Tuesday, October 27, 2009

The Two Dumbest Words in the English Language

There are no two words of which I am aware that cause so much confusion and reckless debate than these two words. Almost any argument over them results in people talking past each other. There is no standardized definition for either word and the madness and argument that results is so futile. Even those who believe exactly the same thing will be at each other’s throats because these words prevent them from understanding that they agree. Or worse yet, they’ll argue over which is the “correct” word to describe themselves as. What are these words: "Capitalism" and "Socialism."

For myself, when I hear the word “Capitalism,” I define it as the use of capital in the productive process and the earning of interest and profit. When I hear “Socialism” I think the centralization of the means of production. I don’t even consider them as opposing in any way. From my perspective it is very much possible to have capitalistic socialism: the centralization of capital or fascism or corporatism. Socialism or the degree to which things are socialized is a matter of “who?”. The means of production need to be centralized to someone. Who are they centralized to? Capitalism is a qualifier. It clarifies what is centralized. So, in a fascist or Capitalistic Socialist regime, the production, interest, and profit are centralized to whomever is at the top of the pyramid. Capitalism is therefore an innocuous term for myself. I don’t see how there could be anything offensive about building and maintaining capital, renting it out, and collecting interest and (potentially a) profit (or loss) in return. However, I’m not to friendly to centralism and am therefore not to friendly to Socialism. Centralism may be to a degree beneficial (so long as it is organic and voluntary) by taking advantage of economies of scale, but coercive centralism means a distortion of the pricing system and the establishment of hierarchy that is likely to become corrupt and redistribute wealth up the pyramid. This is how I define the terms and I don't even need antonyms.

Monday, October 26, 2009

The Difference Between Libertarianism and Anarchism

I typically describe myself as a “libertarian anarchist.” People who don’t understand what either word means will essentially assume that I’m doubly insane. Libertarian is a more friendly word; anarchist is generally perceived to be hostile. Libertarians are usually considered fringe; anarchists are usually considered dangerous. Yet some people, especially people who are libertarian or anarchists, view the words as essentially the same thing. Analytically speaking, it seems there should be a distinction even if the situation likens itself in many cases to a square being a rectangle, but rectangle not necessarily being a square.

Libertarianism is an ethical doctrine. It is concerned with rights. Most commonly this right is referred to as the right to self ownership which includes the right to the product of your labor. For some (probably most) libertarians, this is essentially a faith based, though not necessarily theological, concept. It is taken on faith that men are imbued with this right through nature or that that these rights are implied by the nature of truth, knowledge, existence, reason, etc. What is ironic about this faith based libertarian concept is that it is widely accepted on face value by most participants in modern (classical) liberal societies. It is conservative (not as in American Conservatives, but as in historically organized society) culture that refutes the idea of self ownership by subjecting the behavior of the individual to the enforced law of the moral majority. However, the concept of self ownership is thoroughly ignored by most in society even while they champion it as the bedrock of their modern culture of tolerance. This is because most of society is conservative and Rightist as opposed to liberal and Leftist. This betrayal of self ownership is implied by the aggression of the government that is condoned by the populace. Even commonplace policy positions in support of a state single payer health care system or a central bank or drug prohibition demonstrate the contempt the populace shows to the individual who libertarians argue should hold sole dominion over his own life. The popular opinion demonstrates a fondness for collective ownership of individuals - a collective slavery, if you will - that the scope of control over humanity extends past one’s own fingertips to some degree.

Sunday, October 25, 2009

Do I Hate the State Too Much?

I was posed with a sequence of questions not too long ago: why do I dwell so much over the depredations of the State? Why do I read so much? Why don’t I just work a little harder so I can make more money? More money would solve a lot of my grievances, I was told. Is it too much to ask that you just fall in line and accept the hand that has been dealt you?

Well, the answer to the title of this post from the perspective of who was asking the questions seems to be obvious, but is it actually true? Do I hate the State too much? Let’s consider an analogy.

Imagine if everyday you got home from work there was a man dressed in a black suit blocking the door to where you live. He asked you how long you had worked that day and how much you had made in those hours of labor. To which you can tell the truth or you can lie (but you probably don’t want to find out what happens when you lie). You answer that you had worked for eight hours and made a total of $100. The man then demands that you pay him $20. If you ask him, “for what?” he’ll laugh in your face. You may not have asked for or received anything in return, but you don’t really want to find out what happens when you refuse so you pay him the money.

Wednesday, October 21, 2009

Egalitarian Ethics Are an Impossibility

I think I've come up with a formulation that shows the egalitarianism as an ethic is an impossibility. Please let me know what you think. Is it logical? Is it consistent? Does it hold?

You ask an egalitarian:

“You and nine others are on deserted island. On the island are people of relative average intelligence with IQs ranging from 100 to 115. However, there are two outliers. One man’s IQ is 160. Another man’s is 75. There is food for only nine people.”

The egalitarian solution would either have to be a) to have everyone starve, or b) to draw the one loser (or nine winners) at random.

If, upon consideration of the ability of the high IQ man to rescue the rest, the “egalitarian” instead chooses to starve the man of the IQ of 75, he has admitted to not being an egalitarian.

If he chooses the egalitarian solution of either a) or b), he has also admitted to not being an egalitarian. This is due to the fact that he has instead determined his superior ability to choose for others the fate of others. Since egalitarianism eschews superiority of any variety, the man’s assumption of leadership is a vindication of inequality. Furthermore, an egalitarian’s statement of the moral superiority of any system or way of thought assumes that his statement of morality is correct -- an assumption that could only rest on the superiority of the intellect or knowledge of the said “egalitarian.”

Tuesday, October 20, 2009

"The Incredible Food Machine"

I’ve written about this before, but I can’t stress how important it is to let credit bubbles deflate even as the government pursues a policy 180 degrees in the opposite direction. To illustrate, let’s consider the "Incredible Food Machine."

Bubbles all begin when people begin to believe a lie. The key factor in any market process carried out over time is the interest rate. Interest is the amount someone pays to borrow money over time; it is a price on borrowing money and it is determined, just like any price, by supply and demand. Where the demand for money loans and supply of money for loans meet, the interest rate is determined. All things remaining the same, a reduction in the supply of money for loaning or a increase in the demand for loans will increase the interest rate. Similarly, an increase in the supply of money for loans or a decrease in the demand for loans will decrease the interest rate.

The interest rate doesn’t just have the feature of repaying the creditor for delaying his consumption. As with all prices, it plays an important role in coordinating action. Prices illustrate the relative scarcity of goods and services to market participants. This discourages people from purchasing the goods or services and also incentivizes people to produce more so that they may make a profit. The interest rate does the same thing. If it is high, it discourages borrowing and encourages lending so that the rate may become lower. If it is low, it encourages borrowing and discourages lending. The interest rate, however, unlike other prices, coordinates activity over time. All other prices determine the terms of transactions in the present. Borrowing is usually a means to finance capital investment. Business, seeing low interest rates, will see two things: that money is cheap meaning it is a better time to borrow and that people are delaying their consumption. People delaying consumption implies that they will spend more in the future on bigger items. For example, a person who wants to buy a house (in a normal market) would likely save a decent amount before actually purchasing the house. The businessmen need not even understand this aspect since the lower interest rate allows people to make riskier bets. Think of it this way, which loan would you be more enticed to go to Las Vegas with: one with 5% interest rate or a %15 interest rate? With a 15% interest rate, you’d be less likely to engage in a risky long term business project than with 5% interest rate.

Monday, October 19, 2009

Trade

The concept and establishment of property and property rights allow for two new and very different features of the market. These are trade and expropriation. Trade is a feature of the free market whereby titles to property are exchanged voluntarily between two or more market participants. Expropriation is a feature of command economies whereby titles to property are seized without the consent of all market participants. In this section we deviate slightly from our adherence to a strictly free market model. The reason for this is to contrast the result of voluntary exchange (trade) with involuntary exchange (expropriation).

Sunday, October 18, 2009

Property

It’s time to take a step back so that we may understand a crucial aspect of the land. Property is a prerequisite feature of any economy. Property, as far as economics is to be concerned, is the scope of control. In our economy of Phil living in solitude, anything Phil could get his hands on is his property. He is the sole controller and therefore owner of anything and everything he interacts with to the extent that he is able to harness it. In the absence of anyone else to challenge his control and use of everything in nature, there is no dilemma. Were Phil ethically prevented from owning property, then he would die. Property is necessary for life; life is necessary for economy.

Friday, October 16, 2009

Krugman Is Not An Economist

Paul Krugman is a Professor of Economics at Princeton University. He writes a column on economics for the New York Times. He’s won a Nobel Prize in Economics. He is considered a top intellectual. What’s the problem? He’s not an economist.

How is it that a 22-year-old such as myself with not much more academic credentials than a BA in Economics from a (top) public university could be so brazen as to declare an accomplished Nobel Prize winner to not be what he and the rest of society claims him to be? Simple, he lacks the basic understanding necessary to be called an economist at all. He is no more an economist than Aristotle was a physicist. All I need to do to show that he is not an economist is to provide this one piece of damning evidence: his own article.

Let’s examine his evaluation of the 9/11 attack on the World Trade Center piece by piece:
It seems almost in bad taste to talk about dollars and cents after an act of mass murder. Nonetheless, we must ask about the economic aftershocks from Tuesday's horror.
I’m not the sensitive type. Proceed Mr. Krugman.

Thursday, October 15, 2009

What Do Pizzas and Free Markets Have In Common?

I’m fairly sick of people accusing the “free market” of causing all of our problems. It is repeatedly yelled at people who support actually free markets that they are dreamers or fools for championing a society without coercion as the best way to (not) structure an economy. Please consider this response I received on Reddit when I challenged someone to prove that free market economies fail (full context here):
Utopian economics does not work. Mises, Hayak [sic] and all the Austrian economists who support failed Free Market principles can be lumped together as unrealistic fools chasing mental pictures of perfection. Every time an economy goes the direction of deregulation, it collapses within a few years.

Wednesday, October 14, 2009

Then Just Let Us Die

The debate over the Obama health plan (or a plan for so called “Universal Healthcare” or a single payer system) is bitter. As with all political debates, it is bitter. Someone felt that my civil (though harshly titled) article on economics warranted a response like this:

“too bad you're a f**king retard and the reality is that western europe and the REST OF THE WORLD have had health care for DECADES, f**ktard. it's not hard to figure out”
-- Anonymous

(I have a feeling “Anonymous” is going to be a big star one of these days.)

I have no idea why Anonymous responded to my article that way. It was merely a simple description of how competition leads to abundance and lower prices. I do however have an idea how this kind of bitterness can be ended once and for all:

Friday, October 09, 2009

Utility

Phil must eat to survive. He finds the banana tree and eats what he needs to in order to survive. There is nothing spectacularly amazing about this process. Virtually every living thing performs the basic hunter and gatherer task. If this were in fact the only way in which humans were able to perform tasks, there would be no way to analyze it. Why do ants gather sugar? We don’t know why much further than that’s just what they do. As ants (or what ever evolved into ants) evolved, they acquired a fondness for sugar. What makes the question “why” interesting is the concept of free will. The ability to choose between a variety of different alternatives is a key differentiating factor between rational and irrational animals. [1] Consequently, the goal of economic science is to determine under what conditions humans make the most rational and most advantageous choices. Consider these questions: what if Phil had searched his eight hours, but, instead of finding just a banana tree, he also found an apple tree right next to it? He can only choose to climb and gather from one of them. Which will he choose? How will he choose? How can he improve his decisions in the future?

Wednesday, October 07, 2009

Hyperinflation and Gold

Hyperinflation is the new hip catchword especially within the libertarian circles I frequent. I’d hate to disagree with some of these people, but I’m going to have to take the position that if hyperinflation comes, which I think it may eventually, it will not come for several of years. This prediction was previously stated in My Predictions for the Future of the Economy, but I am here now to clarify. In order to understand how hyperinflation would have to come about you will need to know how the money supply fluctuates.

Essentially all money is controlled by the Federal Reserve. They print money and they make electronic debits and credits and that money is deposited into banks. This is not too important to understand at this point. What is more important is the concept of fractional reserve banking. If the Federal Reserve is the heart of our monetary system, then Fractional Reserve Banking is the blood. (If the Federal Reserve is the brain, the Fractional Reserve Banking is the heart, but obviously if we are in the kind of mess we are in because of the Fed, then it definitely is no brain.) Let’s say you deposit ten dollars in a Federal Reserve System Bank (they all are). The Fed determines what is called the Required Reserve Rate. I think the Required Reserve Rate is near ten percent, but it really doesn’t matter too much. With a 10% required reserve, when you deposit $10, the bank will keep $1 in its possession and will loan out the rest of it. The person who gets the $9 loan will deposit it in his bank and they will keep $.90 and loan the rest. The personal who gets the $8.10 loan will deposit it in his bank and they will keep $.81 and loan the rest. This process works until there is no more money to loan. The result is a total of $100. Fractional Reserve Banking turns $10 into $100. (Banks get rich doing this).This is called the money multiplier. The mathematical formula for the money multiplier is the inverse of the required reserve rate (1/RR). The money multiplier is one of the ways the Fed inflates. If it raises the required reserve, then the amount of money contracts and there is deflation, or if it lowers the required reserve, then the amount of money expands and there is inflation. (Note: we are talking about inflation in its true economic form, which is the expansion of the supply of money.) This system is tantamount to a glamorized and legalized ponzi scheme and is a massive fraud.

Tuesday, October 06, 2009

Origin of an Economy

Economics is a science. Its goal is to try to describe the world as it is - not as it “should” be. We then use the knowledge of the way things are in order to improve how we interact with the world. But in order to understand a system as complex as human society it is necessary to take its features and simplify them by reducing their scale. Here we will explore the essential features of any economy.

Every economy must have at least one person (we can call him Phil) and this person must occupy some amount of land. [1] “Land” as it is understood by economists is any unaltered natural resource. Ground, oceans, lakes, rivers, naturally growing fruit and vegetable, and minerals are all considered to be part of the “land.” Land is the first economic resource and it is limited to the world’s natural endowment.

Sunday, October 04, 2009

Congratulations Chicago!

Ten reasons Chicagoans and (North) Americans should be happy that the Olympics will not be held in Chicago or any other part of (North) America. And, consequently, ten reasons to feel sorry for Rio.

Sports in general are lame

I can’t really figure out what the fascination with sports is. If you like to play sports for no other reason than you just like to play or compete, then I can’t blame you. I like music for no other reason than that I just like it; it is beautiful to me. However, why do people watch sports? Why do people care who wins and loses? I used to watch football, basketball, and golf, and I was pretty into it. I still do watch on occasion because other people like it so I watch it with them. I also have an irrational hatred of all things “Lakers.”

I realized over time that there was no reason to really care about a certain team. What was so special about Team A or B that made them THE TEAM that NEEDS to win. They are the “good” team and all other suck by comparison. When I was a child, I think it was the colors and designs of the jerseys and the names of the teams that drew me to favor them. But what is the excuse for Adults? Because they share a locality? Why does that matter? Rational people ask “why?”. I don’t think people who care about sports are prone to asking “why?”.

Saturday, October 03, 2009

The Chains That Were and Were Not There

I used to really despise the Left / Right dichotomy, but I’ve come around to really respecting it. Not in a way that is mainstream, but in an alternative interpretation. In order to really understand the Left / Right dichotomy one must try to dissect what the the fundamental differences between them are. First, we must clarify what the “Left” because that is where my interpretation is different than most others. As far as I can tell there are always two “Lefts.” Depending on what you are evaluating, those who are considered the two “Lefts” will change. Here are two examples:

In (Half-hearted) Defense of Goldman Sachs

An open letter to:

Matt Taibbi,

You’ve written an entire litany of articles viciously attacking Goldman Sachs and I can’t say I didn’t enjoy them. In fact, I loved them -- every last word. Goldman Sachs deserves no better. They are scum. We both on can agree on that much. That being said, I feel obliged to defend them. The fact that they are scum will likely lead to a half hearted defense, but I feel I must try.

The major component missing from your articles is the explicit acknowledgement of the government’s involvement in the whole mess. You portray Goldman as if they snuck a guy (Henry Paulson) into an unwitting government and orchestrated an Ocean’s 11 type precision heist. You see Goldman as the master planner and craftsman, while the government is dragged around blindly on Goldman’s leash. This may very well be so and I’m the first among my friends to point out the blundering stupidity of government in every realm. But isn’t it missing the bigger picture? That even under the most conspiratorial lens, isn’t it plainly obvious that the government was the tool of Goldman; that had Goldman been without this tool, they would have been completely harmless. Like a chicken shit husband who wants to kill his wife but doesn’t have the guts; although, malicious and evil and vile, he’s still harmless, that is, until he finds a hit man.