Category: Economics

The Catholic Church Should Stick to Theology

That quote by Rothbard is the first thing that pops into my head whenever somebody completely ignorant of economics brings forth an economic plan. Needless to say that’s the thought that entered my head when the Pontifical Council for Justice and Peace of the Catholic Church brought for their opinion on how the current economic mess should be fixed:

The Vatican called Monday for radical reform of the world’s financial systems, including the creation of a global political authority to manage the economy.

A proposal by the Pontifical Council for Justice and Peace calls for a new world economic order based on ethics and the “achievement of a universal common good.” It follows Pope Benedict XVI’s 2009 economic encyclical that denounced a profit-at-all-cost mentality as responsible for the global financial meltdown.

After reading that I can say with certainty that the Catholic Church should stick to theology and leave economics to the Austrian school. What their plan entails is basically doing the same thing that got us into this mess but harder. Hell they didn’t even get the cause of the meltdown correct, it wasn’t some mythical “profit-at-all-cost mentality” but government constantly meddling in the free market.

The government’s attempt to boost up the housing market was just another failure in a long line of economic idiocy. Let’s also not forget labor laws put into place that makes many laborious tasks in the United States outrageously expensive. Then there are the endless Environmental Protection Agency (EPA) regulations that make the construction of a manufacturing facility within the United States almost impossibly expensive. Cheap credit was granted to those who obviously couldn’t pay back the loans which did a huge number of the financial market. I could go on listing various government failures that got us into this mess but I think you get the point.

I believe it is a sign of insanity to try the exact same thing again and expect different results. If you place your hand on a hot stove it’s going to burn every fucking time, and if you allow central planners to meddle with the free market the economy is going to collapse every fucking time. Central planning is what ultimately destroyed the economy of the Soviet Union which caused the entire state to come crashing down. European Union central planners are in a real mess right now hoping the economy of Germany is strong enough to bailout the other member countries. China had to create Special Economic Zones which allow more free market practices to advance their economy.

Creating a “world economic order” is going to take the problems currently facing most developed countries around the world, amplify them, and cause far more widespread destruction than we’re experiencing now.

When you lack knowledge in a specific subject it is best to not offer advice regarding that subject.

You’re Blaming the Wrong One Percent

The popular slogan of the Occupy movement is, “We are the 99%!” This slogan implies that there is a sinister one percent of the population that’s causing the current economic and social strife. Do you know what? Those protesters are right. Do you know what else? It’s not the one percent they think it is:

But there is another 1 percent out there, those who do live parasitically off the population and exploit the 99 percent. Moreover, there is a long intellectual tradition, dating back to the late Middle Ages, that draws attention to the strange reality that a tiny minority lives off the productive labor of the overwhelming majority.

[…]

In the end, we end up with about 3 million people who constitute what is commonly called the state. For short, we can just call these people the 1 percent.

The top one precent of wealth holders isn’t the group causing our problems, the roughly one percent of the population that makes up the federal government. While those two groups aren’t mutually exclusive the latter group is the only one that can make rules, regulations, and ordinances that have a nationwide effect of further destroying our economy:

Same goals, different means, two very different sets of criminals. The state is the institution that essentially redefines criminal wrongdoing to make itself exempt from the law that governs everyone else.

It is the same with every tax, every regulation, every mandate, and every single word of the federal code. It all represents coercion. Even in the area of money and banking, it is the state that created and sustains the Fed and the dollar, because it forcibly limits competition in money and banking, preventing people from making gold or silver money, or innovating in other ways. And in some ways, this is the most dreadful intervention of all, because it allows the state to destroy our money on a whim.

Simply eliminating the Federal Reserve and the problems it generates would move our country towards recovery and eventual reclaiming of our past economic prosperity. Removing a massive number of labor regulations from the books would also help decrease unemployment and allow people to once again make a living. And you know what? With a return to sound money you would effectively have “more” money as it wouldn’t be constantly devaluing due to inflation. If the value of our money would just stabilize we’d all be wealthier immediately.

So let’s fight the real culprits, the actual one percent that’s the source of our woes. Drop all of this pointless screaming about the top one percent of wealth holders being evil bastards who are destroying our lives. Many of those wealth holders are employing a great number of people and providing products that many in society enjoy. Instead let’s point the finger at the federal government, the bastards who have created the environment of failure that has caused our current economic crisis.

A Primer on Cost

One of the common complaints about e-book readers is that the books are too expensive. These complaints usually bring up the fact that e-books should be much cheaper than physical books because you don’t have various costs such as printing, shipping, and storage to deal with. While those facts are true there is one economic fact that everybody seems to forget, cost of production has nothing to do with the sale price of a good:

Consumers set prices based on their preferences. It doesn’t matter what a book costs; what matters is what a reader will pay for it. Likewise, consumers in the Western world determine the prices — not by haggling — but by buying or not buying.

The fact is we set the cost of goods by buying or not buying them at asked prices. Hewlett-Packard’s TouchPad wasn’t selling at all when the price was set equal to the iPad but started selling like hotcakes when the price was reduces to $99.00. Obviously somewhere between the price of an iPad and $99.00 lies a price people are willing to pay for the device. Firearms are anther good that demonstrate the cost of production has nothing to do with the price people are willing to pay. Heckler and Koch make extremely expensive firearms that are functionally no more reliable than other similar firearms on the market yet people are willing to pay their higher asking price. Well I’m not willing to pay their price but that gets us into the fact that different people value different things:

There is no necessary and direct connection between the value of a good and whether, or in what quantities, labor and other goods of higher order were applied to its production.… Whether a diamond was found accidentally or was obtained from a diamond pit with the employment of a thousand days of labor is completely irrelevant for its value.

Value is subjective and different from person to person. While I find the additional cost of an Apple computer acceptable for what they are many are not. I find the higher cost of certain beers well worth every penny while others who are fine with Budweiser value the cost of beer different.

While I would love to see e-book prices drop I know they won’t be doing so any time in the near future. The sale of e-books has exploded suggesting that people are fine with their cost often being similar to a hardcover or paperback version of the same title:

Book sales for all of last year rose 3.6 percent, from $11.25 billion in 2009 to $11.67 billion in 2010. But e-book sales rose a stunning 164.4 percent ($441.3 million vs. $166.9 million) and downloaded audiobook sales increased 38.8 percent, while physical audiobook sales decreased 6.3 percent.

A 164.4 percent increase in e-book sales would indicate that the price is currently set at a level acceptable to most consumers. When you complain that something is too expensive remember that you can vote with your wallet and simply not buy that product. If enough people follow you then the producer will have to reduce the price or face bankruptcy (unless the government bails them out). This ability to negotiate with your money is one of the greatest aspect of the free market. I only wish I could do the same with government services.

Another Government Stimulus Failure

I honestly believe John Maynard Keynes’s theories on monetary policy have been some of the most dangerous ideas to come out in the last century. Trusting the government with the monetary system is a bad idea because it only encourages them to print money uncontrollably in order to spend on ill-fated projects. As governments are removed from market price feedback they have no way of knowing whether the money they’re spending is a good thing or a bad thing. This becomes all the more obvious when you look at the results of what they spend money one.

The most recent round of stimulus money was supposed to jumpstart the American economy by producing jobs for currently unemployed citizens. On top of that the stimulus money was also supposed to jumpstart government initiates such as the development affordable electric cars. Needless to say it’s not surprising to see the government spend over half a billion dollars on those goals and getting the exact opposite in return:

With the approval of the Obama administration, an electric car company that received a $529 million federal government loan guarantee is assembling its first line of cars in Finland, saying it could not find a facility in the United States capable of doing the work.

I’m sure that Finnish plan is going to help a lot of American get jobs. At least it will lead to affordable electric cars right? Wrong:

Fisker is more than a year behind rolling out its $97,000 luxury vehicle bankrolled in part with DOE money.

At least I don’t think $97,000 can really be considered affordable to the average American. There you have it, yet another example of what happens when the government tries to interfere with the market to steer it towards specific goals.

Why the Federal Reserve is Evil

It’s impossible to miss all the anti-Federal Reserve propaganda floating around but many honestly do not know why the Fed is such a terrible organization. Thankfully Ron Paul wrote a very accessible and to the point article on the subject:

The Federal Reserve has caused every single boom and bust that has occurred in this country since the bank’s creation in 1913. It pumps new money into the financial system to lower interest rates and spur the economy. Adding new money increases the supply of money, making the price of money over time—the interest rate—lower than the market would make it. These lower interest rates affect the allocation of resources, causing capital to be malinvested throughout the economy. So certain projects and ventures that appear profitable when funded at artificially low interest rates are not in fact the best use of those resources.

[…]

The manner of thinking of the Federal Reserve now is no different than that of the former Soviet Union, which employed hundreds of thousands of people to perform research and provide calculations in an attempt to mimic the price system of the West’s (relatively) free markets. Despite the obvious lesson to be drawn from the Soviet collapse, the U.S. still has not fully absorbed it.

The Fed fails to grasp that an interest rate is a price—the price of time—and that attempting to manipulate that price is as destructive as any other government price control. It fails to see that the price of housing was artificially inflated through the Fed’s monetary pumping during the early 2000s, and that the only way to restore soundness to the housing sector is to allow prices to return to sustainable market levels. Instead, the Fed’s actions have had one aim—to keep prices elevated at bubble levels—thus ensuring that bad debt remains on the books and failing firms remain in business, albatrosses around the market’s neck.

If you’re unfamiliar with the subject of the Federal Reserve I highly urge you to read the entire article. I can say without any doubt that ending the Federal Reserve is the most important task we have as Americans. Without the Fed most of the other major ills perpetrated by our government would become impossible to continue and our economy would have the biggest barrier between it and recovered removed.

Bitcoin is Collapsing

Ars Technica has a nice writeup regarding the steady fall of Bitcoin’s value:

Unfortunately, the currency’s value hasn’t proven stable in practice. Several waves of media coverage between April and June pushed the currency’s value up from less than $1 to more than $30. Soon after it reached a peak, the currency had a series of PR disasters. One Bitcoin user claimed that a half-million dollars worth of Bitcoins were stolen from his PC; he may have fallen victim to Bitcoin-stealing malware. A few days later, the most popular Bitcoin exchange was hacked, forcing a multiday suspension of trading and generating another wave of bad press.

Trading resumed in late June at around $17, and the currency’s value has been steadily declining ever since. In August, one of the most popular Bitcoin “banks” claimed it had been hacked, and had lost hundreds of thousands of dollars worth of Bitcoins, triggering a fall in value to under $7. Bitcoin fell below $5 in September, and it is now worth less than $3.

So is Bitcoin doomed? The value of Bitcoins is (like any fiat currency) ultimately driven by supply and demand. With dollars, the supply is controlled by the Federal Reserve, and the demand is driven by the size of the US economy. The supply of Bitcoins grows automatically, asymptotically approaching 21 million, and the demand for Bitcoins is driven by the volume of Bitcoin-denominated transactions.

Many people in the libertarian movement have been excited about Bitcoin. I know some people who have invested quite heavily in the electronic currency and thus far have no real value to show for it. The surge of Bitcoin supporters in the libertarian movement confused me as most libertarians are proponents of commodity backed currencies. We support commodity backed currencies because it means there is real value tied to our money in the form of the commodity. For example silver is used in numerous industrial processes which makes it valuable. If you have silver you can easily state that it has value because it’s used to produce other things. Even if it isn’t chosen as money it can be traded to those who utilize it just as gold, gasoline, and food can be.

Bitcoin is backed by nothing, which makes it yet another fiat currency. The United States dollar is a fiat currency that enjoys commons use because other countries have chosen to back their fiat currency with dollars and because the federal government requiers you pay all taxes, fines, and payments to them in dollars. If you don’t have dollars you can literally go to prison come tax season. In essence the dollar has value because a gun is put to your head saying it does. Bitcoin doesn’t enjoy this benefit either so it’s really only worth what people are willing to pay for it.

As it sits now there is a chicken and egg problem with Bitcoin. Bitcoin can only be valuable if people accept it in payment for actual goods and services but nobody wants to go through the hassle of accepting it until enough customers want to pay for their goods and services in Bitcoins. There is no intrinsic value in Bitcoins as they are nothing more than bits on harddrives and networks so the system doesn’t enjoy the benefits of commodity backed currencies.

I believed from the beginning that Bitcoin was an interesting experiment that could, eventually, lead to greater things but will likely peter out in its current form. Part of the reason I predict doom and gloom for Bitcoin isn’t just the fact that it’s a fiat currency but also because the government has a knack for shutting down any potential competition for the Federal Reserve dollar. Reading the news of Bitcoin’s downward value slide it appears as though the government won’t need to resort to legislation to put Bitcoin down.

The Obama Campaign Blame Game Continues

Members of the Obama Campaign really love to use the three year-old tactic of blaming somebody else for their failures. Take for instance Jesse Jackson’s latest rant:

“President Obama tends to idealize — and rightfully so — Abraham Lincoln, who looked at states in rebellion and he made a judgment that the government of the United States, while the states are in rebellion, still had an obligation to function,” Jackson told TheDC at his Capitol Hill office on Wednesday.

“Jackson added that his $804 billion stimulus plan is the only way to solve the unemployment crisis. “I support the jobs plan. I support the president’s re-election. I support Barack Obama,” he said. “But at this hour, we need a plan that meets the size and scope of the problem to put the American people to work.”

No Jackson, the only way to solve the unemployment crisis is to get the government out of the economy. Starting immediately the government needs to repeal every rule, regulation, and control they’ve placed on economic actors and let them prosper. The Federal Reserve needs to be dismantled and this country needs to return to sound money chosen by the free market. Anybody who believes the government can produce jobs desperately needs to read Economics in One Lesson by Henry Hazlitt.

“We’ve got to go further. I support what [Obama] does. Clearly, Republicans are not going to be for it but if the administration can handle administratively what can be done, we should pursue it. And if there are extra-constitutional opportunities that allow the president administratively to put the people to work, he should pursue every single one of them,” Jackson suggested.

President Obama’s jobs bill was defeated in the Democratic-controlled Senate on Tuesday and has not been voted on in the Republican-controlled House.

Emphasis mine. Yes it’s obviously the Republican’s fault that the jobs bill failed to pass in the Democrat controlled Senate. I’m sure it had nothing to do with Democrat Harry Reid blocking the vote either.

Misdirected Outrage

A common theme at the various occupy events seems to be misdirected outrage. While many attendees are properly directing their rage the enabler of both out-of-control corporations and bankers a majority I’ve talked to seem to direct their rage simply at the corporations and bankers. Neither large corporations or the bankers could have gotten away with what they did unless the government granted them immunity and bailed out their failures with taxpayer money.

Under such circumstances further government involvement is the last thing anybody should be calling for:

Even Hessel denounces that lobbyists have overtaken government in “the highest spheres.” Nevertheless, he seems to believe that if government were to have more control over industries, corruption would not do its harmful work. In other words, for Hessel, if politicians and bureaucrats had more power than they currently have, the system would be less corrupt. History, however, shows that Lord Acton was right: the more power there is in the hands of the rulers the more corrupt the system becomes. The greatest failure of socialism was not that it brought about economic misery to the masses it was supposed to help but that it created a class system more violent and rigid than anything the Western world had ever seen. The central maxim of socialism — namely, equality — was betrayed as soon as the revolutionary leaders consolidated their power over the state. The new elite created a two-class system that rested on systematic coercion: on the one hand there were the party leaders and their friends who lived like kings enjoying all sort of luxuries, many of them imported from the capitalist world; and on the other hand there was everyone else, fighting for survival.

The quote by Acton references in this paragraph was, “power corrupts and absolute power corrupts absolutely.” A government by definition has absolute power because they enforce their rules at the point of a gun. Giving the goons in government more power is only going to allow them to strangle you harder while gifting your money and belongings to their friends. The former Soviet Union demonstrates this fact well as members of the Communist Party enjoyed lives of luxury compared to the average citizen living with its borders. Likewise the bankers couldn’t have pulled off what they did if the government had not given them the ability to print money via the Federal Reserve:

Regarding the “dictatorship” of the financial elites, denounced by Hessel and movements such as Occupy Wall Street, this is again mainly the product of government. We have a banking system that can only work the way it does because it is based on fiat currency and is supported by a central bank — that is to say, a government-created agency of monetary central planning. Central banks provide private banks with liquidity, allowing them to expand the money supply in a coordinated fashion, thereby creating financial and real-estate bubbles. But more importantly, banks take the money given at artificially low interest rates by the central bank and use it to speculate. The dramatic rise in the price of raw materials and agricultural commodities since 2008 is basically the result of the inflation created by central banks. The most perverse consequence of this government-induced inflationary process is that it redistributes wealth from the middle class and the poor to the rich financial elites and governments, for whom inflation works as a hidden tax.

The poor aren’t getting poorer because of actions taken by “the corporations” (I put the term in quotes because many people blaming corporations don’t even know what the term really means and instead believe it to simply mean big businesses). Your money is able to buy less and less every day because the Federal Reserve is able to print money. When you inject more money into an economy each monetary unit becomes less valuable (its purchasing power is reduced). Likewise stop blaming the rich who obtained their wealth by providing better goods and services to you and me:

Bill Gates for instance, for a long time the richest man in the world, has improved the lives of all of us with his inventions. We have freely decided to buy Microsoft products because they are useful; thus everyone has benefited. In the same manner, when we go to the baker next door and buy some bread, both parties to the transaction are benefiting: the baker because he has money to buy other goods and services he needs for himself and his family, and we who now have delicious bread to eat. It does not make any difference if this baker becomes a millionaire by selling his bread. Actually, it would mean that he is good at his job, so he expands his business in order to satisfy the demand. Why should we be outraged if he becomes rich in the process? We should celebrate the fact that he was prosperous. His prosperity means more jobs and more bread for more people. From every point of view, the millionaire baker is performing a social function. In the same fashion, Bill Gates’s inventions increased productivity, bringing millions of people over the poverty line around the world.

Just because somebody has a great deal of money doesn’t mean that they’re evil. I would go so far as to say a majority of those who are wealth obtained their wealth legitimately and should be celebrated for serving society so well. Steve Jobs, Bill Gates, and Henry Ford didn’t obtain their wealth by using the government’s monopoly on violence, they obtained it by providing a good or service that a large number of people wanted. So when you decide to tweet about your hatred of “corporations” from your iPhone 4S stop to think for a second and realize Twitter and Apple have done you no wrong. You should be outraged at your government who stole money from you and gave it to the likes of General Motors, Chrysler, and many of the largest banks who you voted to fail by purchasing their competitors’ products. Unless the government decrees otherwise you have a choice in what companies you do business with so vote with your dollar, you don’t have a choice in what government services you wish to partake in though and that’s what you should be pissed off about.

If you’re outraged by current economic conditions don’t demand the government step in to intervene, demand the government get the hell out of the way.

Debt Free Living

WizardPC has been writing a very good series on his website called Debt Free Living. I’m very fortunate to have the father I do because he began his own business with nothing and now has the most successful auto shop in his town. While he had to take business loans periodically to establish and expand his business he’s always paid them off far ahead of their due date and has never accumulated debt via credit cards of other frivolous expenditures. Although I’m not the smartest man on the planet I’m very capable of learning from those who are incredibly smart and thus I’ve always been a close manager of my money.

Unfortunately many people in this country (and elsewhere in the world) are not so careful with their finances. WizardPC’s guide explains important things that you need to consider when trying to get out of debt. The most important of these lessons is creating and sticking to a budget and eliminating your current debt and the interest that must be paid on it as soon as possible.

Sadly as government policies continue to cause ever increasing inflation it’s difficult to create a sustainable budget while your purchasing power is reduced on a daily basis. While the interest in my money market account used to be notable it’s now so pathetically low that it’s like having no interest at all. Thankfully I’m a man who diversifies a bit and have been able to maintain much of my purchasing power through investments in precious metals. I think an important lesson for getting out of debt is understanding that you not only have to eliminate your current debt to forgo paying eternal interest but also because your money is becoming more worthless every day (thanks government) and thus you’re going to need more of it in the future to cover basic living expenses such as food and water (especially if you’re not getting periodic raises to offset the effects of devaluing money).

A man without debt is truly beholden to nobody (well except the government because they still have guns to your head). Instead of working for your financer, work for yourself. Once you’ve eliminated your current debt then all money made by you goes to you (and the government who will ultimately shoot you if you refuse to pay their demanded pizzo).

Wait People are Taking Free Stuff, Next You’ll Tell Me Water is Wet

The recent occupy movements have been fueled mostly by donated goods. I know the local Minneapolis occupiers are constantly asking for needed items like food, toilet paper, mouthwash, coats, shirts, socks, etc. There’s an obvious problem when you have a gathering fueled entirely by charitable donations, as Miguel at Gun Free Zone points out, people outside of the movement are likely to come and take your shit:

Meanwhile, the protesters are starting to notice folks taking advantage of the demonstration by grabbing some of the free food and clothes that have been made available in Zuccotti Park.

“The tourists take all the food, and the hipsters take all the clothes,” said one demonstrator.

Yup, this happens when you no longer have a system of strict property rights. If everything is up for grabs don’t be surprised if everybody grabs things. This is a major problem that develops in any setting where property rights aren’t strictly defined or enforced. If you’re providing free for for everybody then need to understand people are going to be showing up regardless of whether or not they are part of your movement because they want free shit.

Behavior like this is also what dictates the end of societies build around the idea of, “from each according to his ability, to each according to his need.” While the people of ability will produce for the needs of society at first they will eventually realize that they’re working their asses off while those providing nothing towards the betterment of society reap all of the reward. Once the people of ability realize this they will cease producing and become one of the leeches. Why work your ass off if you’re not going to receive anything for your efforts when you can kick back, relax, and receive everything you need without having to work? When you have a society composed entirely of leeches the blood eventually runs out and all perish.

Don’t misunderstand what I’m saying, I’m not saying voluntary donations are bad. I give money to quite a few organizations. But those who support the abolition of property rights and freely giving anything to anybody who asks need to realize that the system will attract leeches. If you’re OK with this then by all means provide goods freely to those who ask but don’t complain when the leeches show up and start taking everything.