Category: Economics

Tales of the Bloody Obvious

In order to get people to believe the state is wise they were trying to make us believe the bailouts were a great idea because they would make the United States money. Guess what? They lied (shocking, I know):

US taxpayers are unlikely to get all their money back from a $700bn (£432bn) bailout of the country’s stricken banking and automotive sectors, according to a report.

[…]

The Office of the Special Inspector General for Tarp has published its latest report to Congress.

It said: “After three-and-a-half years, the Tarp continues to be an active and significant part of the Government’s response to the financial crisis.

“It is a widely held misconception that Tarp will make a profit. The most recent cost estimate for Tarp is a loss of $60bn. Taxpayers are still owed $118.5bn.”

This was the only possible outcome. In the business world failing is a sign that the business was not fulfilling the wants of enough individuals. When this happens there are only two options: change the business or face insolvency. At least in a free market those are the only two options, when the state gets involved there is the third option of receiving stolen money. That third option removes responsibilities from politically well-connected entities. They know failure isn’t a big deal because their friends in the political body will merely hand out some money and all will continue… for a while. Eventually the house of cards collapses as the number of bad decision makers increase and the state is no longer able to shovel enough money to keep their friends afloat.

When a company fails it’s time for it to go away. If it looks possible to turn around a failing business then investors will enter the game, if it doesn’t look possible then investors will stay out of the game. Investors, unlike the state, earn their money by giving capital to those who look like capable money makers so they’re more careful who they invest in. Sometimes they make bad investments and, like any other service provider, when they make too many bad decisions they have to exit the capital market when their money runs out.

It’s too bad the same conditions don’t apply to the state. If the state had to go away when it ran out of money we’d have rid ourselves of the federal government ages ago (and quite a few individual state governments as well).

According to Krugman We Need More Inflation

Paul Krugman decided to make a fool of himself again by claiming we don’t have enough inflation. The man is an idiot but I repeat myself. Thankfully the boys over at the Mises Institute website called Krugman out on his idiotic rambling:

In an Austrian framework, as in a natural-rate-of-unemployment model, monetary expansion and a low (relative to the natural rate) interest rate may increase employment; the policy may appear to succeed. But, as Hayek and Mises emphasized long before the development of modern macroeconomics, the employment created by stimulus, whether monetary or fiscal, and whether implemented when an economy is near full employment or initiated at a point where significant unemployed resources are available (Hayek 1939 and Ravier 2011) is unstable. Such employment, if it is to be maintained, will require ever-increasing distortions to the spending stream. A policy that uses inflation to generate employment hence contains the seeds of a return to stagflation, and if continually attempted every time unemployment begins to increase, ultimately, to the choice whether to end the inflation or move forward on a wrong path to a eventual crack-up boom.

[…]

More inflation now would just repeat the mistake, trading some lower unemployment now for more unemployment and more inflation in the future. To avoid holding a tiger by the tail avoid inflation now. The crisis and slow recovery should not be an excuse to revive failed Keynesian policies but instead to examine critically a denationalization of money.

Krugman continues to be the idiots’ goto person for economic advice. Mind you the man has been wrong about almost everything he’s stated.

Let’s consider inflation for a moment. Very few people ever take the time to analyze what inflation is, they usually just accept it as a natural thing that happens and is unavoidable. Inflation is theft performed by the state, plain and simple. Scarce goods have a tendency to be worth more than abundant goods and money is no different. If there exists only 100 ounces of gold in the world then each ounce is going to be valued extremely high whereas if gold was as abundant as water nobody would give it much thought. The United States dollar is similar, when the state prints more of them each dollar becomes less valuable as they are now more abundant. The inflation of the United States dollar is directly controlled by the state who could choose never to expand the supply and thus save those holding dollars from having that holding constantly devalued. Instead the state prints money willy nilly, which devalues the value of dollars and thus punishes those who hold them.

Why does the state do this? Easy, their cronies don’t suffer the affects of inflation. Inflation of the dollar doesn’t kick in until those dollars begin to circulate. The first receiver of newly printed dollars actually has more purchasing power since the supply hasn’t increased as those dollars haven’t begun circulating. Once the first receiver spends those newly printed dollars they being entering circulation and that is when they devalue already circulating dollars. Basically, if you’re the first receiver of newly printed dollars you have a tremendous advantage and the first receivers are those politically well-connected. It’s a corrupt little system where politicians can exchange purchasing power for whatever it is they desire at the expense of everybody else.

This is why it’s smart to convert your dollars into something valuable. Every day you hold a dollar its purchasing power is reduced. Keynesian economists like Krugman claim constant devaluation of money urges people to spend it more quickly and that somehow is better for the economy. What those idiots don’t see is that inflation discourages individuals from saving money to be invested in larger projects down the road. Instead of relying on debt individuals would have the option to save their money unti they have enough to make a big purchase such as a home or factory.

When Krugman says we need more inflation he really means we need more theft. What he advocates is stealing purchasing power from individuals who hold savings of any amount. Policies like this encourage debt spending. Why save money to purchase a television if that money is constantly going to be worth less and less? Why not just put that purchase on a television and repay the debt over time with constantly devaluing money? Keynesian ideas are what got us into our current economic mess and if we continue following those ideas we’ll be in complete economic collapse before we know it.

Italy Joining Greece

Watching the European Union slowly crumble is an unfortunate but inevitable thing. First Greece’s economy collapses and now Italy is moving to join them. Italy has already cut spending a minor amount and that means entities previously receiving government money are pissed:

A museum in Italy has started burning its artworks in protest at budget cuts which it says have left cultural institutions out of pocket.

Antonio Manfredi, of the Casoria Contemporary Art Museum in Naples, set fire to the first painting on Tuesday.

“Our 1,000 artworks are headed for destruction anyway because of the government’s indifference,” he said.

The work was by French artist Severine Bourguignon, who was in favour of the protest and watched it online.

Mr Manfredi plans to burn three paintings a week from now on, in a protest he has dubbed “Art War”.

A scorched Earth policy never really accomplishes much. Honestly, these individuals are probably making the life of Italy’s future fascist state easier by burning much of the art before the state decrees it to be done. Either way I’m not sure how destroying art is going to make an argument that museums need more money, I would say it’s probably time to get any important works of art out of the museums before some asshole torches them (and without pieces of art nobody is going to go to a museum so they’ll receive even less money). On top of the hissy fits being thrown by those who used to receive government money Italy has also admitted it won’t be able to balance the budget by 2013:

It was previously predicting a 0.4% contraction in the economy, but has cut that to a 1.2% contraction.

The government has also admitted that it will not be able to meet its target of balancing the budget by 2013.

It now says that it will be able to balance the budget by 2015, which is still more optimistic than the IMF, which says Italy will not have a balanced budget until at least 2018.

The only ways to balance a budget are to spend less money of bring in more money. This means Italy will either have to take funds away from more entities or increase the amount of money they steal from the people in the form of taxation. No matter what route the Italian state choose people are going to be pissed. That’s the kicker about government programs, eventually the state runs out of peoples’ money to steal and reality must be faced. It’s far better for everybody involved when the state doesn’t get involved in anything. Another interesting story coming from Italy that could be a sign of dire times is the rise in Italy’s gold exports:

Italian exports of gold ingots to Switzerland have soared in recent months, data has shown.

Exports to Switzerland were 35.6% higher than in February 2011 “mainly because of sales of non-monetary raw gold”, statistics agency Istat said.

This could mean any number of things. One possible reason people are buying Italian gold is because they’re trying to liquidate their holdings of Italian bonds or currency. Since Italy uses the Euro it’s most likely the former. If the Italian state is looking to go into insolvency it’s best to rid yourself of any Italian state assets, like bonds, while they’re still worth something. With the collapse of the euro looking more likely it would be foolhardy to convert those soon to be worthless Italian bonds into soon to be worthless euros. Thus converting those soon to be worthless Italian bonds into gold, which has traditionally held its value, is a much better option.

Italy is looking to be the second Greece.

Reallocating Misallocated Resources

One of my friends made a comment on Facebook regarding some pens being sold for $25.00 a piece. Why would a pen be worth $25.00? Because, according to the marketing material, the pens are designed for spinning. As you can guess, my friend believes this demonstrates the stupidity of high schoolers. I, not being normal, looked at the product and saw, not just stupid high schoolers, but also a brilliant entrepreneur who serves a great purpose.

What purpose could such an individual serve? The same purpose as the developer of I Am Rich, the now pulled iOS app that was priced at $999.99 and served no practical function, to reallocate misallocated resources. Most people would say that a person willing to buy a $25.00 pen developed for spinning doesn’t deserve that $25.00. Thankfully people like the pen designer exist to take that money and put it somewhere else.

The entrepreneur receives profit for his job of reallocating the misallocated resources and the remaining money goes to paying employees and to cover manufacturing costs. Instead of that $25.00 sitting in the pocket of a high schooler it is now sitting in the hands of many people involved in the manufacturing process of that pen. Capitalism is a beautiful system.

When Currencies Collapse

The problem with fiat currency is the fact it doesn’t have any intrinsic value. Worth of fiat currencies, like the United States dollar, is judged entirely on the decree of the issuer. For example the $5 bill is worth $5 only because the state, which issues the currency, says it’s worth $5. On the other hand commodity based currencies hold intrinsic value, they have actual worth through their utility. If a culture decides to base its currency on wheat, probably not the best commodity to use as it spoils but that’s beside the point, each currency unit would be a fixed amount of wheat. Let’s call this hypothetical currency the Whollar (wheat dollar because I’m super creative), and each Whollar is fixed at 1 pound of wheat. If you take your Whollars to a bank you can exchange them for their value of wheat, so taking 100 Whollars to the bank would result in you walking away with 100 pounds of wheat. Since wheat is a staple foodstuff it has actual value in its utility.

Fiat currencies are easily manipulated but fail to hold value once trust in the currency is lost. While the state may say the $5 bill is worth $5 sellers in the market place may assign it a value of zero. Once faith in a fiat currency is lost it no longer because usable for the exchange of goods and at that point real trade resumes. The faith most people hold in Greek money has vanish and in its place comes the return of barter:

In recent weeks, Theodoros Mavridis has bought fresh eggs, tsipourou (the local brandy: beware), fruit, olives, olive oil, jam, and soap. He has also had some legal advice, and enjoyed the services of an accountant to help fill in his tax return.

None of it has cost him a euro, because he had previously done a spot of electrical work – repairing a TV, sorting out a dodgy light – for some of the 800-odd members of a fast-growing exchange network in the port town of Volos, midway between Athens and Thessaloniki.

In return for his expert labour, Mavridis received a number of Local Alternative Units (known as tems in Greek) in his online network account. In return for the eggs, olive oil, tax advice and the rest, he transferred tems into other people’s accounts.

The only common item everybody has to make exchanges is their labor and the reason people make exchanges is to fulfill wants. Why would I work for two hours programming a computer in exchange for something that won’t allow me to fulfill my wants? If United States dollars or euros won’t buy me food, shelter, and clothing then they are of no use to me. On the other hand I can directly exchange my labor for those wants.

Bater isn’t ideal as it can be complicated but it’s far better than exchanging your goods and services for worthless paper that won’t buy you similar goods and services due to inflation and lack of faith in the currency.

As fiat currencies continue to collapse we’re going to see more people resorting to barter.

Some Hero

HAHAHAHAHAHA! My god this is just too much:


Picture nabbed from Facebook

If he’s the hero I don’t even want to meet the enemy. Actually if Bernanke is the hero then a successful free market must be the enemy, so perhaps I do want to meet the enemy. Saying Bernanke fixed the global economy is a perfect case of rewriting history, especially considering the global economy is still circling the toilet bowl.

Tax Returns

After getting my taxes done (I don’t wait until the last minute) I was alerted that, once again, I overpaid and therefore will get a return. Most people are overjoyed by receiving a tax return, I’m not. Why? Because getting a tax return indicates that you paid the government more money than you were forced to, you basically gave them a negative interest loan. Yes, I said a negative interest rate loan, not a zero interest rate loan as most people state.

When you give a zero interest rate loan you’re repaid the same purchasing power as you originally loaned out. Inflation, being a hidden form of theft, ensures you receive less purchasing power than you overpaid. Let’s say inflation was at 10% between 2011 and 2012 and you overpaid by $1000.00. Since inflation devalued your money by 10% the purchasing power you received back through your 2012 tax return is only $900.00. Of course inflation was more than 10% between 2011 and 2012 so my example actually paints a rosier picture than that inflicted by reality.

Getting a tax return means you’re getting back less than you overpaid. Inflation is one of the most insidious forms of theft by the state because most people don’t outright see it and therefore forget about it entirely (most people also don’t realize that inflation is caused by state manipulation of the currency and therefore is a form of state theft).

The Propaganda Arm of the Federal Reserve

I didn’t know this but it looks like the Federal Reserve has its own propaganda arm. The site includes games to indoctrinate children in kindergarden, publications full of economic falsehoods, and even lesson plans for teachers who want to get the kids believing in planned economies early.

I wonder how much funny money the Federal Reserve printed up to pay for this site? After digging through the site for a better part of an hour I can say that it contains no actual educational material. So far I haven’t found a single document explaining how the Federal Reserve’s printing of money causes inflation, which reduces the value of each person’s currently held dollars and therefore is nothing more than legalized theft. No document explains how the Federal Reserve has been bailing out European banks in secret. Hell, the name Ludwig von Mises and Murray Rothbard doesn’t appear on the site anywhere, without referencing their material you can’t even teach economics properly.

What really gets me is the fact this site was funded through ill gotten means. The Mises Institute, which actually provides economic education, is entirely funded through voluntary donations and transactions.

Refutations to Common Objections to Capitalism

It’s not secret that I’m a big fan of capitalism. My reasoning is simple, the only alternative to capitalism is violence. That fact seems to be lost on collectivists who blame capitalism for every problem under the sun even though they don’t actually know what capitalism is (most of them believe it’s the economic system in the United States, which is actually cronyism and closer matches mercantilism than capitalism). Thankfully there are people out there who actually understand economics and one of them gave an excellent speech that refutes common objections to capitalism:

Yes, I’m a nerd who watches presentations like this for fun.

An Inevitable Outcome

I’ve bitched and complained about taxes time and time again on this site. Outside of my criticisms of taxation being a form of theft I also bring up the practical problem with raising taxes, those who have money will eventually leave when their taxes get high enough. California, the state that taxes so hard it almost qualifies as rape, is learning this lesson:

State Controller John Chaing continues to uphold the California Great Seal Motto of “Eureka”, i.e., ‘I have found it’. But what Chaing is finding as Controller is that California’s economy as measured by tax revenues is still tanking. Compared to last year, State tax collections for February shriveled by $1.2 billion or 22%. The deterioration is more than double the shocking $535 million reported decline for last month. The cumulative fiscal year decline is $6.1 billion or down 11% versus this period in 2011.

[…]

California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The State Controller’s office did acknowledge that higher than normal tax refunds for February might have reduced the collection of some personal income taxes. Given that 2012 has an extra day in February for leap year, there might have been one day more of tax refunds sent out. But the Controller’s report shows personal income tax collections fell by $325 million, or 16% versus last year. Furthermore, leap year would have added another day for retail sales and use tax collection, but those revenues also fell during February-by an even larger $813 million, 25% decline from 2011.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

The common cry of the collectivist movement is “Tax the rich!” As Bastiat warned us, some people are unable to see the unseen effects of state actions. What happens when you start taxing the “rich” more and more? Eventually they leave. The “rich” have money, a fact made evident by their status as being “rich”, and therefore can afford to move to a new state or country. When they leave they take their tax money with them, money that is sometimes used to fund programs that are supposed to help the downtrodden like food stamps, welfare, and worker’s compensation.

In the long run taxing the “rich” causes more harm to the “poor” than anybody else.