Archive for the ‘Economics’ Category

Sign of the Times

I was recently invited along on a family trip for three days of rafting in the Grand Canyon followed by a couple days in Las Vegas.  Among other things, while in Vegas my wife and I did some sight-seeing and visited the Hoover Dam and The Neon Museum.  The museum is “dedicated to collecting, preserving, studying and exhibiting iconic Las Vegas signs for educational, historic and cultural enrichment.”  It’s an interesting place to visit as you are able to learn some of the history of Las Vegas as told through the signage.

Photo courtesy of: http://www.neonparadise.com/Pages/TheBoneyard.aspx

The Green Shack Sign (Photo courtesy of: http://www.neonparadise.com/Pages/TheBoneyard.aspx)

Although there were many intriguing pieces in “the boneyard”, the one I found most compelling was the oldest member of the collection – the sign for The Green Shack Restaurant which opened in the 1930s.  By the time it closed in 1999, it was the oldest restaurant in Las Vegas.  The sign itself is rather unremarkable, but what really caught my attention was the story behind it.

The Boneyard (Photo courtesy of Marjorie)

The Boneyard (Photo courtesy of Marjorie)

As we were told by our tour guide, the restaurant got its start when Mattie Jones, a recent widow, began selling lunches (and bootleg whiskey) out of her kitchen window to the men building the Hoover Dam.  Demonstrating that savings and investment is the true path to prosperity, Mattie was able to accumulate enough money to eventually open her own restaurant.  This simple entrepreneurial act, so common in years past, sounds like something out of fairy tale today.  I mean, kids can’t even sell lemonade to their neighbors anymore without getting shut down by cops.

policeshutdownlemonadestand

Because of the massive regulatory state that has been erected over the past several decades, it is nearly impossible for poor people to improve their condition through the type of initiative shown by Mrs. Jones.  As John Stossel puts it

Street vending has been a path out of poverty for Americans. And like other such paths (say, driving a taxi), this one is increasingly difficult to navigate. Why? Because entrenched interests don’t like competition. So they lobby their powerful friends to erect high hurdles to upstarts. It’s an old story.

Now, growing local governments are crushing street vendors.

The city of Atlanta, for example, has turned all street vending over to a monopoly contractor. In feudalist fashion, all existing vendors were told they must work for the monopoly or not vend at all.

“Vendors who used to paying $250 a year for their vending site must now hand over $500 to $1,600 every month for the privilege of working for the monopoly,” wrote Bob Ewing in The Freeman.

The arguments attempting to  justify these regulations usually rest on the tired canard that they are necessary in order for the government to ensure public safety.  These protectionist measures, often written by lobbyists solely for the benefit of their business interests, offer only a veneer of security but with no real substance.  As an example, my wife came down with a nasty case of  food poisoning during our rafting trip after partaking in a Vegas buffet.  This was not from some shady street vendor, but at a first class casino/hotel.  A number of our fellow rafters on the trip empathized with her situation because they had once gone through the same thing.  Why have so many people contracted food poisoning if the government is truly keeping us safe?

Fortunately, the internet is enabling an end-run around these stifling restrictions by providing people with a method by which to take part in the sharing economy.  From taxi services to teacher lesson plans to home restaurants, the sharing economy is transforming the ways in which people contract for services in the digital age.  ReasonTV has an excellent video series highlighting the pioneers who are inventing better methods for connecting customers to providers while the government and their cronies do their best to try and shut them down.  Governments hate progress.  They are forever trying to maintain and regulate the past while the market finds new ways to bring people together for mutual benefit.

I recommend watching all of the videos, but embedded below is the one that is most relevant to this discussion.  Maybe the next Mattie Jones will develop their skills and reputation though Eatwith and then use crowdfunding to raise the money for their own restaurant.  The potential of the this new technology is tremendously exciting.  Hopefully it isn’t crushed by the heavy hand of government.

War, The Economy, and the Fed

War is expensive.  VERY expensive.  It’s also a racket.  Paying for it can be done in a couple of ways.  One is to raise taxes.  However, if every man, woman, and child had to fork over $16,000 as their true cost for the wars, chances are good that the conflict would stop fairly quickly due to public outrage.  Since 1913 and the establishment of the Federal Reserve Bank, the preferred method is for our leaders to simply print the money they need by purchasing government debt.  Under this system, the costs to the public are transferred in less obvious ways, such as debasement of the currency (inflation) and time spent in the unemployment line.   In fact, an argument can be made that this one of the main purposes of the Federal Reserve.

FE_PR_070402moneymatters425x273

As Austrian Economic theory explains, the business cycle is caused by central banks holding interest rates below their true market levels which encourages mal-investment throughout the economy.  Because interest rates are low, entrepreneurs see this as a signal that savings are plentiful.  With money easy to borrow, they begin funneling this new cash into capital-intensive projects.  This easy money can be funneled into all sorts of bubble activity: stocks, dot-coms, houses, government bonds.  Unfortunately, the entrepreneurs who started building strip malls, houses, whatever, eventually learn the painful truth: that the low interest rates were not a signal that savings were plentiful and that there would be a future market for their product, but that there really wasn’t enough savings in the economy to justify these projects at all.  These bubble activities are fueled entirely by debt and easy money which has to be paid back at some point.  When the bills come due, and there’s no money to pay, the whole scheme begins to unravel.

What does this have to do with war?  While the money is flowing freely, and people are feeling prosperous despite the growing mountain of debt-driven pseudo-wealth – i.e buying more house than they can afford – they don’t really pay attention to the atrocities that are occurring overseas in their name.  The Fed’s money printing, therefore, serves two nefarious political objectives:  It allows for expansion of the empire and redistribution of money to the military industrial complex while obscuring the true costs from the public.

There has been a lot of discussion in Washington regarding the debt ceiling lately.  Ever wonder why that is an issue and how it all started?  I’ll let Peter Schiff explain (emphasis mine):

The debt ceiling itself is both an ill-conceived compromise and a relic of past governmental integrity. For its first 128 years as a republic, the United States was able to function without a debt ceiling. This was possible for the simple reason that U.S. government had no central bank and could not borrow beyond its ability to repay through taxation. And since the ability to tax is always limited by taxpayers’ assets (and their extreme hostility to those who want to take them), legal gimmicks were not needed to prevent Congress from spending too freely. But the creation of the Federal Reserve in 1913 gave the Federal Government a potential means to borrow indefinitely by having the new bank buy its debt. Sensing this danger, the original Federal Reserve Act of 1913 prohibited the Fed from buying or holding government debt.

But just four years later the United States needed a means to raise money quickly to pay for its efforts in the First World War. The government passed an amendment to the charter to allow the Fed to purchase Treasury Bonds. Fearing (correctly) that this would create a mechanism for perpetual debt expansion, conservative lawmakers insisted that the amendment include a “debt ceiling” provision that would cap the amount that the government could borrow.

What these otherwise forward looking politicians somehow failed to grasp was that such a statutory limit was wholly meaningless, as it could be perpetually raised by future legislative action. This is exactly what has happened. The debt ceiling has been raised, with varying degrees of fanfare, every time it has been hit. This renders the law completely meaningless.

TheFedFall

As Schiff points out, within the first four years of the new bank’s existence, it was used to fund the largest and bloodiest war up to that point in human history.  Since then, it has gone on to create multiple boom-bust cycles that somehow just happen to coincide with the U.S’s overseas adventures:  Following WWI, we had the panic of 1920-1921*, Vietnam and increased welfare spending gave us the stagflation of the ’70s, the first Iraq war created an economy that was so depressed it cost George H.W. Bush his re-election.

In more recent history, when Bill Clinton’s dot-com bubble burst, it gave us the recession of 2000.  After George W. Bush took office, he rightfully blamed Clinton for the sorry state of the economy.  Then 9/11 happened and the U.S. decided to launch two wars.  In addition to his war spending, Bush maintained all welfare state programs and even added the incredibly costly Medicare Part D.  Somehow, during this time, people were, nevertheless, feeling quite prosperous.  Large new homes were being built at a frantic pace.  People with no jobs were getting low-interest loans.  SUVs were selling as fast as they could be produced.  The government was even sending us checks as “stimulus” and encouraged us to go shopping.

db1

How is it that while the country was mired in two wars and paying more than ever for welfare, people could still spend with impunity?  The Federal Reserve had the money machine going nearly full-blast the whole time**.  This is what caused the crash of 2008 that we are still suffering from today.  Those who understood the Austrian theory of the business cycle saw it coming years before.  The printing of fiat currency does not equal wealth – it only serves to make us all poorer.

Jefferson_ETF

*By the way, no one has ever heard of the depression of 1920-1921.  Why?  Simply because it was over so quickly and the reason doesn’t fit the narrative the advocates of big government would like you to believe.  At the time the panic began to unfold, the advice given to President Harding by his treasury secretary, Andrew Mellon, was to do nothing.  That’s right, NOTHING.  The government, in concert with the Federal Reserve bank caused the problem – to fix it, they needed to back off and allow the market to reallocate resources that were mal-invested during the boom.  Failure to allow the market to reallocate capital through government interference is the reason the Great Depression lasted so long and is the reason why our current recession is lasting so long.

**Now that Ben Bernanke has embarked on QE-Infinity, the money machines really are going full-blast.

This post was inspired by Scott Horton, Lew Rockwell, and Ron Paul.

Insanity

After yesterday’s announcement from the Federal Reserve, Ron Paul issued the statement below.  As usual, he’s right and, as usual, nobody seems to care.  Sooner or later, these guys are just going to have to suck it up and read Rothbard.

No one is surprised by the Fed’s action today to inject even more money into the economy through additional asset purchases. The Fed’s only solution for every problem is to print more money and provide more liquidity. Mr. Bernanke and Fed governors appear not to understand that our current economic malaise resulted directly because of the excessive credit the Fed already pumped into the system.

For all of its vaunted policy tools, the Fed now finds itself repeating the same basic action over and over in an attempt to prime the economy with more debt and credit. But this latest decision to provide more quantitative easing will only prolong our economic stagnation, corrupt market signals, and encourage even more misallocation and malinvestment of resources. Rather than stimulating a real recovery by focusing on a strong dollar and market interest rates, the Fed’s announcement today shows a disastrous detachment from reality on the part of our central bank. Any further quantitative easing from the Fed, in whatever form, will only make our next economic crash that much more serious.

Update (9/15/12):

Here’s some great analysis on the Fed’s announcement from Peter Schiff (the guy who predicted the last crash and wrote the highly recomended book, The Real Crash):

If you’re able to articulate a sound economic reason why the Fed’s policy won’t end in disaster, please let me know in the comments.  I would love to believe everything will turn out fine, I just don’t see how.

Know Your Enemy

It is said that if you know your enemies and know yourself, you will not be imperiled in a hundred battles; if you do not know your enemies but do know yourself, you will win one and lose one; if you do not know your enemies nor yourself, you will be imperiled in every single battle. – Sun Tzu

I decided to take some of Sun Tzu’s advice (or Rage Against the Machine’s if you prefer) and visited the MoveOn.org Facebook page.  It was a painful experience and measurably reduced my optimism for the future.  Once I started reading some of the comments, it didn’t take long to find a lot of hatred directed towards us Liberty types.

Let me try to break this down.  Leftists apparently hate liberty-loving folks because we do not wish to be complicit in their efforts to plunder property in order to execute their ill-conceived schemes.  Libertarians who have studied economics and history realize that these schemes are doomed to fail because the principles on which they are based are faulty and unworkable.  We do not want mistakes that have caused so much suffering in the past to be repeated – for this we are labeled selfish, heartless, or worse.

F.A. Hayek. One of the fathers of Austrian Economics.

The reality is, we don’t ask for anything but to be left the hell alone.  They, in turn, want our property, our obedience, and our lives.  Our resistance to picking up the hammer and sickle on their behalf is, in their eyes, the ultimate sin.  What does this tell you about their character?

Those of us who believe in Liberty and wish to see our fellow man achieve and flourish, unencumbered by a tyrannical state and the people who support it, are the evil ones?  No my friends, your desire to appropriate the property of others with the goal of improving society reveals nothing less than your contempt for economics, history, and human dignity.  Society advances when each actor is free to pursue his own individual interests – not when he is harnessed to your yoke and forced to sow the seeds of his own destruction.

None of this should be taken to imply that I believe Republicans are any better.  I simply find the average Democrat especially noxious simply because they advocate evil but are too ignorant to realize it – on the contrary, they honestly believe that the very things that make them evil are actually virtues.  At least Republicans make little attempt to conceal their corruption – they more or less revel in it.  Just about everyone knows Republicans are creeps, but for some reason, Democrats have been largely successful at marketing themselves as the party that cares.  As usual, facts don’t really matter.  Besides, I think there’s a fairly good chance that the GOP’s days are numbered anyway.  Given Ron Paul’s tremendous success in attracting young people to the cause of Liberty, I think it’s likely that the main rivalry going forward will be Leftists vs. Libertarians.

I created a little flow chart to help you determine if you are an advocate of evil:

Letter to a Political Agnostic

Last week I found myself in a political discussion with an in-law.  I know, bad move, but I honestly didn’t start it!  The next day I received a link to this video from the person I had spoken with:

During our discussion, I felt like I wasn’t given an opportunity to clearly present my position so I wrote the  letter below as a response….

(Spoiler Alert: skip the fourth and fifth bullet points at the end if you haven’t finished reading The Hunger Games trilogy)

Forgive me for sending you so long a letter, which perhaps you did not at all need, but I have long wished to express  my views on this question. I even began a long article about it, but I shall hardly have time to finish it before death comes, and therefore I wished to get at least part of it said. Forgive me if I am in error about anything.

– Leo Tolstoy

There are certain things in life that simply don’t make sense unless you first establish the correct principles or guiding philosophy to explain your observations.  Physics has relativity and Newtonian motion.  As Theodosius Dobzhansky said, “nothing in biology makes sense except in the light of evolution.”  Medicine has the germ theory of disease.  Economics doesn’t make sense unless you understand the framework established by the Austrian School.  By that same token, many of the things politicians do don’t make sense until you start viewing government as a “gang of thieves writ large” (Rothbard).

As I mentioned, my guiding philosophy is the non-aggression axiom, which states that no man or group of men may aggress against the person or property of anyone else except, of course, in self-defense.  As Murray Rothbard explains, the Libertarian political philosophy, which all stems from this statement, is the only one that is consistent:

In current terminology again, the libertarian position on property and economics would be called “extreme right wing.” But the libertarian sees no inconsistency in being “leftist” on some issues and “rightist” on others. On the contrary, he sees his own position as virtually the only consistent one, consistent on behalf of the liberty of every individual.  For how can the leftist be opposed to the violence of war and conscription while at the same time supporting the violence of taxation and government control?  And how can the rightist trumpet his devotion to private property and free enterprise while at the same time favoring war, conscription, and the outlawing of noninvasive activities and practices that he deems immoral?  And how can the rightist favor a free market while seeing nothing amiss in the vast subsidies, distortions, and unproductive inefficiencies involved in the military-industrial complex?

– Murray Rothbard, For a New Liberty

After watching the video you sent, I must admit that I’m somewhat confused.  If you understand what was presented in the video, why was there a disagreement about welfare programs, for example?  The idea that the state can provide security and eliminate risk out of life is, as we agreed, a total fallacy.  The best you can hope to do is to provide a system which enables the maximum opportunities for success.  This has been conclusively proven to be free-market capitalism.

The ideas of socialism/fascism*/collectivism have been widely and thoroughly repudiated. It’s not as though there aren’t enough examples.  Greece is one.  But the world has also had wide-scale, open-air experiments using people of similar education, upbringing, and cultural values called East/West Germany and North/South Korea that demonstrate what scholars such as Ludwig von Mises and F.A. Hayek had been telling us all along – that by necessity, these systems lead to totalitarianism, poverty, and enslavement.  For some reason, the average American believes that to fix our current socialist/fascist* institutions we need more of the same, good and hard.  They believe that somehow we will finally figure out how to accomplish what no other society in the history of civilization has: how to enable everyone to live at everyone else’s expense. (Bastiat)

When we spoke, you were also troubled over Social Security.  Social Security is the very definition of a Ponzi scheme.  What happened to people who were taken in by Bernie Madoff?  They made a bad bet and paid the price.  If someone is betting their retirement on the hope that they will be able to cash out before the scheme implodes, that’s their fault.  Ah, but you say that SS is compulsory, they have no choice – and in doing so, you have just shown why it is immoral and evil.  People who might have otherwise successfully saved or invested the money are at risk of being destitute because the scheme they were forced into, under threat of violence, WILL fail.  At least with Madoff, it was a voluntary transaction.  Oh sure, the government may try to meet their obligations by printing money, but once you go far enough down that road you end up with Weimar Germany or Zimbabwe – plenty of currency that can’t buy anything. (Although, for a variety of reasons this is unlikely to happen, but it’s not impossible.)

A major problem that we have is the ideological inconsistencies of Democrats and Republicans that Rothbard alluded to in the quote above.  Republicans are supposedly for smaller government – although history shows that they have done nothing but expand it greatly – but also want to maintain a belligerent empire.  You can’t have it both ways.  Frankly, arguing about needing more fiscal responsibility and smaller government while supporting an empire and constant war is inconsistent at best and idiotic at worst.  War and militarism are synonymous with a large and tyrannical government.  I have no hope of liberals abandoning their welfare programs – this is how they ensure their constituency.  My only hope is that true conservatives will wake up and realize that you can’t have any of the other things you purport to value while starting wars all over the world.  EVERY empire crumbles – anyone with even a passing knowledge of history knows this.

On the other side, Democrats generally want more welfare programs, and Obama has given it to them while simultaneously expanding the war in Afghanistan, starting another completely illegal one in Libya, and increasing drone strikes in Iraq, Pakistan, Yemen, and Somalia (which have killed far more innocents than combatants creating, according to former General Stanley McChrystal, 10 new enemies for each innocent death).  Leftists like to think of themselves as caring and benevolent people, but let me ask, does this seem like a moral, effective, or even financially viable plan?  It’s easy enough for them to deflect attention away from these unpleasantries, I suppose – all they have to do is buy votes by expanding the welfare state to show just how righteous they are.  At the end of the day, however, their guy is the one that unilaterally decided to execute three American citizens (including a 16 year old) without a trial or even formal charges and maintains a “kill list”, signed the NDAA effectively deleting the 5th amendment, and killed hundreds of innocents via robot.  Besides, it’s considered compassion when you reach into your own pocket to help, not when you reach into someone else’s.  Theft, murder, and cronyism -the hallmarks of both parties.

A10keYHCQAE-Z1o

Endless expansion of welfare and warfare does not a prosperous country make.   Ironically, if the US wasn’t so busy creating enemies around the globe, there might actually be a chance of paying for some of these domestic programs.  The only reason we have been able to get away with all this for longer than some of the EU countries is that we enjoy the privilege of having the world’s reserve currency and the machine that prints it.  Eventually, that won’t be good enough.

And this brings me to the engine that is driving all of the welfare, warfare, debt, and ultimately the country off a cliff: the Fed.  The Federal Reserve Bank, untethered by a gold standard, is free to create as much currency as they want all so that some politician can start wars, buy votes, redistribute money to favored industries or constituencies, bail-out and/or nationalize “too big to fail” firms, or all of the above.  Since the Fed’s creation in 1913, the dollar has lost over 97% of its value.  The founding fathers knew this would happen and that’s why the Constitution does not allow a central bank.  It’s also why the first two times it was tried it was dissolved.  There are many reasons why you can’t call our current economic system free-market capitalism, but the most important is the Fed’s manipulation of the money supply prevents the rational decision-making required in a free market.  He who controls money controls the economy.

When I said, “either you believe in Liberty and freedom or you don’t,” you said I was making the issue black and white.  I contend that this is not an over simplification.  The moment you accept the principle the that government has rights that we do not have as individuals – to enslave people (and call it conscription), steal from people (and call it taxation or inflation), counterfeit money (and call it monetary policy), murder people (and call it foreign policy) – you can justify virtually any expansion of this power, as we have seen throughout our own history and indeed world history.  Every government wants to become totalitarian – it is in their nature.  The only thing that restrains them is the unwillingness of the people to go along with their power-grabs.  This changes during times of crisis when the people clamor to be led to safety.  As Obama’s former chief of staff Rahm Emanuel famously stated, “You never want a serious crisis to go to waste.”  This is why there is always a war to be fought or bogeymen to hunt.  Freedom and Liberty can only survive with unwavering dedication to their principles.

By the way, what were your takeaways from “The Hunger Games” trilogy?  In my mind, that trilogy is basically an anti-war, anti-government, libertarian manifesto:

  • Kids, without any mutual grudges, are forced to kill one another to effect a consolidation of power within the governing elite – i.e. war.
  • Districts are pitted against one another as a form of the age old imperial tactic of divide and rule – i.e. destabilize the middle east and let the various sects fight it out.
  • When the citizens are allowed to insert additional instances of their name into the tribute lottery in exchange for grain, it is a form of welfare and equates to slavery and death.  Katniss’ self-reliance and resourcefulness means freedom and life.
  • The Capitol and District 13 represent the logical conclusions of right-wing and left-wing ideologies, respectively.
  • Prim’s death was described almost exactly like the US drone strikes on first-responders in Pakistan.

I know by now you are probably thinking, “this guy is crazy.”  To that charge, I answer with a quote from Homer Simpson: “In a world gone mad, only a lunatic is truly insane.”

*When I use the term “Fascism”, it is not hyperbolic.  It’s true that this is typically a term of derision in our lexicon, however, it does represent an actual economic system that describes what we currently have better than anything else.