Category: Economics

Excuse Me While I Crap On Your Marxism

Behold an idiot standing in front of a Soviet flag babbling on about capitalism being a religion:

Why do I link to this video? Because I feel like decimating an idiot Maxist for personal amusement. First let me say that the advertisement that plays before this video is a great way to make some quick cash… you know like a dirty capitalist (but hey you have to fund that capitalist produced video camera somehow). Next let me urge the videographer to iron his Soviet flag, those creases are distracting and show a complete lack of professionalism. I’m also going to throw out the obvious point that having a flag of a country that killed millions of its own citizens hanging in the background doesn’t send a very positive message. At least most Marxists I talk to have the decency of disavowing the Soviet Union for the violent acts it unleashed upon the people unfortunate enough to live within its borders.

Honestly those are just petty complaints and avoid the message he’s trying to portray, which is the idea that capitalism is a religion. I’ve not actually heard the argument that Marxism is a religion before. In fact that seems a bit odd considering Marx was a self-proclaimed atheist and considered religion to be “the opiat of the people.” Still I will humor this accusation for the sake of quality argumentative decimation.

The videographer, who I’ll now refer to as Marxy Marxist, is claiming that capitalism is a religion because its proponents believe that some “magical” thing call the market will fix all ills in the world. This right here demonstrates Marxy Marxists’s complete ignorance on the capitalism economic system. Namely proponents of capitalism do not believe the free market will fix all ills in the world. For instance Marxy Marxist mentions inequality, a phenomenon the free market makes no attempt to correct.

The free market is nothing more than a system that allows individuals to compete in the providing of goods and services to consumers. Those who properly fulfill the needs of consumers are rewarded for their efforts, usually with money. Their reward is then reinvested to provide for additional consumer wants. Thus those who properly fulfill the wants of society are granted control of more resources as they have demonstrated a socially desirable use of those resources. The only problem a free market attempts to solve is providing consumers with the products and services they want.

It is true that free markets can have a hand in solving other social issues such as racism. For example a businessman who refused to sell his goods or services to a hispanic person loses out on their money. In addition to that many other people will boycot the person’s business because he’s being a racism asshole. Strictly speaking though, voluntary association dictates any person may chose to or not to interact with any other person. While the free market does punish an individual who refuses to do business with a specific group it does not force them to associate with anybody.

Marxy Marxist also brought up the name Adam Smith. Smith was an important early figure in free market economic theory but certainly wasn’t the be all end all. Smith, and later Menger, both missed a crucial piece of the free market puzzle, which is the understanding that value is subjective. Unfortunately Smith followed the labor theory of value limiting the potential of his works. It was Ludwig von Mises who first articulated the idea of subjective value so I would argue if you’re going to talk about capitalism it would be best to use Mises as the poster child as he was the one who provided the crucial missing piece of the puzzle. Again this demonstrates Marxy Marxist’s ignorance of the development of free market economic theory.

Marxy Marxist continues to refer to the free market as a magical being that can not be controlled. I can see how a Marxist would have a difficult time grasping the concept of something not tyrannically controlled. Truth be told the free market is controlled by the consumers. As stated above producers who fulfill the wants of consumers are rewarded. There is another side of the coin, producers who do not make products or provide services consumers want will fail. We as consumers control the market and producers are at our mercy (unless of course a violent state intervenes on the producer’s behalf, but that is not capitalism).

Right around the 2:10 mark Marxy Marxist makes his most ignorant claim, that those of us calling ourselves capitalist really aren’t because we don’t own any means of production. Guess what I’m writing this post on? A fucking computer. Guess what I, as a programmer, use to produce? A fucking computer. Holy shit I own means of production! Marxy Marxist is also a capitalist because he owns a video camera and a computer, which he uses to make money by producing advertisement supported videos on YouTube. Even a so-called Marxist can make money in a capitalist system.

Finally Marxy Marxist closes by accusing capitalists of not wanting to fix society’s problems but to profit from them. Interestingly enough by profiting off of society’s problems capitalists solve them. Case in point medical technology used to save millions of lives every year is developed by medical companies to generate profit. Automobiles solved a problem of personal transportation over long distances than horse drawn buggies could not and Henry Ford was certainly in the business to make money. Computers, a device that have helped solved an almost uncountable number of social issues, are built by profit seeking companies. Profiting off of society’s ills is not mutually exclusive to solving them regardless of what Marxy Marxist claims.

In closing I leave you with a question: why do all these Marxists wear military fatigues? If I was going to go on camera to preach about something I’d have the decency to wear a suit and tie because people are more apt to listen to a well dressed individual than a tactic-cool Internet commando.

Some Opinions Should be Kept to Yourself

The Letters to the Editor section of the Star Tribune is a source of near infinite entertainment for me. Seldom can I read through the section without finding at least two stupid letters penned by persons ignorant on the subject they’re expressing an opinion about. This is one of those letters:

The U.S. Post Office is vital to the economic and cultural health of our country and should not be treated as a for-profit business.

Actually the United States Post OFfice isn’t all that vital. With the exception of first class letter delivery, which the government maintains a monopoly on, the functions of the Post Office are also performed but numerous parcel deliver services including UPS, FedEx, and DHL. Our economy would suffer little, if any, were the Post Office shut down. Even most of the jobs lost by this move would likely be picked up by private parcel delivery services to cope with the additional surge of business that would have previously went to the Post Office.

It should be subsidized sufficiently so that closures or delayed deliveries are unnecessary. It is an honored and respected department of our government.

Emphasis mine. There isn’t a single department of our government that has one shred of honor not deserves any respect.

A history of the department shows it was responsible for keeping members of the Constitutional Convention informed on a daily basis no matter where they were.

Because of what the Post Office did way back when we should continue to subsidize it now? Should our government have subsidize the horse and buggy industry when Ford came in and stomped that market into practical extinction?

In furtherance of its charter, in 1848 the Post Office Department awarded a contract to the Pacific Mail Steamship Co. to carry mail to California. Under this contract, mail traveled by ship from New York to Panama, moved across Panama by rail, then went on to San Francisco by ship.

Emphasis mine once again. What one man called a contract I call a monopoly. Whenever government contracts with a company to provide a good or service that company receives a de facto monopoly in the government market. Because Pacific Mail Steamship Co. was granted the contract they received an increase in business that was denied to other potential shipping companies. Because of this large surge in business they would have gained more money and therefore would have been better positioned to buy out or otherwise eliminate their competition. It is never good news when the government grants a monopoly contract to a private firm for something.

It was supposed to take three to four weeks to receive a letter from the East, but this goal was seldom achieved. The Pony Express was very competitive in time, but the mail was limited to 20 pounds.

NEIL CLARK, MINNEAPOLIS

Do you know what other company was very competitive with the United States Post Office? Lysander Spooner’s American Letter Mail Company. Of coure the government didn’t have any control over that mail provider so they killed it through costly (to Spooner, not the government as they control the courts) court battles.

We need to face the fact that the United States Postal Service needs to be entirely privatized (not this stupid hybrid of private and public they currently suffer) and made to compete on the free market. Their monopoly on first class letter delivery needs to be revoked and they must be forced to innovate and improve their service just like UPS and FedEx.

Yet The State Won’t Relinquish Its Monopoly

It’s probably not news to anybody that the United States Postal Service (USPS) is in trouble. Their financial situation is growing ever darker and now they’re laying off 28,000 employees and shutting down numerous mail-processing centers:

The US Postal Service is shutting more than half its mail-processing centres in a £3bn (£1.9bn) cost-cutting drive expected to shed 28,000 jobs.

Vice-President David Williams told a news conference that the closures were designed to stave off bankruptcy next year.

Out of 461 mail-processing centres across the US, 252 will be shuttered starting from next April.

So what happened?

Customers were increasingly using the internet for bill payment and other communication, he said.

From nearly 100 million in 2006, first-class mail volume was down to 78 million and expected to half by 2020.

USPS is sinking because the product they offer isn’t in as high of demand anymore. Basically we can look at this situation by pretending the Internet is the Ford Model T and mail delivery is a horse and buggy. In our example USPS is a buggy whip manufacturer and instead of moving into the business of manufacturing tires for the Model T they continue to stick to their hopeless belief that this whole automobile thing is just a fad and will go away soon.

Even though USPS maintains a complete monopoly on first class mail delivery they have agile competitors in other areas of package delivery. How often do you receive a package from USPS? Most packages I receive are either from UPS or FedEx (although once in a while I’ll get something from a regional deliverer like Speedy). When I wish to ship packages I find UPS and FedEx are almost always cheaper and less hassle. Now it appears as though they’ll also be quicker to get your package from a drop-off point to its destination since USPS is closing down half of their processing centers.

It’s not entirely USPS’s fault in this case. USPS stands in a precarious situation having to please the demands of the federal government while receiving no federal funds. The federal government demands that USPS pay its employees federal wages, pensions, and benefits while keeping the cost of letter delivery very low. Yet the same government making demands about how employees are compensated for their time are also saying USPS has to be self-sustaining. Were UPS or FedEx subjugated to these same conditions they to would face failure.

They only option to fix USPS’s woes is for the federal government to completely cut the cord. That is to say remove any input into the operations of USPS and let the business be run like a business. Either way USPS is on the slow road to complete failure and the only option the federal government will have is relinquishing their monopoly on first class mail delivery less no letters be delivered upon USPS’s complete collapse. USPS also needs to move into another business, which is likely very difficult when the federal government controls everything you do.

On the St. Paul Ford Plant Shutdown

The Ford Ranger is by far my favorite vehicle. I’m on my third Ranger and was hoping to someday be on my fourth but that desire was shutdown with news of the Ford Plant in St. Paul, the last plant manufacturing Rangers, being mothballed. While this is a bit sad it just means my next vehicle will likely be a Ford F-150, which will piss off the enviro-nazis even more than my current gas guzzler so that will certainly be an upside. Still it was interesting reading the Star Tribune’s piece because at one point they pondered if there was anything the government of Minnesota or St. Paul could have done to save the plant. Their speculations were amusing to me:

Dziczek said another factor was the recent stripping of job security language in UAW contracts.

“It used to cost companies an arm and leg to close plants in the automotive diaspora because they had to continue to pay those workers,” she said. “Without those protections, it became easier to close regional outposts.”

You know what else hurt the Ford plant? Union wages. Don’t get me wrong, if a group of workers want to get together and form a union in the hopes of fighting for better wages and working conditions I’m perfectly fine with it. I’m also perfectly fine with the owners of a company firing everybody attempting to create such a union because that’s what voluntary association means, if either party is unhappy with the association they are free to terminate it.

Either way union labor laws in the United States are a tricky beast and they are entirely on the side of the unions. Some would consider this fact a great win for workers but workers aren’t the ones who make union policies, higher ups in the union are. Union leaders will often tell you that their job is to represent the workers and thus they will make outrageous demands including insanely high wages, pensions, and requirements that promotions be based entirely on seniority. Even though such things sound great for workers it ends up biting them in the ass as the companies paying these benefits are unable to continue operations and eventually have to make a decision; close plants with expensive union labor or face bankruptcy. In either case the workers end up losing their job.

Regardless of what union high ups believe those “greedy corporate bastards” don’t have an infinite line of money in which to pay workers. Many factories don’t pay employees more for the simple fact the employees don’t provide more value to the company. Somebody who gets paid $22.00 and hour to put windshield wiper blades on trucks all day isn’t really bringing $22.00 and hour of value to the company and therefore is costing the company money every hour. When paying your employees loses money you’re in a slowly sinking boat.

Minnesota’s distance from auto parts makers in the Michigan-Ohio rust belt further doomed the St. Paul plant, as parts had to be shipped from far away. Despite those factors, some experts insist the St. Paul Ford plant could have been saved if state leaders had more manufacturing expertise and foresight.

“It was a gross piece of stupidity for the state of Minnesota to let this plant die,” said Fred Zimmerman, a retired University of St. Thomas manufacturing professor.

He said state leaders could have come up with a plan to build an integrated metal stamping facility, perhaps in the sandstone caves below the plant, and that might have helped solve the costly problem of shipping in parts.

If Ford believed construction of such a facility would have been a profitable way to continue I guarantee you that there would be such a facility at that plant. I agree that the state let the plant die but not through inaction. Minnesota isn’t a very business friendly state, the state government loves to bleed corporations for as much money as they can. When a company is faced with ever dwindling income due to state theft you can bet they’re not going to stay in the state for long. California has this exact issue as big players like Electronic Arts and Adobe have been fleeing the state in the hopes of finding greener pastures. Had the state not continue to syphon funds from productive companies we would likely still have flourishing industry as we did in the old days (I’m still surprised how many companies were started in Minnesota). At least Zimmerman had one piece of common sense:

Now, Zimmerman says, leaving out its agriculture sector “Minnesota is, to some extent, a Greece in the making.” Losing high-wage Ford jobs will hurt a state with mounting unfunded public pensions and other budget challenges.

“You have to make things and export them out of the community to pay the bills,” he said. “It’s a great tragedy to lose one of the best places for employment in the entire state.”

An economy that buys but doesn’t sell is one that will be facing failure in quick time. This is a problem in the United States as a whole. The government makes doing business in the United States more difficult with every rule, law, and regulation. Why would a company build a manufacturing plant in the United States when they have to spend millions of dollars on idiotic regulation compliances when they can just contract with a Chinese manufacturer for a fraction of the cost? Who will start a company in the United States when they will be facing huge corporate income taxes where as they’ll face little or none in Hong Kong? You can’t continue to steal from people and expect them to gladly take it. So what’s to be done with the plant? Ford is hoping to sell it to somebody for new development but it seems the mayor of St. Paul wants to hinder that development:

“We still hope to develop this into a little jewel for the metro area, but it’s not going to happen overnight,” said Bill Klein, a business attorney and task force co-chairman who lives two miles away. “It’s going to be a long process.”

Added Coleman: “We’re not just going to take the first operation that comes in and says they’ll take the whole site and create 200 jobs. That’s not acceptable to anyone.” Among his concerns: replacing Ford’s diverse workforce. “I’ve always been impressed by the number of women of color working in that plant,” he said.

They’re not “going to take the first operation that comes in.” No, instead they’ll likely turn down numerous productive ideas in the hope of finding a developer who will build some fancy looking building that ultimately generate nothing of value. Perhaps Toyota will desire the location, only to be turned down because they don’t have a plan to build some fancy looking tourist attraction. The state (in general, not Minnesota) is the single largest hinderance to business.

Either way so long Ford Plant. I’ll always have fond memories of the Ford Ranger and wish it wouldn’t have to end like this but fully understand continued development of such a vehicle in a hostile business environment isn’t a sustainable possibility.

Cognitive Dissonance Regarding Paying Off the Federal Debt

National Public Relations Public Radio (NPR) has a piece that tries to explain how paying off the federal debt ended poorly for the United States. I’m not quite sure what their angle is but it appears to be an argument against ridding ourselves of the yoke of our national debt:

That was the one time in U.S. history when the country was debt free. It lasted exactly one year.

By 1837, the country would be in panic and headed into a massive depression. We’ll get to that, but first let’s figure out how Andrew Jackson did the impossible.

What? Paying off the national debt will lead to a depression! Oh no, we need to make the debt bigger! Due to a failure of logic it’s pretty easy to see the depression that followed paying off the federal debt was due to the use of fiat money.

When Jackson took office, the national debt was about $58 million. Six years later, it was all gone. Paid off. And the government was actually running a surplus, taking in more money than it was spending.

Damn, if it wasn’t for that whole massacring American Indians Andrew Jackson may actually be on the very short list of presidents I respect.

That created a new problem: What to do with all that surplus money?

Jackson had already killed off the national bank (which he hated more than debt). So he couldn’t put the money there. He decided to divide the money among the states.

Um… I don’t think the author understands what a national bank is. A national bank isn’t some place for the federal government to place its money so that it can be loaned out to other countries as banks we interact with daily are. National banks exist simply to control the supply of money without having to deal with that pesky free market that prevents easy expansion of the money supply. What a national bank does is print money and loan out that money (usually to other banks) to expand the supply of money and recalls loans to contract the supply of money. Through this convoluted process the national bank attempts to control inflation but in actuality causes inflation as the money supply is only expanded due to the government wanting more and more money to spend on frivolous projects.

Thus eliminating the Second National Bank didn’t prevent the federal government from storing the surplus of money, that statement is just idiotic. Fuck it, take it away Rothbard:

The state banks went a little crazy. They were printing massive amounts of money. The land bubble was out of control.

Exactly what I said above, when government is given the power to expand and contract the money supply they only expand it. Fiat money systems are bad m’kay.

Andrew Jackson tried to slow everything down by requiring that all government land sales needed to be done with gold or silver. Bad idea.

Please, explain to me how that was a bad idea.

“It was a huge crash, and the beginning of the longest depression in American history,” Gordon says. “It actually lasted six years before the economy began to grow again.”

That crash is what we would call a market correction. In essence the value of land was much higher than the market could bear due to government distortion (printing money to buy up land, thus artificially increasing demand and therefore value). This is exactly what happened with the housing market and is currently happening with the education market.

By demanding all land purchases be made in silver and goal Jackson was saying the states had to give something of value instead of worthless paper they could simply print up willy nilly. The crash wasn’t due to the requirement of using gold and silver, it was a demonstration of the fact that land wasn’t worth what people were selling it for.

Let’s use another example because I love examples. Due to some fortune vendors have decided to accept paper notes you print off in exchange for goods. At first you decide you want to maintain your purchasing power so you only print 100 notes. You also don’t produce anything besides these notes so at one point you run out of these notes and come to a crossroad; in one direction you have to get a job and start producing while in the other direction you simply print more of these notes. Being lazy you go with the easy method of print more notes. Seeing how easy this really is you start printing vast numbers of these notes and buying up as much product as you can. Unfortunately the massive influx of new notes has made them easier to come by, which fills demand, which reduces the value of each individual note (supply and demand). As each note is worth less value people who have them are able to buy less, unless they control the printing press and can simply punch up more paper!

Inflation is a delayed phenomenon. The first receiver of the printed money has vast purchasing power because the notes haven’t entered the market yet and thus haven’t increase the supply (and therefore reduce demand). Therefore the first person to receive these new notes is able to buy products at their current market value at which point the notes enter circulation. Now that those notes are in circulation the supply has increase and thus the individual value of each note is reduced.

Gold and silver can’t simply be printed up and they’re both used in actual manufacturing so the supply of money stays relatively stable. Thus gold and silver (which aren’t the only commodities you can use for money) are good to use for money as their supply remains relatively constant, which keeps inflation in check.

Now you know why fiat money is bad.

Thanksgiving, Another Example of Socialist Failure

Yesterday was Thanksgiving, the holiday we’re told is meant as a day where Americans give thanks for whatever they’re thankful for. We’re told the Pilgrims survived a harsh year and gave thanks for their good fortune on this day way back in the 1600’s. Truth be told the hardships experienced by the pilgrims is another example in the lost of list socialist failures:

After the poor harvest of 1622, writes Bradford, “they began to think how they might raise as much corn as they could, and obtain a better crop.” They began to question their form of economic organization.

This had required that “all profits & benefits that are got by trade, working, fishing, or any other means” were to be placed in the common stock of the colony, and that, “all such persons as are of this colony, are to have their meat, drink, apparel, and all provisions out of the common stock.” A person was to put into the common stock all he could, and take out only what he needed.

This “from each according to his ability, to each according to his need” was an early form of socialism, and it is why the Pilgrims were starving. Bradford writes that “young men that are most able and fit for labor and service” complained about being forced to “spend their time and strength to work for other men’s wives and children.” Also, “the strong, or man of parts, had no more in division of victuals and clothes, than he that was weak.” So the young and strong refused to work and the total amount of food produced was never adequate.

As is the case with most attempts of establishing socialism (or anything resembling socialism) this failed miserably and ended in famine. Thankfully the pilgams learned their lesson and took efforts to correct their error:

To rectify this situation, in 1623 Bradford abolished socialism. He gave each household a parcel of land and told them they could keep what they produced, or trade it away as they saw fit. In other words, he replaced socialism with a free market, and that was the end of famines.

Many early groups of colonists set up socialist states, all with the same terrible results. At Jamestown, established in 1607, out of every shipload of settlers that arrived, less than half would survive their first twelve months in America. Most of the work was being done by only one-fifth of the men, the other four-fifths choosing to be parasites. In the winter of 1609-10, called “The Starving Time,” the population fell from five-hundred to sixty.

While the advocates of socialism believe it is the natural system for human society history has proven their belief wrong time and time again. The Pilgrams who landed in America are yet another example of this fact in the long history of humanity.

When Ignorance is Prevalent Hilarity Ensues

I’ve stated several times both on this blog and elsewhere that I have mixed feelings about the various occupation movements. On one hand I’m positively gleeful that people are finally waking up to the fact that they’re being fucked over and are finally speaking up about that fact. Then I look on the other hand and realize that a large number of people at these occupation, while understanding that they’re being fucked over, don’t actually understand who is fucking them over or how. The lack of understanding has lead to numerous public displays of total ignorance and conflicting messages.

Recently students in a Harvard introductory economics class staged a walkout and sent the professor a letter explaining their reason. The problem with the letter is that it’s dripping with irony:

As Harvard undergraduates, we enrolled in Economics 10 hoping to gain a broad and introductory foundation of economic theory that would assist us in our various intellectual pursuits and diverse disciplines, which range from Economics, to Government, to Environmental Sciences and Public Policy, and beyond. Instead, we found a course that espouses a specific—and limited—view of economics that we believe perpetuates problematic and inefficient systems of economic inequality in our society today.

[…]

There is no justification for presenting Adam Smith’s economic theories as more fundamental or basic than, for example, Keynesian theory.

It is my guess, although one based off of reason, that most, if not all, of these students do not support giving equal time to both the idea that the Earth is flat (yes, some people still believe this) and the fact that the Earth is a sphere in science classes. Yet they demand equal time be given to ideas that have been proven wrong (Keynesian economics) and ideas that have been proven correct (free market economics) in economics class.

The letter also espouses a complete ignorance on the topic of economics which is better explained in this article (although I wish the author wouldn’t have injected so much “us vs. them” attitude). What I find most disturbing and is pointed out in the article is the sheer unwillingness of some of these people to even listen to a dissenting opinion:

But that doesn’t matter to radical leftists. Logic in economics is irrelevant to them. As Mises explained, to defend their irrational theories they “attack logic and reason and substitute mystical intuition for ratiocination.”[2] That’s why they protest viewpoints they don’t like instead of engaging with and critiquing them. And that’s why they shout down dissenters in their creepy chanting assemblies. Independent thought is a threat to them.

[…]

It’s apparently not enough that these students will never encounter a conservative or libertarian viewpoint in any of their other classes. No, they must be shielded from any professor whatsoever who might challenge one of their prejudices against the free market. Even if that professor once wrote, as Mankiw did, “If you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes.” If he holds any pro-market views at all, apparently, he must be boycotted.

This is known as confirmation bias and everybody suffers it to an extent. When I last visited the Occupy Minneapolis crew I tried entering a discussion with another about the right of jury’s to use nullification. He disagreed adamantly and stated juries must base their judgement on the letter of the law. When I tried explaining this wasn’t the fact and used historical examples such as Wisconsin’s use of nullification to avoid upholding the Fugitive Slaves Act and various state’s using nullification to avoid enacting the REAL ID Act he stormed off and told everybody else listening to our conversation not to listen to me. He presented no historical or legal precedent supporting his side of the argument, he simply refused to listen to what I was saying because it disagreed with what he believed.

I leave you once again with the wisdom of Murray Rothbard:

Go ahead and debate economics all you want but before doing so rid yourself of your ignorance so you don’t look the fool when you open your mouth. Nothing is served by ignoring what your opposition says as you can not learn or understand your opponent unless you first listen to them.

The Free Market in Action

People often ask how can a free market work. The answer is very simple, if enough people do not like a product they will not buy it and the producer will either have to improve the product, release something new, or face bankruptcy. In a free market the consumers are the ultimate discion makers while the producers are entirely at the consumers’ whim. Bank of America, Wells Fargo, and J.P. Morgan recently received a wakeup call from consumers when they attempted to start charing for the use of debit cards:

The bank announced it was abandoning its fee plan amid growing anger around the move and consumer calls to take banking business elsewhere.

A company spokeswoman declined to comment on account closure figures.

JPMorgan Chase and Wells Fargo cancelled tests of similar debit card fees over the past week.

[…]

Public anger over the Bank of America plans coalesced around an online petition that eventually garnered more than 300,000 signatures.

“When I heard about the fee, it was the last straw for me,” Molly Katchpole, a 22-year-old who started the petition, told the Associated Press news agency.

In a free market when consumers speak producers and service providers have no choice other than to listen. Sadly we don’t have an entirely free market here in the United States but it is still free enough where consumers can often exact change by voting with their wallets.

Demand and Supply

I’m sure you know about the flooding that hit Thailand and caused absolute devastation but you may not realize how that event is impacting us here. Most hard drive manufacturers rely heavily on production capabilities in Thailand which has turned out to be a pretty bad things right now:

The brunt of the flood has since flowed south — Bangkok saw horrendous flooding through the weekend, with more than 380 dead and 2.4 million people affected. But the water remains in central Thailand, and it will take weeks just to get the water out. Repairing the facilities and replacing the equipment will take many months.

The flood took out approximately 25 percent of the world’s hard drive manufacturing capacity — but that isn’t the whole story.

Western Digital has a second large plant in Malaysia. Seagate doesn’t have any manufacturing in the flooded areas. Toshiba makes hard drives in several locations, not just Bang-Pa In. All of the major manufacturers rely on parts supplied by companies that were hit by the floods, but there are alternate suppliers in different locations.

According to the article these companies were smart enough to have manufacturing facilities elsewhere which means their production capacity hasn’t been devastated. Let this be a lesson to everybody, never keep all of your eggs in one basket. Even though hard drive manufacturers are expected to meet their production numbers this year the prices of drives have certainly jumped right the fuck up. Why is this? The same reason ammunition prices jacked way up shortly after Obama’s election, rumors leading to hoarding.

Many people are buying up harddrives hoping that they’ll be able to ask even high prices in the future. While this purchasing crazy is leading to higher prices it will only last for a short while. Still it shows how fragile commodity prices are how demand can go up due to natural disasters elsewhere in the world.

The Failure of Economic Models

The root factor that separates the Austrian school of economics from others such as the Keynesian and Chicago schools is the fact the Austrian school acknowledges the fact that economic models can’t actually be made. While the Keynesian and Chicago schools keep trying to model economics using mathematic formulas the Austrian school says economics can’t be studied like natural sciences because individual factors can’t be separate for study and humans are adaptable and non-passive. Instead of using mathematical models the Austrian school relies on praxeology, the study of human action, which involves using logical deductions to arrive at conclusions. While the Austrian school keeps predicting the next series of bubbles and crashes the schools depending on mathematical models continue getting their models shot to hell:

When it comes to assigning blame for the current economic doldrums, the quants who build the complicated mathematic financial risk models, and the traders who rely on them, deserve their share of the blame. [See “A Formula For Economic Calamity” in the November 2011 issue]. But what if there were a way to come up with simpler models that perfectly reflected reality? And what if we had perfect financial data to plug into them?

Incredibly, even under those utterly unrealizable conditions, we’d still get bad predictions from models.

The reason is that current methods used to “calibrate” models often render them inaccurate.

In computer science we have a phrase called “garbage in, garbage out.” Simply put if you start with garbage data you’re only going to end with garbage data. The mathematical models using by economists are garbage because humans are not passive non-adaptive subjects. As humans adapt old models are rendered useless. While the Austrian school bases their economic predictions on deductive logic the Keynesian and Chicago schools are constantly trying to rework their economic models to fit new data. Nothing thing to note is if you have to change your economic models to fix the data then your models are worthless. Models are supposed to help predict future outcomes based on current data not be formed around changed data due to failures of the previous models to predict an outcome.

The Keynesian and Chicago schools of economics would only be workable in an environment where prefect data is had. When people make criticisms about capitalism based on consumers lacking perfect data they’re correct only so far as the Keynesian and Chicago schools of thought go. The Austrian school outright acknowledges that perfect data regarding economics doesn’t exist and probably never will so planning economies is impossible meaning the hands-off approach is the only viable economic system.