Category: Economics

Why the Government Sucks at Building Roads

A common phrase you’ll hear amongst libertarian circles is “But without government who will build the roads?!” This phrase is a sarcastic remark meant to poke fun at statists who cannot conceive of an alternative to government transportation infrastructure. While statists continue to claim that government is necessary to build and maintain roads, us libertarians are asking why government roads suck so much.

As I mentioned yesterday, Minnesota has a lot of dilapidated bridges. Anybody who drives the roads around here knows that bridges aren’t the only part of our automobile infrastructure that sucks. Some roads are so full of potholes that I feel as though the off-road package on my Ranger is necessary when traveling on the roads. No tax increases or surpluses seem to change anything. What’s the problem?

The problem is incentives. Statists scoff at the idea of private roads but the fact of the matter is private entities that derive profits from roads have an incentive to maintain those roads. Businessed, for example, want to make it as easy as possible for customers to get to them. Organizations that own highways want to provide motorists the best experience possible so they’ll keep coming back. Governments have no such incentives.

The two biggest problem with government roads are monopolization and mandatory payments. In many states the government maintains a near monopoly on road infrastructure. This is done through regulations that make building roads illegal or prohibitively expensive. Regulations usually take the form of outright bans, building permits, property taxes, arbitrary environmental restrictions, etc. Effectively the state declares a monopoly for itself on any notable infrastructure. If people living in a state need access to roads and don’t like what the state has provided they have no alternatives so there is no concern that users will go elsewhere. Even if users stopped using the roads they’re still required to pay for them. Taxes, after all, aren’t voluntary. Using private roads to get around wouldn’t exempt you from paying the state gas tax when you filled up your tank. Property and sales taxes, which are sometimes used in addition to gas taxes to build infrastructure, are also not optional.

When an alternative can’t exist and you have to pay for something regardless there is no incentive for the provider to make you happy. Motorists weren’t able to go to a different provider when the 35W bridge in Minneapolis collapsed due to government negligence because there were no alternatives. Minnesotans also didn’t receive a discount on their taxes as compensation for being unable to utilize the bridge. In fact Minnesotans were expected to pay more. How’s that for an incentive? If the state government neglected more bridges to the point of collapse it could then demand even more tax money.

There are no shortages of entrepreneurs who want to build roads so the idea that nobody will build them if the government doesn’t is preposterous. The real question is what incentive does the state have to provide motorists with quality infrastructure?

Soon Central Banking Failures Will Be Our Fault

The state is the undisputed champion of passing the buck. Whenever it fucks up it finds a way to blame the people. Did the politicians screw up the economy? That’s our fault for voting them in! Is your local police department out of control? You voted for the sheriff! There isn’t enough money circulating throughout the economy? What do you expect when people save hoard money? Accumulated debt is causing chaos in the banking system? Obviously people aren’t saving enough money!

Now the Bank of England is setting itself up to blame the people for arbitrarily set interest rates not bringing prosperity:

According to Sky News, the world’s eighth oldest bank will now assess the frequency of job searches and monitor prices online to understand potential unemployment rates and monitor inflation. It will also gauge language used on social networks to better understand the state of some financial markets. It’s another example of the shift towards “big data,” where companies collect and analyse huge sets of digital data rather than use traditional database techniques to detect patterns as they happen. The Bank of England says it used these techniques to help impose new controls on the housing market earlier in the year, and hopes this “big shift from the past” will help it better judge Britain’s financial status in the future.

Inflation will now be our fault because we sent the wrong signals over our social media feeds! Isn’t the state brilliant? There’s nothing it can’t blame on somebody else.

Dey Tuk Er Jurbs

While I understand economics isn’t everybody’s favorite subject of study it’s also not rocket science either (although if you look at some of the magical formulas concocted by Keynesians you might think it is). There is no reason why people today should still believe the myth that automation leads to unemployment. But people still believe it:

The Associated Press has a three-part series on one of the biggest questions business and society will face in coming years.

Are we prepared for a world where 50 to 75 percent of workers are unemployed?

It seems like a ridiculous question, but it’s something economists and technologists say we seriously need to think about. It’s just math.

If you believe this then do yourself a huge favor and read Hazlitt’s Economics in One Lesson. Chapter seven, title The Curse of Machinery, buries this myth under six well deserved feet of ground.

Back when the industrial revolution was in full swing people often cursed automation as the killer of jobs. Then computers came to the market and they were going to render us all unemployed. Now we’re all supposed to be afraid of the job killing robots. In the end every supposed killer of jobs has failed to render everybody unemployed. Instead the employment market changed. People are still needed to do things that machines cannot. Even if we do reach a point where a vast majority of work is performed by robots it will only mean that goods and services will be so incredibly cheap that people will have to perform very little work to afford them. It will also mean that labor will become more specialized and therefore more expensive so an individual could live a very comfortable existence by only working a handful of hours a week, month, or year.

The robots may render specific jobs obsolete but they won’t render everybody unemployed. That’s just history.

Hoarded Cash May Be Circulating In the More Awesome Economy

The Federal Reserve bank has expressed displeasure at the fact that all of the funny money it printed hasn’t been circulating in the economy. As always the Fed is blaming people who save, err, hoard (I really need to get a newer version of the Newspeak dictionary) money for all of our country’s economic woes. But one economist has put forth an interesting theory. Edward Feige hypothesizes that a lot of the “hoarded” money is making it’s way around the more awesome economy, which is usually referred to derogatorily as the black or underground market:

Maybe. But another explanation was put forward by the economist Edward Feige, who argued recently that a lot more cash than traditionally assumed is circulating domestically. Where others estimated that half or more of all U.S. currency flows overseas, he said 75 percent or so is actually at home.

Again, is it just sitting there because of low interest rates
and economic doldrums?

Nope. Feige estimates that, in 2009, “18-23% of total reportable income may not properly be reported to the IRS.” That missing $2 trillion or so makes for a rather lower income tax compliance rate than the official 83.1 percent estimated by the IRS.

Which is to say, according to Feige, the money isn’t being hoarded (although some is certainly stashed for a rainy day), but
it’s being channeled into the shadow economy of otherwise legal goods and services to escape taxes and regulations. Much of it probably flows to outright illegal black market activities, too. But the huge increase in cash in private hands suggests less in the way of massively increased demand for hookers and blow than it does a growing parallel economy.

If so this is good news as it indicates that people are still producing and consuming but they’re also not paying the violent gang known as the state its demanded protection money. As we know every dollar of tax revenue obtained by the state allows it to build more bombs, hire more armed thugs, and improve its surveillance apparatus. Every dollar kept from the state is therefore helping protect innocent lives and thus the larger the more awesome economy becomes the safer most of us will be.

Everything I Want is a Human Right and Should be Free

Economic ignorance has lead to widespread belief in many silly things. For example, people believe that war is good for the economy because it creates manufacturing jobs. Frédéric Bastiat explained why this belief was bullshit in 1850 with the parable of the broken window. Another silly belief many people seem to have is that there is such a thing as free. This belief has become especially commonplace now that everybody equates anything they want as a human right and therefore should be provided for free.

The latest case of this belief being proliferated is tampons. I’m not kidding. This article, which argues that tampons should be free, has been making the rounds on the Internet and many people have deemed it to be a good idea:

We need to move beyond the stigma of “that time of the month” – women’s feminine hygiene products should be free for all, all the time.

Sanitary products are vital for the health, well-being and full participation of women and girls across the globe. The United Nations and Human Rights Watch, for example, have both linked menstrual hygiene to human rights. Earlier this year, Jyoti Sanghera, chief of the UN Human Rights Office on Economic and Social Issues, called the stigma around menstrual hygiene “a violation of several human rights, most importantly the right to human dignity”.

[…]

But this is less an issue of costliness than it is of principle: menstrual care is health care, and should be treated as such.

We’ve come full circle. Since so many people believe that healthcare is a human right and therefore must be provided to all for free anything that can be somehow tied to healthcare should likewise be provided to all for free. But nothing is free. Everything good requires resources. First raw resources must be collected, which in of itself requires energy. Then those raw resources must be refined into something useful for the manufacturing of capital goods, which also requires energy. After that those capital goods must be further refined into something consumers can us, which requires more energy. Energy itself is a resource as is time and basically everything else that touches the manufacturing process.

The bottom line is somebody has to invest the resources necessary to produce a good. When somebody says they believe something should be free what they really mean is that everybody in the world should be forced to set aside a portion of their resources to manufacture that “free” product. To further simplify the matter when somebody says they believe something should be free what they really mean is that everybody else should pay for it.

Now the people who want free shit usually use very utilitarian arguments. This article, for example, points out that approximately half of the population of this planet can utilize tampons. I’m going to one up that. What is an activity that every human being does that can negatively impact sanitation? Shit! Therefore I propose something different. Instead of “free” tampons I propose “free” toilet paper for all! Obviously I’m joking since I’m not economically illiterate and I’m not such an asshole that I want government violence brought against you so I can get something for “free”. But I believe my point has been made.

Economy in a Slump? Just Blow Some Shit Up!

The New York Times, the same publication that gives Paul Krugman space to print is insanity, has a piece under the heading “The Pitfalls of Peace”. As you can imagine from a publication that gives Paul “Boost the Economy By Warring with Aliens” Krugman space, the article is about how war is good for the economy:

The world just hasn’t had that much warfare lately, at least not by historical standards. Some of the recent headlines about Iraq or South Sudan make our world sound like a very bloody place, but today’s casualties pale in light of the tens of millions of people killed in the two world wars in the first half of the 20th century. Even the Vietnam War had many more deaths than any recent war involving an affluent country.

Counterintuitive though it may sound, the greater peacefulness of the world may make the attainment of higher rates of economic growth less urgent and thus less likely. This view does not claim that fighting wars improves economies, as of course the actual conflict brings death and destruction. The claim is also distinct from the Keynesian argument that preparing for war lifts government spending and puts people to work. Rather, the very possibility of war focuses the attention of governments on getting some basic decisions right — whether investing in science or simply liberalizing the economy. Such focus ends up improving a nation’s longer-run prospects.

Emphasis mine. Let us start off with the obvious, if a state is at war it has already failed at the most basic of basics, not getting involved in a war. Wars are only good for two things: destruction and death. And not surprisingly both of those things are bad for the economy. Recreating that which was lost is not economic growth, creating new wealth is. And death is always bad for an economy because is reduces both the number of producers and consumers.

Now let’s get to the second point. According to the author war leads to an investment in science or a, pardon me because this is hard to say with a straight face, liberalizing of the economy. Science is not something that only gets invested in by the state nor only during a time of war. Science is constantly being invested in because science leads to better products. Without being engaged in an all encompassing war we have seen computers go from room sized monstrosities that could only perform a few tasks to devices that fit in our pockets and contain more computing power than their full sized brethren from only a decade back. There is a bitchin’ fully electric car on the market today. The private sector is closer to returning to space than the National Aeronautics and Space Administration (NASA) and it has a plan to mine asteroids for resources (seriously, how cool is that). Of course I don’t want to sell the state entirely short. As it is involved in several minor wars it is investing money into science. It currently possesses the best remotely controlled bombers on the planet! Granted, they’re not really good for anything productive but they exist and that counts for something.

We should also discuss the liberalization of the economy that supposedly occurs during a time of war. World War II, being the last all encompassing war, is a good example. Everything from metal to food to rubber were rationed for civilians so that those resources could be put into the war effort. Perhaps the author has a different definition of liberalize than I do.

Economists often discuss all of the scientific advancements that occur because of war. What they ignore are the scientific advancements made by the private sector regardless of war. The difference between the two methods of scientific investment is that the state focuses on impractical things whereas the private sector focuses on things the average person can fucking use. Give me better computers, cell phones, cars, and e-readers over remotely controlled bombers and aircraft carriers any day.

But, hey, nothing sounds better to the state than war being good for the economy. If there’s one thing the state is good at it’s war. Which is why it only hires economists who say war is good for the economy to its advisory boards.

My Favorite Part of the Minimum Wage Battle

My favorite part of the minimum wage battle, which is also my favorite part of the gun control battle, is no matter how much the advocates get they still demand more. Seattle just passed a $15 per hour minimum wage. Much celebration was had but now it is time to begin complaining that $15 per hour isn’t enough:

SEATTLE (AP) — A $15 minimum wage like the one adopted in Seattle doesn’t buy many luxuries in most American cities.

Lattes, theater tickets and cable television will still be out of reach for most minimum-wage workers. But about $31,000 a year should be enough to pay the average rent for a shared one-bedroom apartment, plus utilities, health insurance, groceries and an inexpensive cellphone plan.

At first we were told that the minimum wage was a living wage. That is to say it was supposed be enough to allow a person to acquire the bare essentials to survive. Now it’s about luxuries as well. Hopefully this eventually leads to $1 million per year minimum wage so we all become millionaires. That’ll totally solve all of our problems, right?

Increasing Minimum Wage

One of the political battles currently being waged here in Minnesota is an increase of the state mandated minimum wage:

Minnesota’s legislative Democrats have struck a deal to raise the wages of the state’s lowest-paid workers.

Details of the agreement are expected to be released by House and Senate leaders Monday morning, but two sources with knowledge of the deal said Sunday that the minimum wage would rise to $9.50 an hour and future increases would be linked to increases in inflation.

The first question I have to ask about this deal is which inflation metric would minimum wage be pegged to? There are several different measures of inflation. Inflation numbers reported by the state are heavily doctored to make things appear better than they are. If this deal uses any state-approved inflation metrics pegging minimum wage to inflation will be meaningless.

As an individual who subscribes to the Austrian tradition of economics (also known as the only tradition that actually knows what it’s talking about) I will point out that increasing the state mandated minimum wage will also lead to an increase in unemployment. And as an agorist I believe an increase in unemployment will lead to an increase in the minimum wage.

How can I make such lofty claims? Because there exists an “underground” economy. Being unemployed doesn’t mean a person isn’t making money. Most people faced with the prospects of starvation or breaking the law will choose the latter. That means people who are officially unemployed will seek employment in the “underground” economy. The biggest advantage of working in the “underground” economy is that any income received is off of the books. Income acquire off of the books cannot be tracked by the state and therefore cannot be taxed. By working in the “underground” economy individuals need not spend half of the year working for Uncle Sam.

Without having to pay taxes the average person would enjoy an sizable increase in their wage. Increasing the state mandated minimum wage also increases unemployment. Increasing unemployment causes individuals to seek “unofficial” employment. Income from “unofficial” employment is untaxed. Therefore laws that increase state mandated minimum wage can increase the actual minimum wage but not through the mechanism that statists believe.

The Dark Side of Taxes

It’s tax season. With the circle of friends I have that means it’s the season to bitch about the government taking a huge chunk of our personal wealth. I’m assuming that most of my readers at least lean towards libertarianism so there is probably a strong sentiment that taxes should at least be greatly reduced if not entirely eliminated. That means I’m also assuming that you’ve heard a variation of this debate before.

A libertarian comments about taxes being too damn high. In response a government advocate claims that we need taxes because taxes enable civilization. What that individual means is that he or she believes that infrastructure, welfare, and other pet government programs are only made possible through taxes. Putting aside the fact that anything made possible through taxes can be, and has been, made possible through voluntary methods we still have the fact that such an attitude ignores a lot of terrible things made possible by taxes. Taxes, like anything else humanity conceives, has the nice cheery side that makes people feel good and the dark depressing side that most people tend to ignore.

Let me take a moment to talk about the dark side of taxes. A small percentage of taxes are used to build roads, schools, and civic centers. But a large percentage of taxes are used to directly hurt of kill people. For example, taxes allow the United States government to bomb wedding parties in the Middle East, allowed the Soviet Union to build gulags that were used to murder millions, and enable police forces throughout the world to imprison people for nonviolent crimes.

Here in the United States we get to see the dark side of taxes more obviously than most other parts of the world. We have the highest incarceration rate in the entire world. Most of the kidnapped souls inside of the government’s great cages harmed nobody. They were victims of the war on unpatentable drugs. Their only crime was smoking, snorting, or injecting something that the government said they couldn’t. To fuel this war a great deal of tax money is sent to law enforcement agencies so they can put together Special Weapons and Tactics (SWAT) teams, buy armored personnel carriers, and fight court cases when their victims decided to sue.

Speaking of war, taxes also enable the numerous illegal wars that the United States is embroiled in. Drones and Hellfire missiles don’t build themselves. In order to butcher Middle Eastern children the United States government needs to collect taxes to pay for its military. Aircraft carriers, fighter jets, bombers, tanks, and nuclear bombs cost a lot of money. Since I brought up nuclear weapons I will point out that taxes it possible for the United States to drop nuclear weapons on two major Japaneses cities (after making it possible for it to firebomb Japan’s most densely populated city). Going back in time a bit further we can see another thing taxes made possible: the genocide of this continent’s indigenous populations.

Taxes may have been used to build the roads you drive on and the schools you send your children to but they were also used to destroy the roads and schools people in other countries depend on. The next time you hear somebody talk about all the great things that taxes make possible be sure to remind them about all of the horrible things that are also made possible.

When You Suck at Doing What You Do

The big news circulating around the Bitcoin community is the apparent demise of Mt. Gox:

As of late Monday evening, the embattled Bitcoin site MtGox appears to have pulled the plug entirely in the wake of sustained DDOS attacks and the “transaction malleability” problem that has plagued other websites. The site is gone and the company’s Twitter account appears to have been erased entirely.

Several news outlets seems to be reporting this event as the death of Bitcoin. Anybody who understand the Bitcoin protocol knows this isn’t true since Mt. Gox didn’t have any control over the block chain, which is what determines who has which Bitcoin. Mt. Gox was merely one of several exchanges although it was the largest.

People who have kept an eye on Bitcoin related news know that the people behind Mt. Gox has consistently demonstrated incompetency. It always baffled me how it was able to maintain the status of the largest exchange when other exchanges did a better job and almost always had better prices. But Mt. Gox’s incompetency eventually caught up with it and it now appears to have gone under. This is an example of a free market at work. A company that sucked at fulfilling the desires of the market went away.

While it does suck for any individual who had Bitcoin or fiat currency in a Mt. Gox account it should also teach a valuable less: you cannot trust a person you’ve never met with your money. Bitcoin allows anybody to create a wallet. So long as you keep your private key private any Bitcoin sent to your public key are secure. I keep a little Bitcoin in online wallets for quick transactions but never more than I’m willing to lose. All of my other Bitcoin are sent to an account that I possess the private key for. This is something I encourage everybody to do since it’s the only way you can guarantee your Bitcoin won’t disappear if the online wallet provider disappears.