Category: Economics

The Truth Hurts

Donald Trump has promised to bring in a new wave of protectionism for American businesses. This news has been met with cheers from the small government advocates in the Republican Party. The democrats haven’t been cheering but only because Donald Trump is promising it. If Hillary Clinton had promised it they would be cheering but at least the cheering wouldn’t come immediately after claiming they’re for a small government.

Protectionism is almost always promised by people who blame foreign countries from a bad domestic economy and this case is no different. Trump and the republicans are claiming that China has been stealing American jobs. But Jack Ma, Chinese billionaire, sees things slightly differently:

Ma says blaming China for any economic issues in the U.S. is misguided. If America is looking to blame anyone, Ma said, it should blame itself.

“It’s not that other countries steal jobs from you guys,” Ma said. “It’s your strategy. Distribute the money and things in a proper way.”

He said the U.S. has wasted over $14 trillion in fighting wars over the past 30 years rather than investing in infrastructure at home.

While I disagree with his claim that the money was merely misappropriated, he’s entirely correct in saying that the $14 trillion spent in fighting wars was wasted.

Any economist who isn’t a complete moron, of which there are very few, knows that wars don’t produce wealth. Sure, it often looks like wars are good for the economy because jobs are created to feed the war machine but none of those jobs are productive. They exist to destroy wealth. Every piece of military machinery is build to be destroyed. Ammunition is expended. Tanks are either destroyed in combat or destroyed after they’ve been made obsolete by a new tank. Aircraft carriers that aren’t sunk by the enemy are sunk by the owners when they’re decommissioned to make way for the new fleet. Every building, road, and telephone pole destroyed in a war must be rebuilt afterwards. No actual wealth is created by war. Wealth is merely dumped into building expendable equipment or redoing work that was previously done. This is also why fourth generation warfare is so effective. One side spends pennies while the other spends trillions.

Instead of waging an endless war, the people of the United States could have been doing productive things. But the government chose warfare, the people rolled over and accepted warfare, and a huge amount of wealth has been diverted to unproductive endeavors, which has done nothing good for the economy. China isn’t taking American jobs, the United States government is destroying those jobs.

Capitalism Versus Socialism

One of the biggest criticisms socialists make against capitalism is that under capitalism a poor individual may starve. But under socialism a poor individual… may starve:

PUERTO CABELLO, Venezuela (AP) – When hunger drew tens of thousands of Venezuelans to the streets last summer in protest, President Nicolas Maduro turned to the military to manage the country’s diminished food supply, putting generals in charge of everything from butter to rice.

But instead of fighting hunger, the military is making money from it, an Associated Press investigation shows. That’s what grocer Jose Campos found when he ran out of pantry staples this year. In the middle of the night, he would travel to an illegal market run by the military to buy corn flour – at 100 times the government-set price.

Queue all of the socialists claiming Venezuela isn’t real socialism. But the military is part of the State and therefore it having a “legitimate” monopoly on food distribution most certainly is socialism.

Scarcity is a law of nature. Because of that, no system can guarantee that every individual will receive everything they need to survive. Socialists claim that they can overcome this rule of nature but socialists countries have been proving them wrong time and again.

The difference between capitalism and socialism is how wealth is distributed. Under capitalism wealth is distributed by one’s ability to serve the market. If you are able to serve the market successfully you can obtain wealth. Under socialism wealth is distributed by one’s favor with the State. If you can curry favor with the State you can obtain wealth.

Neither system can prevent starvation or nefarious people from obtaining wealth. But the former relies on pleasing the masses whereas the latter relies on pleasing the elites in power. To me it seems rather obvious which is more ripe for abuse.

Dire Straits

In Finland the jobless can get their money for nothing and they don’t have to install microwave ovens:

Finland will soon hand out cash to 2,000 jobless people, free of bureaucracy or limits on side earnings. The idea, universal basic income, is gaining traction worldwide.

The computer graphics in that video are almost as bad as this idea!

Before any advocates of universal basic income start creaming their pants over this let me point out that this is a solution to a problem that was, not surprisingly, created by the government in the first place:

While entrepreneurs are eager to put these people to work, the rules of Finland’s generous social safety net effectively discourage this. Jobless people generally cannot earn additional income while collecting unemployment benefits or they risk losing that assistance. For laid-off workers from Nokia, simply collecting a guaranteed unemployment check often presents a better financial proposition than taking a leap with a start-up in Finland, where a shaky technology industry is trying to find its footing again.

The problem isn’t that there aren’t jobs available. The problem is that the Finnish government has created a system that discouraged unemployed individuals from seeking another job. Instead of fixing that problem the Finnish government has decided to exacerbate the problem by giving unemployed individuals money for being unemployed. How will that encourage them to seek a new job? It won’t.

I’m sure a bunch of advocates of universal basic income are ready to accuse me of hating workers because I’m not onboard with their little scheme. But I don’t hate workers. In fact, I am a worker. But universal basic income is an unsustainable idea because it relies on taxes and taxes only exist if there is wealth to steal. Ask yourself this, without employees motivated to work how can employers create the goods and services that create the wealth that supports universal basic income? Without employers wealth isn’t created. Without employees the employers can’t create wealth. This means that eventually the supposedly guaranteed income is no longer guaranteed because there is no money to pay it with.

TANSTAAFL, there ain’t no such thing as a free lunch, is the rule that the universe runs by. A few words written by some bureaucrats in a marble building can’t make that rule go away.

If Keynesian Economics isn’t Solving Your Problem Then You’re Not Using Enough of It

Although it’s unlikely he actually said it, it is often claimed that Albert Einstein said that the definition of insanity is doing something over and over again and expecting a different result. By that definition there are a lot of insane people out there discussing mainstream economics.

Take this article, for example. The article tries to argue that Keynesian economics could save the United States. The problem with the article, besides its advocacy of nonsense, is that it’s based on the false premise that the United States government ever stopped following Keynesian economics.

The United States is in the mess that it’s in, in part, because it followed Keynes’ advice instead of Mises’. Instead of relying on free markets, a commodity based currency, and debt avoidance the United States has been relying on cronyism, a fiat currency, and racking up more debt than a drunken teenager with their parents’ credit card. The natural correction mechanisms of markets have been suppressed for decades, which has lead to a massive misallocation of resources. Eventually the problem will become so bad that no force will be able to continue suppressing these market forces and people will get to enjoy the mother of all depressions. Debt, likewise, is unhealthy in the long run because creditors eventually refuse to loan any more money (or buy your debt in the case of the United States) and call in outstanding loans. When those loans are called in and you don’t have the money to pay you end up going bankrupt (or killing your creditors as the United States will likely try to do).

The current United States economy is what you get when a government goes full Keynesian. If you’re really interested in trying to fix this mess you should pick up some books written by Ludwig von Mises and follow their advice.

Fuckin’ Prices, How Do They Work?

Today is Cyber Monday, which may have been the first in a long list of regular words to get the word “cyber” needlessly tacked onto it. While people do their cyber shopping on Cyber Monday for cyber deals they may ask themselves, why the fuck can I order a big screen television for a few hundred bucks but can’t even get a simple medical diagnosis without blowing through my deductible? The answer to that, as with the answer to most economic questions along those lines, has to do with government granted monopolies:

Take a look at this chart assembled by AEI. It reveals two important points. First, there is no such thing as an aggregate price level, or, rather what we call the price level is a statistical fiction. Second, it shows that competitive industries offer goods and services that are falling in price due to market pressure. In contrast monopolized industries can extract ever higher rents from people based on restriction.

There’s no such thing as an aggregate price level? Next you’ll tell me that gross domestic product is a made up number as well!

If you click on the link and look at the chart you’ll see that prices for college tuition, textbooks, childcare, and medical care have been increasing rapidly whereas the prices for television, toys, software, and wireless services have been decreasing rapidly. The difference? The goods and services that have been increasing in price are all monopolized or otherwise heavily restricted by the State whereas the goods and services that have been decreasing in price all exist in markets with an extremely high level of competition.

The takeaway from this is that there is a vicious cycle when it comes to prices and the State. When prices go up people demand that the State intervene to bring prices down. Usually it was the State’s involvement that caused the prices to go up in the first place and if people get what they want the prices will go up even further as the State gets further involved. With the ramifications of the Affordable Care Act (ACA) becomes apparent many people are demanding the State step in to fix its mess. But most people aren’t demanding that the State decrease its involvement in the healthcare market. Instead they’re demanding that it further increase its involvement by implementing a single payer system. In other words, people are demanding that the vicious cycle be continued and if it is (which it almost certainly will be) we’ll see healthcare prices jump even higher (but those increases will probably be hidden in payroll taxes so most people remain ignorant of them and thus believe that the problem was solved).

The Issue Nobody Wants to Talk About

I didn’t watch last night’s debate. I’ve already seen enough videos of monkeys flinging feces at each other for a lifetime. But I did find an excellent video that summarizes both candidates’ position on a very important issue:

During his first presidential run, Obama spent a lot of time talking about the wars in Iraq and Afghanistan. He claimed that he was going to make ending those wars a priority. While he was lying through his teeth it was refreshing to have at least one major candidate opposing war. This year? Both major candidates are war hawks and want to turn Syria into rubble (not because of anything Syria has really done but because it’s a proxy for Russia and old Cold War attitudes die hard). But neither one of them wants to address the fact that the United States is involved in five fucking wars:

In an election flush with conspiracy theories, here’s one that’s real: Both major party nominees, as well as the journalists who cover the election and moderate the debates, are actively conspiring to avoid talking about the fact that the United States is waging war in at least five countries simultaneously: Iraq, Syria, Yemen, Libya, and Somalia.

In the first two presidential debates, our involvement in the Syrian civil war was briefly discussed, as was ISIS in vague terms, and the Iran nuclear deal, and Russia’s mischief-making in Eastern Europe and the Middle East, and Libya, though mostly in the past tense, focused on our 2011 intervention to depose Moammar Gadhafi and the subsequent attack on American government facilities in Benghazi a year later.

But our role in “advising” the Iraqi army “a few miles behind the front lines” as it works to take back territory from ISIS? Our “secret war” against Shabab militants in Somalia? Our support for Saudi Arabia’s bloody assault on Houthi rebels in Yemen? Our air strikes pounding positions in and around the city of Sirte on the Libyan coast?

Nada. Zip. Nothing.

While Keynesians have wet dreams over all of the economic “stimulus” wars create the only people who benefit are those within the military-industrial complex. Lockheed Martin, General Electric, Blackwater (or whatever the hell they call themselves now), etc. make big dollars on war. People (if you can really call Keynesians people) will also mistakenly point out that construction companies and other rebuilders make big dollars as well. But their ignorance of Bastiat’s broken window fallacy causes them to ignore the fact that those builders would be building newer, better buildings instead of replacing older buildings in an economically prosperous (i.e. not blown to Hell and back by war) region. Furthermore, an economically prosperous region would have goods and services to trade with other regions, which would increase the wealth of both sides. When wars are waged everybody outside of the military-industrial complex gets screwed.

In times of peace wealth is invested in developing new more technologically advanced goods and services. During times of war wealth is diverted to onetime use munitions and rebuilding everything that was blown up. Both sides are diverting wealth that was stolen from their populace into first building bombs, tanks, ships, bunkers, supply lines, surveillance technologies, etc. and then replacing them all when they’re destroyed. It’s an unending cycle of wasted potential.

The United States is already involved in five wars. Getting involved in more wars or throwing more resources into existing wars is only going to increase the amount of wealth wasted on death and destruction. No matter which president wins in November it’s clear that the current wars will not only march on but increase in intensity. This will only worsen the already tedious economic situation the country, and really most of the world, is in. And nobody wants to talk about that. Nobody wants to talk about what is probably the single biggest issue facing the world right now. What is the point of political debates if the important issues aren’t being broached (don’t answer that, it was a rhetorical question)? Where is the choice in an election if both candidates hold the exact same destructive positions on truly important issues (again, this is a rhetorical question)?

Before I end this post I want to address something. I’m sure some very decent human beings are asking themselves why I’m framing this discussion within economics instead of human lives? I’m trying to reach the statists here and as we know statists tend not to value human lives very highly (if they did they wouldn’t be statists). But they never shut up about the economy. I guess a part of me hopes that framing this discussion within economics I might be able to reach one or two of them and convince them to ask why nobody is addressing the issue of war in this election.

When Your Return On Investment Doesn’t

As a resident of the Twin Cities I’ve recently suffered the bullshit spewed by stadium advocates. When the local handegg team started whining about wanting an even bigger stadium the smart people said it was a stupid idea and the stupid people said it was a smart idea. The stupid side claimed the stadium will bring a huge boost to the local economy. People from around the country will supposedly flock to the new stadium where they wouldn’t have come to the old stadium (apparently handegg fans travel to games for the buildings, not to watch the teams). This, in turn, will flood local eateries, convenience stores, hotels, and every other business with patrons. And that will lead to a flood of tax revenue (handegg fans also seem to think tax revenue is a meritorious thing). Since everybody will benefit, they claim in spite of facts, the stadium should be at least publicly funded.

One issue never touched by stadium advocates is what happens when the breadwinning team decides to leave? That’s the question denizens of St. Louis are probably wishing they had asked themselves before they built their shiny new stadium:

The St. Louis Rams’ decision to relocate to Los Angeles brought a double dose of bad news for the city’s residents on Tuesday: Not only are they losing the football team they’ve hosted for the last 21 years, they also still have to pay for the stadium they built to lure the Rams to their hometown in the first place.

At the beginning of 2015, city and state taxpayers still owed more than $100 million in debt on the bonds used to finance the Edward Jones Dome, the stadium St. Louis put $280 million in public funds behind in 1995.

It isn’t scheduled to pay off that debt until at least 2021, and that could be more difficult without the Rams and the $500,000 rent payment the team made each year. The city itself owes $5 million per year over that period, and the loss of the Rams could increase costs in the short-term.

Politicians, being incapable of admitting to fuck ups, are trying to spin this to their favor. But the bottom line is the city will have to pay off the stadium without a continuos source of rent. That will almost certainly lead to a rise in property taxes if not other taxes to make up the difference.

Publicly funded stadiums are nothing more than exercises in transferring wealth from the people to the politicians and their cronies. Even though the Rams are moving on the team gets to enjoy a great deal of wealth it otherwise wouldn’t have had because it was tight with the local politicians who were willing to put the tax victims on the line.

Take Immediate Payment Over Promises Of Future Benefits

Pensions used to be one of the most sought after benefits and it’s easy to see why. On paper a pension allows you to put in your 30 years and receive a paycheck for the rest of your life. But things don’t always work out as planned. Many pensioners are learning the hard lesson that if you don’t have your compensation in hand you may never receive it:

Ken Petersen spent 30 years as a Teamster trucker, loading and hauling utility poles, fertilizer and other freight. All those years his employers socked money away for the monthly pension check Petersen has received since he retired from trucking in 2003.

Now, to save the Teamsters Central States Pension Fund from collapse, its trustees want to slash the pensions of 272,600 fund members, nearly 15,000 of whom are Minnesotan. Thousands are already retired and living on the pensions.

Petersen, 65, and working in a South St. Paul elementary school to make ends meet, said his monthly pretax retirement check would be chopped from $2,550 to $1,274.

The only constant in the universe is change. Pensions only work if certain criteria remain constant. The amount being paid into a pension fund must be greater than or equal to the amount being paid out. Pensioners have to die at the calculated rate, which is difficult to calculate due to improving medical technology. Whoever manages the pension account must not go bankrupt otherwise the account disappears. In other words there are numerous economic conditions under which a pension can fail.

Pensions, like stock options, are a gamble. They may pay off or they may not. This is why I tell people they don’t have any compensation that isn’t in their hand. If you’re offered a slightly larger paycheck now or a future pension take the bigger paycheck. Even if you looks like you’ll earn less over time it’s guaranteed.

The United States Isn’t A Wealthy Nation

Several of the Bernie bots were sharing more economic ignorance spouted by their preferred presidential candidate. This time it was Bernie saying that the United States is the only wealthy country that doesn’t guarantee health insurance. How can he claim a nation that is tens of trillions of dollars in debt is wealthy? It’s the kind of lunacy only made possible through political doublespeak. War is peace, freedom is slavery, ignorance is strength, and debt is wealth!

The United States is at that point where it has stretched itself so thin for so long that it can no longer even keep up the appearance of wealth. Like the man who used an extensive line of credit to buy his mansion that was just foreclosed and Ferrari that was just repossessed, the United States is no longer able to even maintain what it already purchased. A good illustration of this is the transportation infrastructure:

Imagine you’re driving. Maybe on the Kennedy Expressway in Chicago, or down Interstate 95 through New Haven, or I-94 in Milwaukee. Chances are you’ll encounter a truck-swallowing pothole, or lanes strewn with orange cones, or traffic at a standstill. After all, Illinois, Connecticut, and Wisconsin have the worst roads in the nation. And the Highway Trust Fund — the source for most federal spending on roads, bridges, highways, tunnels, and public transit — is almost out of money. Again.

[…]

The fund’s primary source of revenue is the federal fuel tax of 18.4 cents per gallon on gasoline and 24.4 cents per gallon of diesel. That tax hasn’t gone up since 1993, and isn’t pegged to inflation. A dollar in 1993 is worth only 60 cents today. If the gas tax had kept up with inflation, it would be 30 cents a gallon today and pull in nearly twice the amount of revenue. The tax brings in around $34 billion each year, but while that seems like a lot of money, it barely scratches the surface of what’s needed to maintain the nation’s highways in a state of good repair.

The federal government spends roughly $50 billion annually on infrastructure, leaving a $16 billion hole in the Highway Trust Fund. Over the last decade, Congress has signed off on a series of short-term extensions to prevent the fund from completely drying up. The one just approved by the Senate would mark the 36th such funding extension for the fund since 2009.

The article argues that the gas tax needs to be increased to pay for infrastructure maintenance. If this was a new problem that arose in a wealthy nation a simple gas tax increase might be enough of a bandage. But the infrastructure has been in decay for decades so the costs of fixing everything is so astronomically high that it’s not even a feasible project anymore:

So what needs fixing? Almost everything. Today, more than 60,000 bridges in the United States are considered structurally deficient, according to the Department of Transportation, and 32 percent of US major roads are in poor or mediocre condition, according to the American Society of Civil Engineers. In its most recent report, the ASCE gave the nation’s overall infrastructure — everything from airports to wastewater — a D+. The US would need to spend an estimated $3.6 trillion by 2020 to bring its infrastructure into decent shape. That’s more than one-third the nation’s entire gross domestic product.

Emphasis mine. The infrastructure is in such a dilapidated state that the federal government would need to steal one-third of the entire nation’s gross domestic product just to bring it up to date in four years. That, ladies and gentlemen, is point where your income can’t even pay off the interest on your debt. And it’s only one of a practically uncountable number of government programs. No amount of additional plunder will allow the United States to get back on its feet.

People saying the United States is a wealthy nation should be laughed at. When they use that claim to justify creating yet another government program that will add more debt they should be publicly shamed. Their names should become common insults. Instead of saying “You’re an idiot,” the new insult should be, “OK, Bernie Sanders.”

The empire is collapsing. No amount of voting will save it, thankfully.

Don’t Ask An Astrophysicist About Economics

Neil deGrasse Tyson has reach almost messiah levels on the Internet and it’s easy to see why. He’s a brilliant man who managed to avoid the social awkwardness many brilliant individuals suffer from. But he’s an astrophysicist, not an economist. He made this very clear during a recent interview:

It seems really easy to delude ourselves about the state of space now, right? We look at a company like Mars One and say, “Oh yeah, totally, that seems possible. A reality show would definitely fund a mission to Mars.” Or even SpaceX, we’ve looked at that company with wide eyes and only now question them after a very public failure.

The delusion that relates to private spaceflight isn’t really what you’re describing. They’re big dreams, and I don’t have any problems with people dreaming. Mars One, let them dream. That’s not the delusion. The delusion is thinking that SpaceX is going to lead the space frontier. That’s just not going to happen, and it’s not going to happen for three really good reasons: One, it is very expensive. Two, it is very dangerous to do it first. Three, there is essentially no return on that investment that you’ve put in for having done it first. So if you’re going to bring in investors or venture capitalists and say, “Hey, I have an idea, I want to put the first humans on Mars.” They’ll ask, “How much will it cost?” You say, “A lot.” They’ll ask, “Is it dangerous?” You’ll say, “Yes, people will probably die.” They’ll ask, “What’s the return on investment?” and you’ll say “Probably nothing, initially.” It’s a five-minute meeting. Corporations need business models, and they need to satisfy shareholders, public or private.

A government has a much longer horizon over which it can make investments. This is how it’s always been.

SpaceX may not be the company that manages to get privatized space exploration off the ground but not for the reasons he gives. Expense and danger have never been major hinderances to entrepreneurs. Oftentimes the State will cite dangers as its reason to hinder an entrepreneur but our history is riddled with people who took tremendous risk in the name of being the first to develop a new technology. With that said, most entrepreneurs don’t blindly rush into danger but make a best effort attempt to identify and mitigate risks. SpaceX is a great example of this. Recognizing the potential dangers rocketry imposes SpaceX has been investing resources into designing an ejection system for astronauts in case something bad does happen (something, I might add, the National Aeronautics and Space Administration (NASA) never bothered with).

But Tyson’s biggest mistake was claiming there’s no return on investment. He fell into the common trap of assuming just because he can’t imagine a return on investment one must not exist. Successful entrepreneurs are successful because they realized a return on an investment others did not. Space offers up tremendous returns to the right entrepreneur. Astroid mining, zero gravity manufacturing, tourism, and an environment that allows a lot of research to be more easily performed are just a few returns available to entrepreneurs who get into space. Mining alone could be a huge return simply because moving large amounts of raw materials through vacuum and dropping it down near where it’s needed is easier than transporting the same amount across a planet.

I think his claim that government has a much longer horizon is also in meaningless. The longest horizon in the universe won’t accomplish anything noteworthy without creativity. Governments are terribly uncreative. Unless something may expand a government’s ability to expropriate wealth it tends to have little or no interest in pursuing it. What makes entrepreneurs valuable is their creativity. An entrepreneur by definition is somebody who used their creativity to come up with a new good or service. A successful entrepreneur is somebody who came up with a good or service people wanted. Because there is nothing obviously worth stealing in space it’s unlikely governments will invest any notable resources into exploring it. It may, however, attempt to tax any goods or services an entrepreneur creates in space. And entrepreneurs will try because there is a great deal of potential value in space.

Space exploration is, amongst other things, an economics problem. I wouldn’t doubt Tyson’s input when it came to the physics involved in space exploration but I’ve seen no reason to believe his knowledge about economics comes close to his knowledge about physics.