Category: Economics

The Solutions to Inflation isn’t Wage Increases

Inflation is a hidden tax. By having monopoly control of the money supply the state is able to devalue a currency by simply releasing more of it into the market. The Federal Reserve, which controls the United States money supply, has been releasing an imperial (because we don’t do metric here) shit ton of currency into the market. This has caused the value of the dollar to continue dwindling.

According to mainstream economists constant inflation is necessary for a functioning economy but the rate of inflation must be kept low. Economists that actually know what they’re talking about, that is to say those of the Austrian tradition, point out that inflation is bad because it constantly decreases the wealth of individuals. Regardless of what school you subscribe to the current rate of inflation should be worrisome. While official inflation numbers are periodically jiggered to make them look better the cold hard fact is that the stuff people actually need to buy in order to survive is increases at an alarming rate:

It’s is not her imagination. While the government says prices are up 6.4 percent since 2011, chicken is up 18.4 percent, ground beef is up 16.8 percent and bacon has skyrocketed up 22.8 percent, making it a holiday when it’s on sale.

“Oh my god!” Singer said as she spied bacon for $3.

“The things that are going up in price are the things I absolutely need to buy,” she said. “It’s the meat, it’s the milk, it’s the eggs and it’s getting out of hand.”

The report goes on to argue that the real issue is wages not increasing. While people certainly like hearing arguments for why their wages should increase the real issue is that wages and inflation are inseparable. Increasing wages to match inflation necessitates increasing wages to match inflation. It’s an Ouroboros. The real issue is that the state is manipulating the market to favor itself and its partners at the expense of everybody else.

Legal tender laws make holding dollars desirable. If you don’t hold dollars you can’t legally pay taxes and other made up debts to the state. Failing to pay the state what it demands ends with you either being in a cage or a grave. First receivers of newly issued money are able to enjoy the full purchasing power of that money. Inflation doesn’t actually begin until newly issued money being to circulate. Therefore the state is able to give newly issued money to its partners and they get to enjoy the full purchasing power. Once they’ve used that money it enters the system and inflation begins to kick in, which makes the dollars currently being held worth less.

So long as the state is able to manipulate the money supply that we’re required to use things are going to get worse for everybody not politically connected. The issue isn’t wages it’s state monopolization of the money market. Until that problem is solved (and it will eventually be solved by an economic crash if nothing else) consumers are going to feel an increasing amount of financial pain.

Minimum Wage and the Corporate Welfare State

There has been a lot of talk recently about raising the state mandated minimum wage again. One side argues that many workers don’t make enough money to live off of and the other side argues that raising minimum wage will cause another jump in unemployment. Both sides are actually right on this issue. But both sides are also missing part of the picture. Why are many employers paying employees so little? The answer is quite simple. Low wages are subsidized by the state through its welfare programs:

Wal-Mart’s low wages have led to full-time employees seeking public assistance. These are not the 47 percent, lazy, unmotivated bums. Rather, these are people working physical, often difficult jobs. They receive $2.66 billion in government help each year (including $1 billion in healthcare assistance). That works out to about $5,815 per worker. And about $420,000 per store. But the federal and state aid varies widely; in Wisconsin, a study found that it was at least $904,542 a year per store. (See the accompanying chart.)

The author advocates raising the minimum wage to reduce welfare spending. That doesn’t address the root of the problem, which is the state introducing distortions in the market. Wal-Mart doesn’t just receive benefits in the form of welfare benefits being provided to its employees by the state. It has also received benefits in the form of tax deductions, tax credits, road improvements, water service improvements, and a slew of other deals. These deals give Wal-Mart an advantage over its competitors. When the competitors, unable to compete with a subsidized giant like Wal-Mart, goes out of business the Wal-Mart employees also lose leverage in wage negotiations. One of the most effective tools that employees have when negotiating for better wages is the ability to go somewhere else. When there is less competition in a market there are less places for employees to go and that weakens their position.

So long as the root of the problem, subsidies, isn’t address no governmental decree in regards to wages is going to make a damn bit of good. Minimum wage laws effect everybody. A large corporation like Wal-Mart can absorb paying employees more money but many of its smaller competitors cannot. Raising the minimum wage can therefore further reduce competition and therefore often act as another subsidy to the largest corporations. Taking away Wal-Mart’s subsidies, on the other hand, will take away its major advantages over competitors. Once this advantage is removed Wal-Mart’s competitors will have a better chance surviving and that will increase competition. With more competition in the market employees will have one of the most effective tools for fighting for better working conditions.

Bitcoin Versus Gold: Or How I Learned to Stop Caring About Economic Internet Arguments

I think it’s time we took a moment to chat. If you pay attention to economic, crypto-anarchism, libertarianism, or other similarly intersecting online forums you have probably picked up on the recent Bitcoin versus gold debate that has been raging on. The latest exchange started with Peter Schiff posted this video touting gold over Bitcoin:

This kicked the Bitcoin community into holy crusade mode. The most well written counterargument to Schiff’s video, in my opinion, is this one from Reddit.

I have a problem with both sides of the argument. There is no reason one has to win. We, as a species, are actually capable of using more than one thing as a medium of exchange. For example, gold and silver have historically been found together as mediums of exchange in markets based on precious metals. Today we see the use of dollars, yuan, yen, pounds, euros, and many other currencies used to facilitate transactions. In fact I would submit that having a single medium of exchange is just as dangerous as any other monopoly.

Bitcoin is a new and exciting newcomer. It’s attractive to us neophiles, in part, because it’s an unknown quantity that could greatly shake the foundation of the current monetary systems. Neophobes tend to shy away from Bitcoin because it’s new and unproven. For them gold is a better option because it’s been around forever. I’m a fan of diversification. If Bitcoin takes a dump and gold excels then I’m happy to have gold. If the opposite happens I’m happy to have Bitcoin. If both excel as currencies I’ll be happy to have both. The only way this debate will be determined once and for all is when time leads us to a result. I just hope that whatever result we arrive at is unexpected by all involved interests. Nothing is worse than minds not being blown.

Economic Hitman Tactics on an Individual Level

The New York Federal Reserve released some interesting numbers recently. Of the numbers the one I found most interesting was the amount of outstanding student debt in this country:

Over the last eight years, aggregate educational debt outstanding has almost tripled, rising to nearly $1 trillion and becoming the largest consumer liability after mortgages. Was this dramatic increase attributable to more borrowers, or more debt per borrower? Both, as it turns out, in almost equal measure: The number of student loan borrowers and the amount each borrower owes have both risen 70 percent since 2004.

$1 trillion of student debt? Oi. This got me thinking about a book I read several years ago title Confessions of an Economic Hitman. The premise of the book is that the United States sends economic hitmen to developing nations. Loans are promises to the governments of those countries for major infrastructure projects. The catch is the loans are written to look reasonable but designed in such a way that the country is never able to pay it back. When a country accepts one of these loans they are forever indebted to the United States, which will come back later and demand raw materials or land in exchange for outstanding debt.

Students loans have some similarities to economic hitman loans. While student loans appear to be reasonable on the surface they are often so high that many college students can’t afford to pay them back. Instead they’re stuck paying the interest for the remainder of their lives. The state could effectively tax an entire population of students twice: once in the forms of income, sales, use, etc. taxes and once in the form of interest on outstanding debt. I’m beginning to wonder if the whole purpose behind student loans is to create an entire generation of debt slaves. There’s no way the United States government set up a system that hands out $1 trillion to students out of the goodness of its heart (since it has neither goodness or a heart).

Bitcoin as a Commodity Backed Money

One of the more heated debates going on in Austrian economics circles is whether or not Bitcoin is a currency backed by a commodity. Proponents of Bitcoin claim it is while opponents claim it is not. I fall into the former camp. I also believe that latter camp suffers from a misunderstanding of what Bitcoin is.

Bitcoin, above all else, is a network. The network is maintained by computing power. Disagreements within the Bitcoin network are resolved by going with whatever 50% + 1 of the computing power says. Who gets the Bitcoin when the same Bitcoin is sent to two addresses at the same time (something that could happen if the blockchain gets split)? Whoever 50% + 1 of the Bitcoin network’s computing power says it goes to. Furthermore, new Bitcoin can only be mined through the efforts of a great amount of computing power.

A commodity is nothing more than a raw material that can be bought and sold. Computing power is a commodity as it is a raw material needed to produce many of the goods we enjoy today and it can be bought and sold. One example of a good that is created using computing power is an encrypted communique. In order to encrypt a communique you need pass the plain text through algorithms that tend to be computationally complex. Computing power is also a resource that is bought and sold. When you sign up for an Amazon EC2 instance you’re buying computing power from Amazon. Just as a jeweler buys gold and turns it into jewelry that is later bought, Amazon buys computers from manufacturers that is later rented by people who don’t want to sink that much money into hardware they may only need temporarily.

The computing power put towards maintaining the Bitcoin network could be put to other tasks. Instead of participating in the Bitcoin network somebody could throw their computing power at Folding@Home or SETI@Home. But a lot of people have thrown their limited computing power behind Bitcoin. In fact, the processing power used to maintain the Bitcoin network outperforms the top 500 supercomputers combined. On top of personal hardware, many people are willing to rent your their mining hardware in the form of shares. You can buy into Bitcoin mining pools. The money you use to buy in is generally put towards more mining hardware and you are paid dividends based on the amount of Bitcoin mined.

Bitcoin, through the computing power necessary to maintain the network, is backed by a commodity. The raw materials necessary to maintain the Bitcoin network, including computing power and network bandwidth, could be put towards other uses but cannot be put towards simultaneous uses (even with multi-tasking, a computer can only work on one computation per unit of time per processor or core).

Dey turk err jurbs!

There are fewer things more idiotic than claiming advances in technology will cause unemployment. But, alas, many people are stupid enough to parrot that talking point of the economic ignorance:

In the industrial revolution — and revolutions since — there was an invigoration of jobs. For instance, assembly lines for cars led to a vast infrastructure that could support mass production giving rise to everything from car dealers to road building and utility expansion into new suburban areas.

But the digital revolution is not following the same path, said Daryl Plummer, a Gartner analyst at the research firm’s Symposium ITxpo here. “What we’re seeing is a decline in the overall number of people required to do a job,” he said.

Plummer points to a company like Kodak, which once employed 130,000, versus Instagram’s 13. Gartner sees social unrest movements, similar to Occupy Wall Street, emerging again by 2014.

Through the miracle of technological advancement we now require fewer people to do most jobs. Many stages of automobile manufacturing are performed by robots. Infinite copies of documents can no be created with the click of a mouse. Letters can be transmitted instantly from one computer to the next. Auto workers, print shop employees, and postal workers are losing their jobs!

I’m sorry, I forgot to mention the number of people not employed as web developers, chip designers, chip manufacturers, infrastructure designers, infrastructure builders, flash memory designers, flash memory manufacturers, network designers, online marketers, database administrators, database programmers, system administrators, cloud infrastructure designers, cloud infrastructure implementers, data center constructors, etc., etc.

Technological advancements don’t eliminate jobs, they shift the playing field. Some skills become unnecessary while others become necessary. Sure, the invention of the light bulb put many candle makers out of work but it also created a need for light bulb manufacturers, electrical infrastructure builders, and a whole slew of other skills. Did I mention that the invention of the light bulb is what allowed our society to effectively remain active after the sun went down? As a resident of Minnesota I greatly appreciate that during the winter months when there isn’t enough sunlight to get anything of importance done.

Any one of us may be rendered irrelevant by technological advances. That doesn’t mean we’re no longer employable, it means we need to learn new skills. Just because you’re too lazy to learn a new skill doesn’t mean the entire species should be held back. If you’re bitching about technology taking your job then it’s time for you to get off of your lazy ass and learn something new. The rest of us aren’t going to stop improving peoples’ lives just because you’re too lazy to pick up a new skill. And, who knows, some day we may reach a point where everything is automated, and therefore super cheap. If that happens we can all enjoy a carefree life where we are free to follow whatever pursuits we want. Wouldn’t it be terrible if nobody had to work because everything we need became so cheap to manufacture that it could be given away for free?

Trying to Salvage a Sinking Ship

It’s a miracle! The housing market is bouncing back! Three cheers for our central planners:

US house prices rose 12.4% over the 12 months to the end of July, the biggest annual increase since February 2006, according to a closely-watched measure.

Are you ready for another bust? I hope so because that’s what we’re going to experience in the near future. Let’s discuss economics for a moment. Our glorious central planners have been busy shoveling money into the economy in the hopes of propping it up again. But it seems the more they shovel the harder the crash is. This fits with the Law of Erisian Escalation, which states that the imposition of order equals the escalation of chaos. Trying to instill more order in the economy only results in more chaos.

I’m going to put forward a theory. Do note that I’m not saying this theory is correct nor am I claiming that I have thought this through fully. But I’ve been considering it for a while now and I feel as though it’s worth putting out for others to consider.

History is noted by various paradigm shifts. These shifts can be caused by many things including technological advancements and the need to escape coercive control. The Industrial Revolution is an example of the former, the move away from serfdom is an example of the latter. Could it be that our societies are in the midst of an economic paradigm shift? Rick Falkvinge has an interesting theory he calls the Swarm Economy:

The industrial model with lifetime single-employer careers is dying, and it is not coming back. The first sign was a change from lifetime-marriage employments into its serial-monogamy equivalent, where people change jobs every three years at the most. The next change, one which is already happening, is that most people have more than one employment — or employment-equivalent — at one time: this is an enormous change to society, where people are going to be juggling five to ten projects at a time, some for fun, some for breadwinning, some for both. I have called this the coming swarm economy.

Although I disagree with his idea of a universal basic income, I believe his statements regarding the increasingly decentralized nature of our economy has merit. Technology has allows us, as a species, to become less tied to physical locations and specific employers. Independent contractors are great examples of this shift to more decentralized workplaces. Contractors often lack a specific employer. Instead they go from job to job and sometimes work on multiple contracts simultaneously. Advances in travel and communication technology allow for this.

If the economy is in for another paradigm shift what good will central planners do? Preventing change is what the state does but the more it tries to force us into the current economic paradigm the messier it makes the transition to the new paradigm. Instead of a gradual shift enabled by new technology we suffer under a series of very painful busts as the old paradigm continues to fail again and again.

Being an anarchist I’m obviously against any form of central planning. But even advocates of central planning may want to stop and consider the possibility of a complete paradigm shift. For all we know the entire world is in for a change and that change could bring economic prosperity of the likes we’ve never seen. I think we should step aside and let the economy move in the way it wants instead of trying to prop up the current shambling mess so many seem to worship.

Crowd Sourcing, an Alternative to Copyrights

I seldom talk about video games on this blog because I personally have little time to partake in the hobby anymore. Back in the day I was a gamer and one of the men who had an aptitude for taking my money was Keiji Inafune. If you’re unfamiliar with the name, Mr. Inafune is one of the creator of the video game series MegaMan. MegaMan was, and still is, my favorite game series so it was all but inevitable that Mr. Inafune, after announcing he was planning what looks to be a spiritual successor to the MegaMan series, would take more of my money.

What does this have to do with copyrights? Instead of producing a game and releasing it, Mr. Inafune and his team decided to crowd source funding via Kickstarter (yes, I did throw my money at the project). As long time readers know, I oppose all forms of intellectual property. I cannot justify the use of force needed to maintain monopolies on ideas. Whenever I discuss my opposition to intellectual property I usually meet resistance from individuals concerned about people who make their money via intellectual property laws. Authors, software developers, and game makers would all go broke if copyright laws no longer existed, right? Wrong.

The idea behind copyright laws is that a creative person can create a work, release it to the world, and make money for his or her efforts. Changing that order slightly allows a creative person to make a profit without copyright laws. Crowd sourcing allows a creative person or team to get money up front so they can create a work and release it to the world.

Mr. Inafune and his team are asking for money up front before they begin development. Their goal has been met with a lot of extra money still rolling in. There’s no reason authors or software developers couldn’t do the same thing. Of course this strategy often requires a little priming of the pump. People are unlikely to throw money at a complete unknown so an author, software developer, or game maker would likely have to release some work for free in order to demonstrate their competence. Authors, software developers, and game makers already have to do this so, in the grand scheme of things, nothing would change. Authors often get advances by publishers to write new books but only after writing a book and gaining the interest of the publisher. No publisher is going to give a complete unknown an advance. Software developers have to write their software and release it to the world before they can expect any payment. Game makers, likewise, have to create a game and release it before anybody will give them money for it. Little changes when you move away from copyright laws and rely on up front funding instead.

Intellectual property is dying. The Internet, by offering a venue to share infinitely reproducible copies of intellectual works, has cut intellectual property laws off at the knees. Politicians are scrambling to make more asinine laws to delay the inevitable. People who have relied on intellectual property laws are adapting to new ways of making money. In the end, intellectual property will die an agonizing death but the release of creative works will continue. I believe crowd sourcing is one of the solutions that will allows creative individuals to make money off of their ideas without having to rely on a forcefully protected monopoly.

Markets, Chaos, and Jobs

You may want to drink a beer, take a puff from a joint, or consume a magic mushroom before reading this post. I say this because I am going to delve into the world of Disordianism, which is best traveled under the influence of mind altering substance.

Before we delve too deeply let me explain my interpretation of Discordianism so we’re all playing on the same field. Discordianism, as I interpret it, is the philosophical understanding that the natural state of the universe is pure chaos. The universe doesn’t like order and, as the Law of Eristic Escalation states, the imposition of order equates to the escalation of chaos. The more you try to impost order on the universe the more chaotic of a result will be.

Nowhere are Discordian principles more apparent than in markets. Markets, the ever changing result of constant human interaction, never remain constant. Peoples’ desires are in a constant state of flux. In fact each individual’s desires at one point in time were affected by their previous actions. My experience with one fulfilled desire can determine my future desires. For example, if I purchased the latest iPhone and had a negative experience I may swear off future Apple products or, potentially, mobile phones entirely. From there I my desires may swing towards a better vehicle so I can make more face-to-face interactions with my friends or something else entirely.

The state, being an agent of order, has a desire to curtail change. If statists had their way the human race will forever exist in a purgatory of sameness. No technological advances, fashion changes, or musical trends would occur. Why do you think states always move to regulate markets? Because markets are the most apparent source of change in our society. Markets bring chaos to order by allowing individuals to have their dreams fulfilled. The grand plans of statists cannot be realized when there is no stability. How can a statist’s plan for universal healthcare be successfully put into action if the grand central planner is unable to predict the healthcare needs of an entire society? A simple story about the undesirable side effects of a pill can lead to a great shift in a society away from pharmaceuticals and towards natural remedies. After such a shift an entire supply of medicines will suddenly be worthless, the resources invested in stockpiling them will have been wasted.

We’re told that the current crisis in our society revolves around the lack of jobs. Political candidates are being elected on their promises to deliver jobs. Everybody is screaming at the top of their lungs, “Who will build the jobs?!” The failure of the job market lies in the statist tendency towards imposed order. When we were attending the state’s indoctrination centers were we told that a college degree is critical to future success. It didn’t matter what degree we obtained, said our indoctrinators, it only mattered that we received a degree (fortunately my father didn’t tell me such lies and made sure I understood that some education pays money while other education costs money). College degrees may have been money makers at one point in time but that was back in the day when college degrees chiefly existed for marketable skills. Now that one can get a degree in everything from English to Women’s Studies the value of getting a degree has diminished. The market has spoken and it has said that it needs no more degree holding Starbucks baristas, fast food workers, or art critics. English, Art, and Contemporary Dance degree holders are unemployed because the statists attempted to impose order by forcing everybody to get a degree, telling them that all degrees were of equal value, and convincing students that they should peruse whatever they loved. As it turns out many students love things that nobody wants. I do believe Mike Rowe said it best:

Rowe added, “It’s not about this is bad or this is good. This is a skills gap. […] It’s another inconvenient piece of the narrative that nobody ever talks about. There are three million jobs available right now. Companies like Caterpillar are struggling to find, for instance, heavy equipment mechanics.”

The bottom line, Rowe said is that, “We are lending money we don’t have to kids who can’t pay it back to train them for jobs that no longer exist. That’s nuts.”

In other words our society is living in the past. The demands of yesterday aren’t the demands of today. Despite the best efforts of order worshipers the markets broke free from the plans that were being imposed on them. It’s not degrees in educational pursuits that are wanted, it’s training in skilled manual labor.

When you understand that markets, as part of the universe, are chaotic you will learn that the most marketable skill is adaptability. Your training at any single point in time may be worthless at a future point in time. If you can adapt to the new conditions you will be fine. Anybody who can go from research and development to heavy equipment mechanics will have little trouble finding work. A person who is unable to make such a transition will find themselves in a bad state unless the market returns to a state where their training is again in demand.

Markets are chaos and jobs exist in markets. Being adaptable, being able to channel the chaos to your advantage, will make you a happier person. Don’t fall for the statists’s lies. Instead, listen to the Discordians. Discordians will tell you the truth: chaos results form imposed order. If you try to follow the plans of those who attempt to impose order you will find yourself lost when the imminent chaos arises. On the other hand, if you adapt to the chaos, you will never be truly.

The Importance of Business Models

When Google announced that it was killing Reader I went on the lookout for a new Really Simple Syndication (RSS) service. During my quest I came up with several “must have” features including Reeder support (either current or upcoming), a decent online interface, and a coherent business model. The last requirement may surprise many people who sought a free service to replace Google’s free service but I didn’t want to again encounter the hassle of finding an alternative service anytime soon. I settled on Feedbin, in part, because the developed had a business model (at the come I signed up he charged $2.00 a month or $20.00 a year, now he charges $3.00 a month or $30.00 a year). Since the developer of Feedbin makes a profit from his service I doubt it’s going to go away anytime soon so it’s unlikely that I’ll have to deal with this:

Since we launched first public version almost a year ago up until March 2013 we have been working on The Old Reader in “normal” mode. In March things became “nightmare”, but we kept working hard and got things done. First, we were out of evenings, then out of weekends and holidays, and then The Old Reader was the only thing left besides our jobs. Last week difficulty level was changed to “hell” in every possible aspect we could imagine, we have been sleep deprived for 10 days and this impacts us way too much. We have to look back.

The truth is, during last 5 months we have had no work life balance at all. The “life” variable was out of equation: you can limit hours, make up rules on time management, but this isn’t going to work if you’re running a project for hundreds of thousands of people.

[…]

That’s why The Old Reader has to change. We have closed user registration, and we plan to shut the public site down in two weeks.

It’s unfortunate that the developers of The Old Reader felt as thought maintaining the site was, in their words, hell. But the part that made me roll my eyes was the following:

For those who would like to start the usual “VC, funding, mentor” or “charge for the damn thing” mantras — please, spare it. We’re not in the Valley where it might be super-easy, and, after all, not everyone wants to be an entrepreneur. We just love making a good RSS reader.

It’s true, not everybody wants to be an entrepreneur but it’s also true that working on a project is much more fulfilling when one gets paid to do it. I have a lot of hobbies, and they often cost a fair amount of money, but I put my truly useful skills, the ones that can be used to provider services that other people want, to work in a manner that makes money. Getting paid motivates me to do a good job and continue on with the job even during those times that it sucks. In all likelihood the developers of The Old Reader wouldn’t find their work hell if they were receiving a decent paycheck for their efforts. When Feedbin began to gain subscribers the service started to become slow. Did the developer quit because the complaints ate away at his soul? No, he improved the service because he was making money from his efforts. It was a win-win situation. He received money for his work and his users received a kick ass RSS service.

Business models are too often undeveloped in the technology field. Great developers create great services without having any workable strategy to monetize their efforts. This lack of foresight tends to have one or two results: either the service is purchased by a large service provider, such as Google, or the service is shutdown when the hassle of maintaining and improving it becomes too great.

If you create a great service don’t be afraid to ask for payment. It’ll work out better for both you and your users. Likewise, if you want to utilized a great service don’t get angry when the developer asks to be paid. It’ll work out better for both you and the developer.