Category: Economics

You’re All a Bunch of Socialists


Meme obtained from Facebook

Ludwig von Mises was the man when it came to economics. At a time everybody was preaching the great new planned economy Mises stood, at time, entirely alone in his advocacy of the free market. The Austrian tradition of economics is named so because Mises and his cohorts met at a bar in Austria called The Green Anchor to discuss topics related to economics.

Mises was a total bad ass who wrote large volumes about his theories in his spare time. He also didn’t take shit from anybody and the meme at the start of this post relates to an event where he got fed up talking about distributing income and stormed out of the meeting while calling the other attendees, “a bunch of socialists.” Here’s a short clip explaining Mises’s hijinks:

The man was right, knew he was right, and refused to submit to argumentum ad populum . Refusing to submit to ideas simply because a majority believe them to be true is something we can all learn from the late great Mises.

Christie Tells Buffett Where to Shove It

Chris Christie, a man whom a strongly dislike in almost every way imaginable, actually said something I agree with:

Buffett may be known as the “Wizard of Omaha,” but Christie sees no magic in Buffett’s call for tax hikes for the wealthy, reports CBS 2’s Marcia Kramer.

“Cut a check and shut up, that’s what I say, okay?” Christie said Wednesday. “I’m tired of hearing about it. He wants to pay more taxes, pay more.”

I’ve been saying this for a while, if you don’t believe you’re paying enough taxes then write the government a check for more. Of course we could listen to Buffett, crank up the taxes on”rich” people, and we’ll still be in this economic mess. The bottom line is simple, the government is spending too much money. Even if they could raise billions of dollars it’ll be entirely meaningless to the deficit that measures in trillions of dollars. If Buffett actually knew anything about economics he would advice the United States government to reduce their spending dramatically.

Sadly that won’t happen but we’re lucky that an actual economist, one acknowledged by the late but great Murray Rothbard, is running for president this election and has a plan to actually reduce spending.

The Price of Enforcement

If you want to get any medicine that contains pseudoephedrine you’re in for a lot of fun. Because pseudoephedrine is used to manufacture meth and meth has been declared verboten by the state pseudoephedrine has become a controlled substance. In order to pick up even basic cold or allergy medicine you must go to the counter, present ID, get the purchase recorded, and make sure you don’t accidentally buy more than you’re allowed. Bruce Schneier, being a security minded bloke, found an article that talks about the cost of enforcing these controls:

Now, personally, I sincerely doubt that the pharmaceutical industry has reliable estimates of how many of their purchasers actually have colds–or that they would share data indicating that half of their revenues came from meth cooks. But let’s say this is accurate: half of all pseudoephedrine is sold to meth labs. That still wouldn’t mean that manufacturers of cold medicines are making “hundreds of millions of dollars a year” off of the stuff–not in the sense that they end up hundreds of millions of dollars richer. The margins on off-patent medicines are not high, and in retail, 50% or more of the cost of the product is retailer and distributor markup*. Then there’s the costs of manufacturing.

But this is sort of a side issue. What really bothers me is the way that Humphreys–and others who show up in the comments–regard the rather extraordinary cost of making PSE prescription-only as too trivial to mention.

Let’s return to those 15 million cold sufferers. Assume that on average, they want one box a year. That’s going to require a visit to the doctor. At an average copay of $20, their costs alone would be $300 million a year, but of course, the health care system is also paying a substantial amount for the doctor’s visit. The average reimbursement from private insurance is $130; for Medicare, it’s about $60. Medicaid pays less, but that’s why people on Medicaid have such a hard time finding a doctor. So average those two together, and add the copays, and you’ve got at least $1.5 billion in direct costs to obtain a simple decongestant. But that doesn’t include the hassle and possibly lost wages for the doctor’s visits. Nor the possible secondary effects of putting more demands on an already none-too-plentiful supply of primary care physicians.

$1.5 billion of additional costs just to enforce the government’s desire on prohibiting the possession and use of a specific substance. As with any government prohibition the cost is not merely financial but in the reduction of quality of life:

Of course, those wouldn’t be the real costs, because lots of people wouldn’t be able to take the time for a doctor’s visit. So they’d just be more miserable while their colds last. What’s the cost of that–in suffering, in lost productivity?

Many substances made illegal by the federal government have medicinal, or other, uses. Cannabis has been shown to help in the fight against cancer but has been declared illegal so billions of dollars have to be spent in order to research alternative methods of providing the same affects. Between the costs in enforcing the prohibition, finding alternatives, and the cost to consumers tacked on to recover the costs of researching alternatives the government has pissed away money that could have been used for far more productive uses. Instead people are forced to pay additional taxes to fund the war on drugs, which means each person has less money to use in improving their quality of life.

In the case of pseudoephedrine controls people could be forced to simply suffer symptoms that we’ve been able to mitigate for a reasonable price because the additional costs required to enforce these government controls are simply too much for most people to bear (compared to dealing with their cold symptoms). Doctors will also have less time to treat the truly sick as they’ll have their time taken up by those suffering minor ailments that need prescriptions to get medicine that was previously easy to obtain (and thus cheaper).

Let’s stop this constant attack on our quality of life by getting the government out.

Congress Setting Itself Up to Take Undue Credit

There was a minor controversy in the iOS world last week as it was discovered an application called Path uploaded the entire contents of the user’s Address Book to their servers. I call this a minor controversy because anybody familiar with the iOS Address Book API could have told you this is entirely possible (and hard to avoid because removing these APIs would make it impossible for any application to access Address Book data). Some are angry because Apple’s review process didn’t catch this and others are pointing out the fact that applications should require permission to access the Address Book (of course if the application is supposed to work with the Address Book this becomes an entirely moot point as users will give permission anyways).

What’s more interesting to me is how quickly Congress positioned itself to take credit for the fix Apple was going to present anyways:

The Path debacle just took another turn for the worse with House Energy & Commerce Committee Ranking Member Henry Waxman and Commerce Manufacturing and Trade Subcommittee Chair G.K. Butterfield issuing a letter to Apple CEO Tim Cook (via The Next Web). In it, the legislators seek to find out whether Apple is doing enough to protect personal data on users’ iPhones, including their contacts. Specifically, the letter asserts there have been claims that the practice of collecting address book data without users’ consent is “common and accepted among iOS app developers.”

Now when Apple releases their iOS update that requires users to give applications permission to access their Address Book database Congress can point and say, “See! We protected the consumers from Apple’s bad practices! Unless we acted Apple wouldn’t have changed anything!” Of course the truth is Apple would have taken corrective actions whether or not Congress sent a letter or not.

Users were pissed about Path getting through the App Store approval process even though it literally stole the entire contents of the user’s Address Book database. Apple, wanting repeat customers, obviously noticed that angry customers are not good to have so they started working on a fix. This is how the market works: consumers provide feedback to producers and if those producers fail to act on that feedback consumers take their money elsewhere. Members of Congress understand this, which is why they always swoop in to “investigate” anything that has angered consumers (unless the entity that angered consumers gave Congress enough money, then it gets ignored). Those bastards in Washington DC realize the problem will get fixed without their action so making a token “investigation” guarantees free publicity for the next election cycle.

Don’t allow yourself to be fooled by this charlatans. The actions of Congress have no weight on whether or not Apple fixes the problem, consumers do. Congress just tries to exploit these situations to make it appear as though we need them.

The Perfect Storm in Greece

Greece, or more specifically Athens, is suffering from outbursts of rioting that have resulted in wide spread destruction of property:

In Athens, about 150 stores were vandalised and looted in Sunday night’s riot, and about 45 buildings were seriously burnt, many beyond repair, according to the Athens Chamber of Commerce and Industry. It estimated the losses in the ”tens of millions” of dollars.

These riots were started, in part, because of the recently passed austerity measures that will result in the decrease of benefits and pay for government employees:

The austerity measures include:

  • 15,000 public-sector job cuts
  • liberalisation of labour laws
  • lowering the minimum wage by 20% from 751 euros a month to 600 euros

The austerity measures were put into place in order to secure a $170 billion bailout from the International Monetary Fund (IMF) as Greece has become insolvent. While all of this has been covered by major media outlets they have failed to explain how this situation arose. When looking back at how Greece found itself in its current situation we find a road paved in collectivism and broken promises.

Let’s begin with collectivism. Roughly 22% of those employed in Greece work for the government in some capacity. As the government employes such a high number of people austerity measures, such as those passed in Greece, that effect public employees have widespread consequences. As government produce no wealth (it exists off of taxation, which is stolen wealth) every person employed by the government is a net loss as far as the economy is concerned. To pay for these employees the government of Greece has imposed an income tax that ranges from nothing all the way up to 40%. In addition to an income tax rate that can range up to 40% there is also a value added tax (VAT) that ranges from 4.5% to 23%.

In addition to paying the vast number of government employees the high tax rate in Greece is also used to fund “free” public education, state provided healthcare, and other collectivist programs.

Greece also has some interesting labor laws [PDF] including mandated maximum 40 hour work weeks (although some exceptions can be made to exceed the 40 hour maximum) and a minimum wage of €751.39 a month (approximately $987.92 a month as of this writing).

The labor laws are most interesting in this case as they compose a list of promises made by the government of Greece. Basically the government of Greece told its people they will enjoy no more than 40 hours a week of work and will make a minimum of $987.92 each month. Now the government is reneging on its promise by slashing minimum wage by 20% (making it roughly $790.34 a month) and removing other guarantees that were made. It is also laying off 15,000 people whom were promised jobs by the government. The bottom line is the people are pissed because promises that were made to them are being broken.

Worse yet these promises were made in exchange for the tax rate the people of Greece had forced upon them. The government basically said they were going to take up to 40% of each person’s income and even more money through the VAT tax to pay for the promises being made. These austerity measures void many of those promises without also reducing the tax rate. Denizens of Greece are getting less for the same price and they’re unhappy about it (rightfully so).

Unfortunately this is an outcome that can’t be avoided when the government is expected to provide services. As governments pay for everything using money stolen through taxation there is no wealth generated nor can the market provide feedback on whether or not the desired services are being provided and if they are being provided efficiently. When people expect governments to provide even more services they often fail to realize that money for those services must come from somewhere and that somewhere is the pockets of the people. Since government have no market feedback that tells them if they’re providing services efficiently the cost for those government provided services is always higher than comparable privately provided services. By having the government provide a service you’re actually costing yourself money.

But the perfect storm comes when the government is unable to continue providing its services. This happens when they not only run out of money, but also run out of people to buy up their ever increasing debet. At that point a decision has to be made; either increase taxes or cut services. When you’re taxing people absurd amounts already increasing taxes even more is not going to be received well. If you don’t increase taxes and are forced to cut services it is not going to be received well. Basically a catch-22 exists and will only lead to hardship and anger and that anger usually manifests itself into protests and sometimes rioting.

What Greece is experiencing is unavoidable when collectivists get their way.

The Federal Reserve to Devalue the Dollar by 33%

The Federal Reserve announced its plan to explicitly steal from the American populace through a plan that will devalue the dollar by 33% over the next 20 years:

The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

This means that every dollar you hold will only be worth $0.67. The people most harmed by this are the poor and elderly as the poor have little purchasing power to begin with and the elderly rely heavily on savings that they accrued over their lifetimes. If somebody was able to save $1,000,000.00 over their lifetime they would only have $670,000 dollars if the currency devalued by 33%. When you combine the lesser purchasing power with the higher prices asked by vendors to makeup for the loss they experience because of devaluation you have an extremely scary picture. So what’s the solution? A commodity backed monetary unit:

An increase in the price level of 2% in any one year is barely noticeable. Under a gold standard, such an increase was uncommon, but not unknown. The difference is that when the dollar was as good as gold, the years of modest inflation would be followed, in time, by declining prices. As a consequence, over longer periods of time, the price level was unchanged. A dollar 20 years hence was still worth a dollar.

Make no mistake, this plan by the Federal Reserve is pure theft and those who hold dollars should be furious that the government granted a monopoly on issuing money to an organization. Of course if the dollar devalues dramatically the United States government enjoys the benefit of paying off its debt using less purchasing power (and since they can just increase taxes they’re not negatively affected by the devaluation).

Why Minimum Wage Laws Hurt the Unskilled Laborers

Many people who do not understand basic economics believe minimum wage laws are a positive thing. It’s easy to believe this but the truth of the matter is these laws are actually detrimental, especially to unskilled laborers who the laws are purported to protect. The following video does a great job of explaining this fact:

Another argument this video doesn’t address is the claim minimum wage laws are the reason we get paid what we do today. I’m not talking about unskilled laborers in this case but everybody, especially those in higher paying positions. Some advocates of minimum wage laws claim the abolition of these laws will cause everybody to receive far lower pay but this isn’t at all true. If your employer pays you an hourly wage of $30.00 and the minimum wage is $10.00 and hour abolishing the minimum wage law won’t drop your pay by $10.00 and hour. The reason you’re paid $30.00 an hour is because your employer believes you bring at least $30.00 and hour of value to the company, not because you bring at least $20.00 an hour in value beyond minimum wage. Were minimum wage laws to be abolished tomorrow it’s unlikely anybody would receive a pay cut, but a huge number of unskilled laborers would find themselves with opportunities to work as factories were brought back to the United States (unless other rules and regulations continue to make manufacturing in this country too cost prohibitive).

Security Incentives

It’s an exceedingly rare instance where I disagree with Bruce Schneier but in his recent post regarding the Transportation Security Administration (TSA) I have to say he was incorrect:

Hard to argue with most of that, although abolishing the TSA isn’t a good idea. Airport security should be rolled back to pre-9/11 levels, but someone is going to have to be in charge of it. Putting the airlines in charge of it doesn’t make sense; their incentives are going to be passenger service rather than security.

Personally I won’t argue with his statement as far as security goes, somebody should be in charge of airport security, but that entity shouldn’t be the federal government. This debate is really one of economics though as Schneier apparently has a misunderstanding regarding incentives.

The airliners primary incentive isn’t passenger service or security, it’s profits. Like any business the airliners are in business to make money and in order to do that they must keep costs down and ensure customers are happy. Usually when I mention the need for airliners to keep costs down they assume I’m talking about bookkeeping items like employee wages, fuel costs, and airplane maintenance. Those are not the only costs though as airliners must also ensure the protection of their property.

Airplanes and airports are expensive properties to replace. Airliners are not going to be happy if their aircraft are constantly being hijacked, flown into buildings, or simply blown up. Insurance claims may cover the cost of replacing the airplanes but at high insurance costs and the possibility of insurance companies refusing to cover airliners with atrocious security-related failures. Because of the costs involved in replacing airplanes airliners have a large incentive to ensure proper security measures are taken to protect their investment. Airports are no different and thus there is incentive to protect them.

Airliners also have an incentive to protect their customers. The reason for this is rather obvious, an airliner who has an atrocious security record will soon find itself out of business. If we look at a hypothetical situation between two competing airliners we can better see this fact. For this hypothetical situation we’ll say there are two competing airliners; Security Air and Insecurity Air (I’m not creative with names, sue me). Security Air has a marvelous safety record and have only had one airplane hijacked. Their competition, Insecurity Air, on the other hand has an absolutely dismal security record with airplanes getting hijacked on a monthly basis. Given the choice between these two airliners it’s fairly obvious what one is going to have the market advantage.

Private entities like airliners have to play a balancing act though between security and convenience. Taking this example further let’s say after Security Air experienced their hijacking a competing company was formed call Transcontinental Secure Airlines, or TSA for short. TSA decides to play the security game and have implemented extreme security measures including full strip searches of passengers, random cavity searches of passengers after they get on the plane, and seat on the plane is equipped with a stun gun to subdue unruly passengers. How many customers do you think they will have? None is most likelihood.

We also have the other side of the coin to consider, what is the government incentive for keeping airplanes secure? Truthfully the government has no incentive to keep airplanes secure. No profit incentive exists because government are funded entirely by theft. The TSA has a strong incentive to instill fear in passenger and state bookkeepers to ensure the continuous flow of money and authority. In fact putting the government in charge of security is the last thing you want to do. When security fails at an airport the government rewards itself with more rules, regulations, and powers.

Striving for Excellence in the Service of Others

Competition is the backbone of a capitalist economy. Every producer has to fend off competing producers who are attempting to win consumer money. Many socialists will tell you that competition is one of the problems with capitalism as it is necessarily combative instead of cooperative. I’m just going to say this as plainly as possible: that criticism is utter bullshit.

Competition, as far as a market is concerned, is striving for excellence in the service of others. How can I claim this? Doesn’t competition require one to be cutthroat and pull every dirty trick in the book to decimante your competitors? No. Competition in a market requires you to fulfill the wants and needs of consumers and the winner is the producer who best fulfills those wants and desires.

Mind you I’m not talking about a system based on cronyism as we currently have in the United States (then winning is accomplished by political connections to ensure legislation favorable to yourself and detrimental to your competition is passed). Instead I’m talking about free-markets unencumbered but government regulations and influence. In a system based on free-markets the consumers are the only ones who decide what succeeds and what fails. Each consumer gets a say in who will and won’t succeed so producers must serve the consumers.

It’s honestly one of the most free and beautiful systems ever devised by man and it’s a bloody shame it carries such a negative connotation with so many (most of whom have no idea what capitalism truly is).

Give Us Your Money

It’s no secret that the United States is broke off its ass and whenever a government is broke is turns to taxpayers to make up the difference. Personally when I’m unable to pay for something I just don’t buy it but when the state is unable to pay for something they use existing laws and enact new ones to increase the amount of money they steal from the populace. As you read this article the Internal Revenue Service (revenuers) and the Department of Justice (DoJ) are expanding their power to forcefully take more money:

US OFFERS SWISS BANKS A DEAL

The United States authorities have offered to lift the threat of legal action against 11 Swiss banks in exchange for information, a Swiss paper reported on Sunday.

The one thing I will say about Swiss banks is that they respect your privacy. Instead of spilling the beans about account holders they tell those curious about their customers where to stick it before saying something offensive in German and booting the nosey individual out on their ass. Unfortunately the United States government doesn’t have the same respect and have been trying to get Swiss banks to unveil customer lists for ages. Now the DoJ is making an outright threat; surrender your customer information or we’re taking your asses to court.

Obviously the revenuers don’t want to be outdone at their own game and have stepped up their game as well:

FEDERAL JUDGE GREEN LIGHTS IRS SEARCH FOR CALIFORNIA GIFT TAX CHEATS

A federal district court judge has given the Internal Revenue Service permission to serve a “John Doe” summons on the California State Board of Equalization demanding the names of residents who transferred property to their children or grandchildren for little or no money, from 2005 to 2010.

The IRS has used John Doe summons to seek lists of American taxpayers unreported offshore accounts at Swiss Bank UBS and at HSBC’s bank in India.

I’m going to let the DoJ and revenuers in on a little secret, you’re not going to find enough concealed wealth or missing tax dollars to make up for the massive deficit. What the government is doing now is equivalent to searching couch cushions for spare change. When you’re trying to pay of a $50,000 student loan there isn’t going to be enough change in your couch to even begin touching the interest payment. The only option our government currently has is to reduce their spending, a strategy they are fighting tooth and nail against. I wonder how long it will be before the revenuers start auditing everybody in the United States.