Month: June 2012

The Value of Fiat Currency

Fiat is Latin for “it shall be.” Fiat currency is money that has value because the state says it shall have value. This is the opposite of a commodity backed money. Commodity backed money is money that is backed by a good, which is said to have intrinsic value. Intrinsic means belonging naturally. Intrinsic value means the value of a good is held within the good itself.

Thus people, including myself, often claim that fiat currency has no actual, or intrinsic, value. After a great deal of consideration I believe that statement is wrong, fiat currency does have intrinsic value under the state. Under United States code:

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

In other words one must pay off their public changes and taxes in government issued money (technically you a debt holder must accept fiat currency in payment on the debt but you could use other forms of payment if both parties agree to it so that’s a separate case).

We must now consider what happens if one fails to pay their taxes or other charges brought about by the government (fines, etc.). If you fail to pay your taxes, fines, etc. you will generally be kidnapped by a state agent and brought to a court. At the court it will be decided what is to be done with you, usually it involves a jail sentence, garnishing of wages, or other form of punishment. If you refuse to comply with your kidnapper you will have force brought against you, and deadly force may be used if you resist sufficiently. Ultimately the result of not paying taxes, fines, etc. is force bring brought against your person.

Under United States law the only form of payment that the state will accept for taxes, fines, etc. is government issued money, which is all fiat currency issued by the Federal Reserve. In order to avoid violence being brought against you by the state you must hold their issued fiat currency, ergo people desire fiat currency as a means of avoiding violence. In effect fiat currency is similar to firearms, many people buy firearms to protect themselves from violent individuals.

Avoiding violence, like anything else, has a subjective value. Some people will go to greater lengths to avoid violence than others. Most people facing the option of starvation or violence will take violence as it is still preferable than death. Thus a person may spend their last dollars to buy bread while knowing it means they will be unable to pay their taxes tomorrow. Other people value the principle of not submitting to tyranny so highly that they won’t pay taxes, instead they will subject themselves to kidnapping and imprisonment. To such a person fiat currency may have no value at all.

Thus I believe saying fiat currency is without value isn’t entirely accurate. Under a state fiat currency contains within it the ability to avoid state violence and thus it can be said that fiat currency does have an intrinsic value under specific conditions. It would seem technically accurate to me to say fiat currency is the value of avoiding violence.

Alan Turing’s 100th Birthday

Alan Turing, who was basically the father of computer science, would have been 100 years-old today.

For those who don’t know the name Alan Turing he was British mathematician who developed methods of breaking German cryptography during World War II. After helping the Allies win the war Turing turned to developing one of the first stored program computers. What did this genius receive? Chemical castration because he was a homosexual. Even though he helped defeat Nazi German his government could look past the fact that he preferred other men in his bed than women. Eventually he was pushed to suicide due to the way he was treated.

His story is one of amazing accomplishments and sad tragedy. Without him it’s quite possible that you wouldn’t be reading this blog right now for no computer would exist.

Some Economists are Simply Insane

They say a sign of insanity is doing the same thing over and over again while expecting different results. By that definition many of today’s so-called economists are insane:

Inflation occurs when there is too much money chasing too few goods. Deflation occurs when there is not enough money. For years, inflation alarmists have been forecasting runaway prices as a result of the Fed’s efforts to expand the money supply. But prices have remained stable, with the Consumer Price Index down last month and up just 1.7 percent in the past year.

There is so much wrong with this paragraph that I’m not entirely sure where to begin. First of all the Consumer Price Index (CPI), which is used to “measure” inflation, is crap:

The first thing to keep in mind is that the CPI is not an economic variable. It is a statistic that at best gives an inaccurate picture of an economic phenomenon: inflation. To calculate the monthly CPI, the USDepartment of Labor takes a weighted average of prices of various things that consumers purchase, and then its statisticians try to figure out the various proportions of different items in a “mythical” household budget. For example, the statisticians may hold that housing costs are 30 percent of household expenditures, food costs 20 percent, gasoline another 15 percent, and so on.

Armed with the proportional spending of the “average” household, the statisticians then assign that percentage to price changes of each item. Obviously, the higher the percentage of a household budget for a certain item, the more “influential” that item may be. For example, if gasoline prices rise sharply, then those particular price increases are seen as “fueling inflation” (no pun intended).

CPI isn’t some kind of fixed economic variable, it’s a statistic. Statistics is the best mechanism available to lie through numbers. A practically infinite number of variable can be manipulated to get the result you want. Do you want to make it appear as though the rate of inflation is minor? Simply give less weight to items that are increasing in price such as gasoline and food. Do you want to make it appear as though the rate of inflation is actually negative? Give more weight to items that exist in a mostly free market, such as electronics, since their prices generally trend down overtime. Do you want to show a massive increase in the rate of inflation? Give the more weight to food and gasoline.

Let’s talk about inflation. According to the article author, inflation means there is too much money in circulation. That’s not an accurate definition:

As economists and others of the Austrian School understand, inflation occurs when the value of money declines relative to the goods and services it can purchase. In other words, inflation is a monetary phenomenon, not a price phenomenon. Prices go up because inflation is happening, not the other way around.

Putting more money into circulation causes the value of that money to decline because it is less scarce. That value can also be affected by other things. What would happen if the oil producing nations in the Middle East decided they no longer valued American dollars and demanded all payments for oil be made in gold? We would see the value of the dollar plumet while the value of gold would jump.

The third point I want to address is the claim by the author that, according to CPI, inflation was up by just 1.7 percent. If, as the author claims, inflation is caused by too much money entering the market then any inflation rate above 0 would indicate the money supply must be retracted.

His remark about the low rate of inflation combined with his remark about inflation being caused by too much money in circulation also means he has admitted, indirectly, that he wants to rob holders of dollars. He admitted that inflation is the result of too much money in circulation, he admits that there is inflation meaning that there must be too much money in circulation now, and he wants the Federal Reserve to inject more money into the system. Since there is already too much money in the system a further increase in the money supply can only result in more inflation, meaning that current holders of dollars will be able to purchase less. By the author’s own statement he is advocating the state steal purchasing power from people who current hold dollars.

The author then moves on to use another set of numbers of prove his claim:

Don’t believe the official numbers? The Billion Prices Project at MIT says that lately inflation is actually lower than the government estimates.

That’s interesting, because last year the Billion Prices Project showed that inflation was higher than CPI:

The price of everything seems to have skyrocketed. Only housing, the dollar, and inflation-adjusted income are negative. World food and commodity prices are up 28 percent over the last 6 months. The MIT “Billion Prices Project” confirms that prices have been surging higher than indicated by the consumer price index. Entrepreneurs tell me that big price increases are already planned for everything from vegetables to blue jeans.

In fact, if you look at the data, the correlation between MIT’s Billion Prices Project and CPI is nonexistent. Often the rate of inflation according to the Billion Prices Project is higher than CPI and often the rate of inflation according to CPI is higher than Billion Prices Project.

Regardless of that fact the author still admits that according to the Billion Prices Project there is still inflation, which indicates that there is too much money chasing too few goods and services already.

The stupid doesn’t stop there:

The commodity price index is down 7 percent from a year ago. Home sales have been tepid despite mortgage rates lower than anyone could ever have dreamed.

Funny thing about home sales, there was a recent crash caused by a Federal Reserve created bubble. Home sales were through the roof a short while ago, before everybody started losing those houses. On top of that actual unemployed is hover over 20 percent so nobody could afford a new home even if you inject a few trillion more dollars into the economy. More money in circulation doesn’t help those who don’t have jobs to acquire that money.

The central banks have performed three rounds of quantitative easing (basically printing money) already and we’re still in a rut. How is printing more money going to magically cure our economic woes? If printing money fixed economic problems then the Weimar Republic should have been the epitome of economic health when it decided to try printing its way out of debt. Instead they experience hyperinflation, their economy tanked even harder, and the Nazi Party was able to sieze control of Germany.

Every nation that has attempted to print its way out of debt has experienced nothing by hardship. Printing money doesn’t work, it can’t work. When you hear somebody say the problem with our economy is the fact that there isn’t enough money in circulation just walk away because you’re dealing with an individual that has no understanding of economics.

Socialized Medicine

Yuri Maltsev is one of my favorite contributors at the Ludwig von Mises Institute. He lived in the Soviet Union and was one of the members of Gorbachev’s team that was looking into economic reform. Unlike many critics of the Soviet Union, Yuri lived there and thus has firsthand experience. Part of the The 30 Day Reading List that will Lead You to Becoming a Knowledgeable Libertarian includes Maltsev’s article that discusses socialized medicine:

In 1918, the Soviet Union became the first country to promise universal “cradle-to-grave” healthcare coverage, to be accomplished through the complete socialization of medicine. The “right to health” became a “constitutional right” of Soviet citizens.

The proclaimed advantages of this system were that it would “reduce costs” and eliminate the “waste” that stemmed from “unnecessary duplication and parallelism” — i.e., competition.

What happens when you remove competition from a market? The market stagnates. The Soviet Healthcare system was a wreck and far behind the technological and basica sanitary conditions of other industrialized nations:

The system had many decades to work, but widespread apathy and low quality of work paralyzed the healthcare system. In the depths of the socialist experiment, healthcare institutions in Russia were at least a hundred years behind the average US level. Moreover, the filth, odors, cats roaming the halls, drunken medical personnel, and absence of soap and cleaning supplies added to an overall impression of hopelessness and frustration that paralyzed the system. According to official Russian estimates, 78 percent of all AIDS victims in Russia contracted the virus through dirty needles or HIV-tainted blood in the state-run hospitals.

Irresponsibility, expressed by the popular Russian saying “They pretend they are paying us and we pretend we are working,” resulted in appalling quality of service, widespread corruption, and extensive loss of life.

Everything humans, and every other creature on the planet, does is done in self-interest. Collectivists do not like this idea and instead try to encourage people to perform acts of altruism instead of acts of self-interest. This is where the collectivist philosophy hits a wall since acts of altruism ultimate have to be based on self-interest.

Medical professionals weren’t hardly motivated to do their best since the pay they were receiving didn’t match the work they were supposed to perform. Instead of providing healthcare altruistically, the medical professionals fo the Soviet Union apathetically stood aside as people died… unless they were paid by the patients:

In order to receive minimal attention by doctors and nursing personnel, patients had to pay bribes. I even witnessed a case of a “nonpaying” patient who died trying to reach a lavatory at the end of the long corridor after brain surgery. Anesthesia was usually “not available” for abortions or minor ear, nose, throat, and skin surgeries. This was used as a means of extortion by unscrupulous medical bureaucrats.

Isn’t it strange how medical care could be found if one was willing to pay? There was another exception as well, if you were an employee of the state:

Not surprisingly, government bureaucrats and Communist Party officials, as early as 1921 (three years after Lenin’s socialization of medicine), realized that the egalitarian system of healthcare was good only for their personal interest as providers, managers, and rationers — but not as private users of the system.

So, as in all countries with socialized medicine, a two-tier system was created: one for the “gray masses” and the other, with a completely different level of service, for the bureaucrats and their intellectual servants. In the USSR, it was often the case that while workers and peasants were dying in the state hospitals, the medicine and equipment that could save their lives was sitting unused in the nomenklatura system.

Marx’s theory always fell apart around the whole “eventually the all powerful state will dissolve and the communist society will be left in the socialist society’s place.” Power corrupts and the more power that is available the more it corrupts. The problem with socialism is the fact that it relies on an all powerful state to control everything. Ideally the state educations people on the wonders of communism and brings in the next era of human society, in reality corrupt power hungry psychopaths seek the positions of power and use them to rule over the proletariat.

The Soviet Union was a classic example of this fact. There were two classes in the Soviet Union, not bourgeoisie and proletariat as Marx claimed, but the state and everybody else. If you were part of the state you received better food, medical care, transportation, alcohol, etc., while everybody else suffered long breadlines, deplorable healthcare, a horribly dilapidated transportation system, poor liquor, etc.

What did socialized medicine get the Soviet Union? Horrible infant fatality rates for starters:

At the end of the socialist experiment, the official infant-mortality rate in Russia was more than 2.5 times as high as in the United States and more than 5 times that of Japan. The rate of 24.5 deaths per 1,000 live births was questioned recently by several deputies to the Russian Parliament, who claim that it is 7 times higher than in the United States. This would make the Russian death rate 55 compared to the US rate of 8.1 per 1,000 live births.

OK, the Soviet Union falled to provide proper medical care. What about the medical paradises of other nations that have implemented socialized medical care? We all know that places like the United Kingdom (UK) have far better medical care than the United States because the healthcare industry in that country is socialized, right? Wrong:

In “civilized” England, for example, the waiting list for surgeries is nearly 800,000 out of a population of 55 million. State-of-the-art equipment is nonexistent in most British hospitals. In England, only 10 percent of the healthcare spending is derived from private sources.

Britain pioneered in developing kidney-dialysis technology, and yet the country has one of the lowest dialysis rates in the world. The Brookings Institution (hardly a supporter of free markets) found that every year 7,000 Britons in need of hip replacements, between 4,000 and 20,000 in need of coronary bypass surgery, and some 10,000 to 15,000 in need of cancer chemotherapy are denied medical attention in Britain.

Age discrimination is particularly apparent in all government-run or heavily regulated systems of healthcare. In Russia, patients over 60 are considered worthless parasites and those over 70 are often denied even elementary forms of healthcare.

In the United Kingdom, in the treatment of chronic kidney failure, those who are 55 years old are refused treatment at 35 percent of dialysis centers. Forty-five percent of 65-year-old patients at the centers are denied treatment, while patients 75 or older rarely receive any medical attention at these centers.

Socialized medical systems have a major issue, shortages of critical medical supplies and technologies. Shortages are unavoidable, it’s a harsh reality that manifests in the fact that there is only a limited amount of resources on the planet. By resources I mean not only the chemicals that are used in the production of medicine but also the labor. Research and development isn’t easy and people need a way to know what is needed and what isn’t needed by society. The government tries determining such things by toiling over statistics, gathered data, and future predictions. Markets accomplish this through the price mechanism. If the price of something goes up is indicates there is a greater demand than supply so companies, hoping to cash in on the profits, start producing more of that thing.

The state doesn’t work on the price mechanism, they don’t receive profits from selling goods and services, so when they see a shortage they merely started regulating who gets access. Suddenly society is divided into groups that receive priority on medical care. If you’re elderly you’ll find yourself without treatment, unless you go to another country that has some semblance of a free market in healthcare and buy your medical needs. Collectivists decry free market medicine because the “poor” have to go without, but the exact same problem occurs under socialized medicine with the exception of who is made to go without. Of course free markets are usually able to take care of the “poor” through mutual aid, which is an option that isn’t usually available in under socialized medicine because mutual aid societies get legislated out of existence due to their “inefficiency” and “parallelism” with state controlled healthcare.

What about the paradise of Canada? Turns out that it’s not as much of a paradise as people make it out to be:

In Canada, the population is divided into three age groups in terms of their access to healthcare: those below 45, those 45–65, and those over 65. Needless to say, the first group, which could be called the “active taxpayers,” enjoys priority treatment.

The state, like individuals, works off of self-interest. If you’re an active taxpayer you get preferential treatment, if you’re collecting welfare or otherwise costing the state money you get substandard treatment.

Socialized healthcare is yet another ploy by the collectivists to hand power over to the state. History has proven it to be a bad idea time and time again but they refuse to listen. In their eyes self-interest is evil and thus they must abolish self-interest. It never dawns on them that their act of abolishing self-interest is an act of self-interest in of itself. They don’t see that they are the thing they claim to be fighting. Because they can’t bring themselves to face such a reality they continue pushing the same ideas that have historically failed. Don’t fall for the ploy the socialized medicine is a good thing, it’s not.

Gratitude

I post a lot of stories about police officers acting like total dicks but once in a while the tables are turned and it’s the police officer who is in the right and the average person who is acting like a total dick:

he was grabbed by a desperate parolee and who held her with a knife to her throat in Woodbridge Center Mall until a police officer shot and killed the man.

Good on that police officer, he likely saved the woman’s life. Obviously she’s grateful for the police officer’s actions… or not:

Now the woman, Ellen Shane, 62, of Carteret, plans to sue the township for $5 million, claiming it failed to protect public safety and that she was injured as a result of the officer’s acts.

Both Shane and her husband, Ronald Shane, “are suffering from post traumatic stress syndrome and both have been dramatized from this incident,” according to the tort claim notice filed by their lawyer, David Corrigan of Eatontown.

What an ungrateful little prat. A random goon puts a knife to her neck, the police officer shoots the knife wielding asshole, and now that woman is suing the city because she suffered “post traumatic stress?” Would she have been happier if her throat had been slit? Post traumatic stress syndrome sucks but being dead sucks a whole lot more. You also have to love this:

Court papers filed with the township state Garcia told the officer he would harm Ellen Shane if not allowed to leave.

“Instead of attempting to resolve the situation, Barrett took out his gun and shot the suspect while he was holding Mrs. Shane,” the paper states.

Actually, I’d say the officer resolved the situation rather effectively.

I Love the Free Market

The free market works on competition. Established producers must continue to innovate in some way to keep themselves relevant while new producers must innovate in order to convince consumers to buy their products instead of the products being produced by the established producers. Personal electronics are one of the freer markets in the world, which is why we enjoy every improving cheaper products:

Just look at all those drives under a dollar per gig. The higher-capacity models offer the best value in virtually every family. Although the 40-64GB variants don’t look quite so good on this scale, they have asking prices under 100 bucks.

Solid State Drives (SSD) are becoming cheaper while their capacities are increasing. We can now get more for less than what we had to pay a few short years ago and the trend will continue. This news pleases me because the only reason I haven’t gone to SSDs is the price to capacity ration, I want more capacity and it’s simply too expensive for me to get what I want with an SSD. A year or two from now SSDs will likely have the capacity I’m looking for at a price I’m willing to pay and then I will jump on board.

I just wish all markets were as free as personal electronics.

They Have to Keep the Voters Happy

At the beginning of this year I discussed the state of North Carolina’s plan to pay the victims of its forced sterilization program $50,000 each. Although I found the story disgusting before it has managed to get worse:

Victims of forced sterilisation in the US state of North Carolina will not get compensation, after a payout plan failed in the state Senate.

A plan to give $50,000 (£31,800) to each victim passed the House but was rejected in the Senate. Republicans said the state did not have the funds.

[…]

“The state has no money anyway and the teachers would like to have a pay raise, and state employees would like to have a pay raise and you’re dealing with a $250 million shortfall in Medicaid,” Senator Austin Allran said.

It must be nice being the state. First you get to forcefully sterilize those you don’t approve of, then you get to control the court that determines how evil your actions were, and then you get to throw that court decision out the window because you need to buy votes in the upcoming election.

How are they buying votes with this action? Easy, they openly mentioned that there are state employees who would like to have raises. In any private business if a court decision lead to a payout that hampered employee raises it would me the employees would simply have to go without raises that year. The state doesn’t have to worry about such minor details because they can choose to ignore court rulings and give their employees pay raises so those same employees don’t vote the current crooks out of office.

This is how the system works, what’s politically convenient is allowed to happen and what’s politically inconvenient is stopped from happening.

The Biggest Opponents of Capitalism are Often Capitalists

Ideally capitalism is a system of voluntary transactions. Unfortunately we don’t live in an ideal world and often those who profit the most from capitalism are also its biggest opponents:

In the 1940s, Joseph Schumpeter said that the capitalists would ultimately destroy capitalism by insisting that their existing profitability models perpetuate themselves in the face of change. He said that the capitalist class would eventually lose its taste for innovation and insist on government rules that brought it to an end, in the interest of protecting business elites.

While socialists often talk about profits eventually ending up in the hands of a mere few capitalists the truth is this couldn’t happen without the state’s involvement. Profits are a temporary phenomenon unless a coercive monopoly can be established. The reason for this is simple, when people see somebody making great profits they want a piece of the action and start a competing enterprise in the same market. When Henry Ford started raking in money others wanted a piece of the action and we ended up with competing companies such as Chevrolet. Chevrolet offered options that Ford didn’t, like an engine with more than four cylinders and automobiles that came in colors other than black. People wanting a six cylinder engine in a blue car now had an option and Ford found its profits dwindling as automobile buyers started going elsewhere. In the end this sparked great advancements in the automobile industry as each company tried to outdo the other, consumers won in the end.

Fast forward to today. The digital age have turned formerly scarce goods like music, movies, and literature into infinitely creatable bits. This change has caused problems for record companies, movie producers, and book publishers because their services are becoming obsolete. Instead of looking into new ways to innovate and profit they have turned to the state to protect their decrepit business models. Organizations like the Record Industry Association of American (RIAA) and the Motion Picture Association of American (MPAA) have been lobbying the state for more draconian copyright laws and stricter enforcement. The capitalists have become the ones trying to destroy capitalism.

As the article I linked to explains the Internet wasn’t the first creation to send established producers into a panic. Televisions were supposedly going to destroy live performances, cassette tapes were supposedly going to destroy album sales, and way back in the day the printing press was supposedly going to destroy new literature. None of these things have panned out and future claims of goods being destroyed by new technology won’t pan out either.

Mission Creep

It appears that the Department of Homeland Security (DHS) has expanded their mission:

A 70 million-year-old Tyrannosaurus Bataar, unearthed in the Gobi Desert, is to be seized by the US Department of Homeland Security.

Unless that Tyrannosaurus Rex skeleton is somehow linked to a terrorist organization I’m at a complete loss on why DHS is the one doing this. Wouldn’t this be something local law enforcement or the Federal Bureau of Investigations (FBI) should be doing?