, Nina Teichloz, argues rather persuasively that the health-based rejection of animal fats, going back to the fifties, is founded on pseudo-science, on almost-science, on exaggerated amplification of sparse research result, and on monstrous career ambitions. It may well turn out that bacon fat is good for you, and canola oil bad, she argues. It’s turning out, as I speak, that foods that tend to replace the banned animal fats in enlightened Americans’ diets, all based on carbohydrates, have recognizable, well- demonstrated noxious effects on health.

Wait a minute, I think, I am one of those enlightened Americans though reared in France! All my adult life, I have been what doctors call a compliant patient. They don’t have to tell me the dos and don’ts twice. Also most of my adult life, I have deprived myself of pâté, rillettes, terrine of this and terrine of that, cheese, marbled steak, etc. For a long time, I was even on a fairly stern macrobiotic diet involving a great deal of grain, several kinds of grain, three times a day. I have Type II diabetes although I am only moderately overweight. My four unenlightened French siblings – who share 50% of my genes – have no trace of diabetes. One is enormous. All ate everything they wanted on the extravagantly fat French menu all their lives. (But three out of four don’t eat much at all.) Did I get severely punished for my well-informed science-based rationalism, I wonder? (But to be fair, I have to remember that beer too is rich in carbohydrates, not just whole bulgur wheat.)*

I had smelled a rat for a long time anyway because French men, who do all the wrong things but one, persisted in not dying.

Anger wells up in me when I see a young father bicycling blithely in traffic with a his toddler in handlebar seat as if the kid were a bumper against oncoming cars. He is obviously trying to save the planet from “climate change” (formerly “global warming”). Yet, the child will most likely survive. Seeing the world from Dad’ bike at an early age may cause him to become a natural cyclist when he grows up. This may be enough to compensate for his relentless, ceaseless small screen habits, for his sedentariness, health-wise and with respect to the development of his imagination.

In the end, it may well be that my annoying town is a boon to the wider society, in the manner of a natural laboratory. If it’ turns out, for example, that a diet based largely on raw carrots causes cancer, the local vegans will be the last ones to know. Yet, they will constitute a valuable sample on which to run a serious epidemiological study, a real one. If it’s a fact that ten joints of cannabis a day is an effective remedy against aging, there is an excellent chance the discovery will be made in Santa Cruz. Also, this town fairly drips with bad artists. Many are mere artistry pimps, living at public expense for little in return. Some try but don’t succeed. But art may be like the Olympics: You need a broad base of practitioners of varying merits for a chance of a handful of medals.

Silliness and sometimes downright madness may just be the price we pay for a reasonably inventive society. In the other society I know best, France, there is far less mediocrity on all kinds on display than I see in the US and in Santa Cruz. In France, in the past thirty years, there is also little new to hear or to see, I believe. The main recent French artistic achievement is an original and pleasant way to light up he Eiffel Tower. (I am not contemptuous, I like it.) The French industrial achievements likewise have been modest and largely the result of precise engineering rather than of innovation.

In America, they say, “Far out; by all means try it!” even if it has only one wing to one side, and a motor made of twisted rubber bands. Our nonjudgmentalism is often exasperating. In France, they will tell you, “It will never fly” even if the article in question is a complete WWII jet. Accordingly, the first men to fly in a controlled flight were Americans and former bicycles repairmen, failed businessmen, as well as high school dropouts. Unlikely it would have ever happened in France. There, the Wright brothers would have been admonished to stay in school until age 23 or 24, earn a couple of proper engineering degrees first and then, ridiculed until they returned to serious business of building bikes.

Every time I grate my teeth at the irrationality, the childishness, the self-indulgence around me in Santa Cruz, California, I make myself repeat the obvious to myself: America invented live radio broadcasting, the Internet, the Windsurfer, country music as well as jazz, and the giant double roll of toilet paper in public accommodations. Irritation is a small price to pay, perhaps.

Still rock-solid among my beliefs: 1 Children should be vaccinated; 2 Almost every service the government provides could be better supplied by the market, private contracts, and insurance schemes. (It’s “Almost” because I have not seen my way yet to defense being outsourced to mercenary outfits. Libertarians hardly ever discuss this central issue.)

* full disclosure: I have been on the Paleolithic Diet – with some systematic cheating – for over a year. My diabetes number have never been so good in fifteen years. My doctor is speechless because he does not want inadvertently to promote another diet fad. I am not making any other claim except that I am rarely hungry. The cheating is this: I drink coffee and wine or beer every day. None is really part of that diet. It’s just good for my soul.

The Myth of Common Property

L. A. Repucci Liberty , , , , , , , , , , , , , , , , , , , ,

An Observation by L.A. Repucci

It has been proposed that there exists a state in which property — whether defined in the physical sense such as objects, products, buildings, roads, etc, or financial instruments such as monetary instruments, corporate title, or deed to land ownership — may be owned or possessed in common; that is to say, that property may be possessed of multiple rightful claimants simultaneously.  This suggestion, when examined rationally and exhaustively, is untenable from the perspective of any logical school of economic, social, and indeed physical school of thought, and balks at simple scrutiny.

In law, Property may be defined as the tangible product of enterprise and resources, or the gain of capital wealth which it may create.  To ‘hold’ Property, a Party, or private, sentient entity, must have rightful claim to it and be capable of using it freely as they see fit, in keeping with natural law.

Natural resources, including land, are said to be owned either jurisdictionally by State, privately by party, or in common to the natural world.  If property may be legally defined only as a product, then natural resources may be excluded from all laws pertaining to legal property.  If property also may be further defined by the ability of it’s owner to use it as they see fit, in keeping with Ius Naturale, then any property claimed jurisdictionally by the State and said to be held in common amongst the citizenry must meet the article of usage to be legally owned.  Consider Hardin’s tragedy of the commons as an argument for the conservation of private property over a state of nature, rather than an appeal to the economic law of scarcity or an appeal to the second law of thermodynamics ,

In Physics:  Property may be defined as either an observable state of physical being.  The universe of Einstein, Kepler, and Newton rests soundly on the tenet that physical bodies cannot occupy multiple physical locations simultaneously.  The laws that govern the macro-physical world do not operate in the same way on the quantum level.  At that comparatively tiny level, the rules of our known universe break down, and matter may exhibit the observed property of being at multiple locations simultaneously — bully and chalk 1 point for common property on the theoretically-quantum scale.

Currency:  The attempt to simultaneously possess and use currency as defined above would result in praxeologic market-hilarity in the best case, and imprisonment or physical injury in the worst.  Observe: Two friends in common possession of 1$ walk into a corner shop to buy a pack of chewing gum, which costs 1$.  They each place a pack on the counter, and present the cashier with their single dollar bill.  “It’s both of ours!  We earned it in business together!” they beam as the cashier calls the cops and racks a shotgun under the register…

The two friends above may not use the paper currency simultaneously — while the concept of a dollar representing two, exclusively owned fifty-percent equity shares may be widely and innately understood — the single bill is represented in specie among the parties would still be 2 pairs of quarters.  While they could pool their resources and ‘both’ purchase a single pack of gum, they would continue to own a 50% equity share in the pack — resulting in a division yet again of title equally between the dozen-or-so sticks of gum contained therein.  This reduction and division of ownership can proceed ad quantum.

This simple reason is applicable within and demonstrated by current and universal economic realities, including all claims of joint title, common property law, jurisdictional issues, corporate law, and financial liability.  A joint bank account is simply the sum of the parties’ individual interest in that account — claims to hold legal property in common are bunk.

The human condition is marked by the sovereignty, independence and isolation of one’s own thought.  Praxeological thought-experiments like John Searle’s Chinese Room Argument and Alan Turing’s Test would not be possible to pose in a human reality that was other than a state of individual mental separation.  As we are alone in our thoughts, our experience of reality can only be communicated to one another.  It is therefore not possible to ever ‘share’ an experience with any other sentient being, because it is not possible to perceive reality as another person…even if the technology should develop such that multiple individuals can network and share the information within their minds, that information must still filter through another individual consciousness in order to be experienced simultaneously.  The physical separation of two minds is reinforced by the rationally-necessary separation of distinct individuals.  There may exist a potential hive-mind collectivist state, but it would require such a radical change to that which constitutes the human condition, that it would violate the tenets of what it is to be human.

In conclusion, logically, the most plausible circumstance in which property could exist in common would be on the quantum level within a hive-minded non-human collective, and the laws that govern men are and should be an accurate extension of the laws that govern nature — not through Social Darwinism, but rather anthropology.  Humans, as an adaptation, work interdependently to thrive, which often includes the voluntary sharing and trading of resources and property…none of which are held in common.

Ad Quantum,

L.A. Repucci

Risks Of Regulation

Adam Magoon Current Events, Economics, History, Law, Liberty, Politics , , , , , , , ,

A bit dated but still very relevant.

Regulation; the four letter word of the business world.  Many people see regulation as a protective shield from the ‘dangers’ of the businessman; a way to protect people, property and the environment.  The oil industry is one of the most heavily regulated enterprises in the United States.  Despite being intended to protect us; these regulations failed catastrophically on April 20th, 2010 when the Deep Water Horizon oil rig suffered a mechanical failure resulting in an explosion which sank the rig two days later(1).  Yet, when the disaster happened, we were met with pleas for more government oversight and more red tape.  The regulations on that industry, both in the Gulf Mexico and throughout the country, helped cause the Deepwater Horizon disaster and removing them would help prevent similar disasters in the future.

Regulations in the Gulf of Mexico begin with the Minerals Management Service (MMS).  Created in 1982 due to the Federal Oil and Gas Royalty Management Act the MMS “both regulates the [gulf oil drilling] industry and collects billions[of dollars] in royalties from it”(2, 3).  The MMS’s responsibility to regulate includes monthly inspections, issuing safety documentation, and issuing safety citations(3).  Royalty collection is based on number of barrels of oil removed and varies from well to well.  The MMA also provides  “royalty relief“ to a number of rigs based on previous legislation. Until November of 2000 the royalty relief was issued based on the Outer Continental Shelf Deep Water Royalty Relief Act of 1995, better known as DWRRA.  This act “relieves eligible leases from paying royalties on defined amount of deep-water production”.  At depths over 2,526 feet oil companies did not have to pay the United States royalties on 87.5 million barrels of oil, between 1,312 and 2,625 feet the relief was 52.5 million barrels and between 656 and 1,312 feet the relief was only 17.5 million barrels.  While this act expired in the year 2000 it was replaced by an incentive program that allowed royalty relief to be “specified at the discretion of the MMS”(4).  This incentive program provides more relief if a drilling site is “more expensive to access” even if it is at the same water depth as another rig receiving less relief (2).  The royalty relief system provides incentives for Oil Rigs to operate in deep waters, especially those classified as “Ultra-Deepwater” by reducing the royalties paid on those sites(5).

While not specific to the gulf, there are a variety of moratoria on drilling throughout the country.  These moratoria take two forms.  The first set, known as “leasing moratoria” are general bans on drilling in select areas , the second set are temporary bans due to specific incidents.  Since   the fiscal year 1982 congress has denied funds to the MMS to “conduct leasing for the specified Outer Continental Shelf areas”.  Currently there is a “blanket moritorium” on leasing in effect “through 2012” that covers a large portion of both the East and West coasts( 2).  One of the largest bans on drilling however exists in the Arctic National Wildlife Refuge(ANWR).  Located in the “northeast corner” of Alaska over ten million acres of land are off limits to drilling.  In this wildnerness it is estimated that there exists “between ten billion and sixteen trillion barrels of oil” that could supply twenty percent of U.S. demand for nearly thirty years(6).  The most recent temporary bans have been a result of the Deepwater Horizon disaster.  A “30-day pause in offshore drilling” followed the sinking of the Horizon rig(11).  This did not only cover BP’s rigs but all offshore drilling “based on water depth”(7).  That ban was removed by a federal court, but was replaced with a revised ban that will be in effect until November, 2010(7).

Beyond physical limitations on drilling there are also economic regulations.  There are a number of federal subsidies and tax breaks for the drilling industry.  David Kocieniewski says that “examination of the American tax code indicates that oil production is among the most heavily subsidized businesses”.  These tax breaks occur for a number of reasons.  Many are simply to lure oil companies to American shores, others were “born of international politics” or “date back nearly a century”(8).  Beyond that the United States government has put “Liability Limits” on drilling operations.  The Oil Pollution Act of 1990 limits an oil companies liability for damages to only $75 million dollars.  Any remaining damages, up to $1 billion, are payed through the Oil Spill Liability Trust Fund.  This fund is “financed primarily through a fee on imported oil”(1).  Senator Robert Menendez from New Jersey recently introduced bill, S. 3305 which would raise that cap to $10 billion(9).

All of these laws and regulations have one thing in common.  They increased the probability of a catastrophic oil spill in the Gulf of Mexico.  Each regulation increased the risk of such a spill in some way and when combined they resulted in the disaster that is causing massive destruction in the Gulf today.  The Minerals Management service was organized to be the overarching regulatory body for the Oil Industry.  Why did it fail in its duty?  Why did “spills from offshore oil rigs…in U.S. waters more than quadrupled this decade” despite the MMS’s oversight(10)?  This question was answered by economist Walter Block in his book The Privatization of Roads & Highways (12).  Quoting Cecil Mackey, former Assistant secretary of transportation, he says:

“As the more obvious regulatory actions are taken; as the process becomes more institutionalized; as new leaders on both sides  replace ones who were so personally involved as adversaries in  the initial phases, those who regulate will gradually come to reflect,     in large measure, points of view similar to those whom they regulate.”

Quite simply, the MMS adopted the views of the Oil Industry completely negating their ability to regulate it.  Congressman Nick J. Rahall confirms this saying “MMS has been asleep at the switch in terms of policing offshore rigs”.  Using numbers supplied by the MMS in the prior 64 months before the incident “25 percent of monthly inspections were not performed”(3).  Are we to believe another agency would be any more efficient?  Bureaucracy and corruption are not the only things to blame however; legislation played a vital role in this disaster as well.  DWRRA, for example, incentivized the risk to drill in deep waters.  Under DWRRA the greater the depth being drilled the greater the royalty relief amount.  These waters are inherently less safe to drill in.   It is easy to compare the difficulties in dealing with a site 5000 feet below the ocean against one 500 feet below the surface.  These incentives were made worse when DWRRA expired.  Under the new program “the most economically risky projects would receive the most relief”, safer projects on the other hand would receive “little or no relief”(4).

While acts like DWRRA incentivize the risk of deepwater drilling the greater incentive to drill in the Gulf of Mexico is simply that there are so few places to drill in the continental United States.  The United States Exclusive Economic Zone extends “200 nautical miles” from all of it’s shores(2).  Yet, much of this area is off limits to drilling.  The “blanket moratorium” issued by former President George H.W. Bush in 1990  restricts drilling in “all unleased areas offshore Northern and Central California, Southern California except for 87 tracts, Washington, Oregon, the North Atlantic coast, and the Eastern Gulf of Mexico coast”.  The Gulf of Mexico is the only economically viable offshore area left for them to drill.  This of course pales in comparison to the Arctic National Wildlife Refuge.  Most of the 10-million-acre area is not even adjacent to the ocean, surely drilling on land or in shallow water is much safer than drilling 5000 feet under the ocean(6).  Beyond helping to cause the spill in the first place the government is increasing the risk of future disasters.  The temporary ban issued in response to the Horizon spill “neither improves safety nor mitigates risk”(11).  By forcing drilling to stop you immediately cause a number of problems.  Reentering a location is as dangerous, if not more so, than the original drilling operation.  Experienced workers have been fired, laid off, or relocated and will need to be replaced with less experienced ones.  Equipment in worse quality will be all that remains when the moratorium ends(11).

The economic regulations were the proverbial straw that broke the camel’s back.  A single tax break for the Deepwater Horizon oil rig covered “70 percent of the rent” or “$225,000 a day”.  Or, as policy analyst Sima J Gandhi describes it “We’re giving tax breaks to highly profitable companies to do what they would be doing anyway”(8).  These breaks are not only an unfair advantage, they incite these companies to make riskier choices.  If the potential cost of the Deepwater Horizon rig wasn’t offset by these breaks it may not have been economically viable to drill in such a dangerous location.  On top of the lower cost of the initial operation; the Liability Caps ensured that any potential risk was marginalized by the government.  The $75 million limit that has been in effect since 1990 was a message to the industry to attempt increasingly risky drills(1).

The oil companies should be liable for the full cost of any damages done by their rigs.  The worry that “operators and nonoperators in the U.S. Gulf of Mexico will be unable to obtain adequate protection from insurance” is totally unjustified (1).  If the site is not economically viable then there is no reason to drill there.  If BP and Transocean knew they would have been liable for all damages they would not have received a citation for “not conducting well control drills as required and not performing ‘all operations in a safe and workmanlike manner'”(3).  There would have been an incentive to spend money on safety, training and equipment instead of the incentive to take risks knowing they would be protected.  Or as one lawyer explained the situation “arbitrary liability caps are just not reasonable.  You cannot decide the expense of a disaster before it happens.  Liability caps allow companies like BP to avoid bearing the responsibility for the full cost of the damage they inflict”(9).

The oil has stopped flowing from the bottom of the Gulf; for now.  The question remains: How can we prevent this from happening again?  There, of course, is no easy answer.  Accidents, mistakes, and disasters can never be guarded against completely.  We can however mitigate the risk involved in those dangerous operations that are needed for the sake of humanity.  The best way to increase the safety of the oil industry is to remove the regulations that incentivize the risks involved in their industry.  Preventing drilling in safer areas, tax breaks, royalty reductions, liability limits; all these things make an already dangerous prospect that much more perilous.  We need to neither help nor hinder these companies, they must succeed or fail on their own merits.

Sources available upon request.

Is China running out of cash?

Link Adam Magoon Current Events , , , , , , , , ,

Is China running out of cash?

China Halts Bank Cash Transfers

“The People’s Bank of China, the central bank, has just ordered commercial banks to halt cash transfers.”

Could we be seeing the start of total economic collapse? The answer, ceteris paribus, is yes and the Austrian Business Cycle Theory (ABCT) explains why.

To quote Ludwig Von Mises’ explanation of the final act of the ABCT:

“Ludwig von Mises stated that the “crisis” (or “credit crunch“) arrives when the consumers come to reestablish their desired allocation of saving and consumption at prevailing interest rates.[12][“

This means that when consumers finally realize that the money they have invested has actually been malinvested in the economy they then seek to acquire as much of their money as possibly from said investments. Most of which take the form of bank deposits.

The linked article reminds us that this is the numerous such time that China has adopted this policy saying:

“So what’s really going on?  This crunch follows similar incidents in June and December of last year.  In June, for instance, the central bank used the excuseof a “system upgrade” to allow banks to shut down their ATMs and online banking platforms.  As a result, they conserved cash and thereby avoided a nationwide meltdown.”

Other instances, such as this one in England where “[s]ome HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it,” show that this problem may not be contained to China and may be spreading to the international market.

What does Murray Rothbard say will happen when this “credit crunch” inevitably occurs?

Wasteful projects, as we have said, must either be abandoned or used as best they can be. Inefficient firms, buoyed up by the artificial boom, must be liquidated or have their debts scaled down or be turned over to their creditors. Prices of producers’ goods must fall, particularly in the higher orders of production—this includes capital goods, lands, and wage rates […]

this means a fall in the prices of the higher-order goods relative to prices in the consumer goods industries. Not only prices of particular machines must fall, but also the prices of whole aggregates of capital, e.g., stock market and real estate values. In fact, these values must fall more than the earnings from the assets, through reflecting the general rise in the rate of interest return […]

“Since factors must shift from the higher to the lower orders of production, there is inevitable “frictional” unemployment in a depression, but it need not be greater than unemployment attending any other large shift in production. In practice, unemployment will be aggravated by the numerous bankruptcies, and the large errors revealed, but it still need only be temporary […]

Another common secondary feature of depressions is an increase in the demand for money. This “scramble for liquidity” is the result of several factors: (1) people expect falling prices, due to the depression and deflation, and will therefore hold more money and spend less on goods, awaiting the price fall; (2) borrowers will try to pay off their debts, now being called by banks and by business creditors, by liquidating other assets in exchange for money; (3) the rash of business losses and bankruptcies makes businessmen cautious about investing until the liquidation process is over.

With the supply of money falling, and the demand for money increasing, generally falling prices are a consequent feature of most depressions. A general price fall, however, is caused by the secondary, rather than by the inherent, features of depressions.

So is the massive failure of all economies imminent? Well not necessarily because the government can take some steps to prevent the immediate failure.

According to Mises:  

“Continually expanding bank credit can keep the borrowers one step ahead of consumer retribution (with the help of successively lower interest rates from the central bank). In the theory, this postpones the “day of reckoning” and defers the collapse of unsustainably inflated asset prices.[12][14] It can also be temporarily put off by price deflation or exogenous events such as the “cheap” or free acquisition of marketable resources by market participants and the banks funding the borrowing (such as the acquisition of land from local governments, or in extreme cases, the acquisition of foreign land through the waging of war).[15]

The “false” monetary boom ends when bank credit expansion finally stops – when no further investments can be found which provide adequate returns for speculative borrowers at prevailing interest rates”

These steps only “kick the can down the road” and delay the inevitable since “the longer the “false” monetary boom goes on, the bigger and more speculative the borrowing, the more wasteful the errors committed and the longer and more severe will be the necessary bankruptcies, foreclosures and depression readjustment.”

We may be seeing the beginning of the next great depression here but only time will tell.  One thing is certain though, a massive economic readjustment is coming and the central banks of the world have only been aggravating the problem.  When it will hit is anyone’s guess but in this author’s opinion we are either looking at a repeat of the early 30’s or a repeat of the early 40’s and I can only hope we can avoid going through both.

Myths about Libertarianism

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

Many articles have recently appeared in magazines, web sites, and social media criticizing free markets and libertarian ideas. It seems to me that this opposition is a result of a growing interest in freedom as people realize that the economies of the world are in serious trouble. As people see continuing high unemployment, slow growth, ever greater government debt, environmental disaster, more turbulent weather, and endless wars, some folks seek solutions in greater freedom while others seek solutions in greater state control. The critics of libertarianism and economic freedom have fallen for several fallacies.

1. Critics confuse today’s mixed economies, a mixture of markets and government intervention, with a “free market.” A truly free market is an economy in which all activity is voluntary for all persons. Government intervention changes what people would otherwise voluntarily do. A pure market would not impose the taxation of labor and capital. It would not prohibit trade with Cuba. Free markets would not subsidize industry. Any peaceful and honest action would be free of restrictions and taxes. That is not the economy we have today in any country.

2. Critics use the term “capitalism” to falsely blame markets for economic trouble. Those opposed to private enterprise call today’s economies “capitalist.” They then note that the economy has trouble such as poverty, great inequality, unemployment, and recessions. The critics conclude that “capitalism” causes these problems. This illogic uses a sly change in meaning. They use the term “capitalism” as a label for the current economies and also to refer to free markets. It makes no sense to label the economy as XYZ and then say XYZ causes problems. The critics use the double meaning of “capitalism” to blame the non-existing free market for social problems. This confusion is often deliberate, as I have found that it is almost impossible to get the critics to replace their confusing use of the term “capitalism” with clearer terms such as either the “mixed economy” or the “pure market.”

3. Critics think that the “market” means “anything goes.” For example, they think that a free market allows unlimited pollution. They often call this, “unbridled capitalism.” But freedom stops at the limit of harm. In a pure market with property rights for all resources, pollution that crosses outside one’s own property is trespass and invasion. This violation of others’ property rights would require compensation, and that payment would limit pollution.

4. Critics confuse privatization with contracting out. They then blame private enterprise for problems such as occurs with private prisons. When government contracts with private firms to produce roads, it is still a governmental road. When governments hire private contractors to provide services in a war, it is still government’s war. Government sets the rules when firms do work under contract. Genuine privatization means transferring the whole ownership, financing, and operation to a private firm.

5. Critics overlook subsidies. Government distorts the economy with subsidies to agriculture, energy production, and other corporate welfare. The biggest subsidy is implicit: the greater land rent and land value generated by the public goods provided by government and financed mostly from taxes on labor and enterprise. Critics not only ignore this implicit subsidy but also overlook the explicit subsidies to agriculture and programs such as the promotion of ethanol from corn.

6. Critics do not understand the crowding out of private services because of government programs. The critics of libertarianism say that with less government, old folks and poor folks would starve and die because they would not receive social security and medical care. What they overlook is that the reason many of the elderly have little savings for retirement is that government took away half their income while they were working. Income taxes reduce their net wages, while sales taxes raise the cost of living. Low-income people pay little or no income tax, but they pay hefty sales and excise taxes, and they indirectly pay property taxes from their rental payments to landlords. Libertarians want to abolish poverty and have a society where all people have good medical care. They just want to accomplish this by letting workers keep their full pay, which would enable them to pay for their own medical services. Also, with no taxes on interest and dividend income, people would be better able to provide for their own retirement income, indeed to have much more than social security now provides.

7. Critics fail to understand contractual governance. A pure market would not consist of isolated individuals. Human beings have always lived in community associations. In a free market, communities such as condominiums, land trusts, and civic associations would provide the public goods that the members want.

8. The critics of market believe that corporations control the economy, exploit labor, and plunder the planet. Corporations do have power, but mainly because they obtain subsidies and monopoly privileges from governments. But labor unions and lawyers also lobby the government for power and favors. Rather than blaming private enterprise, the critics should examine how the structure of government enables special interest to obtain power and wealth.

Leo Tolstoy wrote in 1905 that nobody really argues with the economics and philosophy of Henry George and public revenue from land rent; the critics either misunderstand the concepts, or they create misinformation. The same applies to critics of libertarianism. The fact that the critics falsify the free market in criticizing it implies that the actual concept is sound, otherwise they would provide valid arguments.

Nobody has refuted the free market and the libertarian ethic of “live and let live”. The critics of liberty either misunderstand it or else falsify it. Even when their errors in logic, their false evidence, and their confused terminology are pointed out, the critics persist in their falsification. They are stubbornly anchored to their viewpoints. Why this is so is a problem I will leave to psychologists to figure out.

Elephant Poaching: National Tragedy or Tragedy of the Commons?

Adam Magoon Current Events, Economics , , , , , ,

Elephant Poaching: National Tragedy or Tragedy of the Commons?

Tanzania recently ended a policy of summary execution of elephant poachers predictably due to “a litany of arbitrary murder, rape, torture and extortion of innocent people.”  The prime minister gave a PR response that, for me at least, sums up most government policy saying “The anti-poaching operation had good intentions, but the reported murders, rapes and brutality are totally unacceptable.”

World governments have taken the same measures they always do when individuals consume something that they arbitrarily deem distasteful and simply banned the sale of ivory; a method which has been categorically proved to simply not work.  After all, how easy is it to buy narcotics in America?  Or alcohol in the Middle East?  Or other drugs…in prisons.     

So what is my solution?

As with other commons violations such as over-fishing the answer to the dwindling elephant population is simple.  Privatize it.  Privatize what? You ask.  The elephants of course!  Ivory is a hot commodity in the third world, used for obvious things such as jewelry and decoration and not-so-obvious things like aphrodisiacs and snake-oil like medicines and this demand is not going away any time soon.

Allow promising entrepreneurs to tag, herd, breed, and protect groups of elephants for the purpose of harvesting their ivory, meat, hides, and any other parts of value for later sale throughout Asia and the world.  By doing this you would ensure the existence of these animals for as long as there continues to be demand for them.

Cronismo…você sabe o que é isto?

Claudio Shikida Current Events, Economics , , , , ,

Não??? Então você não deve estar morando no Brasil. Ok, você mora, mas não sabe do que se trata. Um livro que divulgou este conceito no Brasil é o do Lazzarini. Mas você pode aprender também sobre isto neste video. Este blogueiro (junto com o Leo Monasterio) já falava de rent-seeking no Brasil desde o final do século passado. A galera, contudo, custou a nos acompanhar na literatura. Ao longo destes primeiros 13 anos do século, vimos vários autores e artigos sobre o tema. Claro, tudo começou com o Jorge Vianna Monteiro (embora muita gente não pareça saber fazer pesquisa científica direito e, portanto, não faça a revisão da literatura corretamente).

O termo rent-seeking nunca saiu muito das conversas de economistas e alguns poucos cientistas políticos esclarecidos. Claro, havia também a competição dos marxistas, sempre receosos de perderem sua platéia para teorias concorrentes. Mas, aos poucos, as coisas mudaram. Aí alguém, acho que foi o Gary Becker, popularizou o termo capitalismo de compadres (ou de compadrio). Paralelamente, a mudança de gerações nas redações de jornais e a tecnologia ajudaram a popularizar as idéias de Tullock, Olson, Buchanan e outros. Mesmo assim, convenhamos, “capitalismo de compadres” não é um termo muito retórico, no sentido da McCloskey.

Aí, agora, veio este novo termo, o tal “cronismo”. No fundo, no fundo, fala-se do mesmo fenômeno. Mas parece que este termo está se popularizando com certa facilidade. Ajuda, claro, a corrupção desenfreada que assistimos no Brasil desde a primeira administração da Silva (agora também conhecido como “Lula”, “Lula da Rose”, “o Barba”, dentre outros divertidos apelidos). O desencanto dos eleitores não deixa de ter um impacto positivo: o aumento do ceticismo e do grau de exigência quanto às suas demandas políticas. Claro que isto não necessariamente melhora a qualidade do setor público ou diminui a corrupção, mas o realismo trazido pelo ceticismo é sempre saudável.

Anti-Tesla bill rejected by Ohio Senate.

Adam Magoon Liberty , , , , , , , , , , ,

On December 3rd, an amendment to Ohio Senate Bill 137 failed to pass. The amendment would have required Tesla Motors to sell its electric cars through a third party rather than directly to consumers. Ohio is number two in auto manufacturing in the midwest and Tesla’s new line of ultra-efficient electric vehicles are a threat to the entire automotive industry. Contrary to what those in Detroit and Ohio would have you think, this is a good thing.

For far too long the automotive unions and automotive industry lobbyists have suckered the individuals in this country into believing they were the backbone of American manufacturing when in fact they were a leech sucking money from more productive uses. For example through the years 2008 to 2011 Ohio granted $80.8 million in subsidies to General Motors, $54.4 million to Ford, and $28.7 million to Chrysler. This is ignoring the billions of dollars spent on the auto bailout last decade which, much like Chrysler bailout in 1980, simply saved failing corporations from their own shoddy business practices. While Tesla gets its own fair share of subsidies any threat to the auto industry is a positive thing for consumers.