Thoughts and Ideas

Politics as team sport

2012-01-28T09:33:00.006-05:00

We've been forced to endure a lot of invective to the tune that we are now more divided than ever. This is dubious, insofar as the division within a nation is a difficult thing to quantify. In any event, it seems to presuppose that the two parties to the division have radically different views which render compromise impossible. And the paucity of government action at the federal level--no budget for two and a half years, just continuing resolutions to make sure the State doesn't shut down--would seem to give credence to this theory. Yet when it comes to Congress, one should be careful about confusing cowardice for principle. Our representatives are reluctant to do anything which might lessen their chances of reelection. So punting has become the pastime of Washington.

To the contrary, I think the division stems from an essential agreement about the way government is run. This sounds paradoxical, but it should not be surprising that vehemence and vitriol tend to increase as difference diminishes. Partisan politics is like sports: one roots for one's team and against the other. Yet it is clear that the much vaunted difference between the teams dissipates rather quickly once a new team wins the electoral game. Bush II was supposed to slash government, but he gave us No Child Left Behind, Medicare Part D, and deficits as far as the eye could see. Obama was supposed to overturn those Bush policies liberals found so troublesome. But instead of reversing the Patriot Act, he expanded its powers under the 2012 National Defense Authorization Act. True, the war in Iraq sort of ended, albeit after three years. But with our soldiers still mired in the region--many of them in Kuwait--it's hardly unthinkable that we shall find ourselves obligated to go to war in Iraq for a third time in as many decades. Moreover, Obama expanded the war in Afghanistan, and launched a few more besides.

If Obama governs like Bush, and Bush like Obama, it clearly doesn't matter who runs the country: we shall continue spending far more than we can afford, adding to the debt, and starting more foolish wars that are neither affordable nor advisable. Disgusted withdrawal is a sensible option, but it's one many are unlikely to take because of the ingrained views both sides share about voting: that it somehow matters and that it is the way responsible and civilized people work out their conflicts. This is rank nonsense, but it's not especially pernicious in and of itself: voters tend to be engaged citizens, which renders them valuable outside the electoral process. Where it becomes pernicious is in the degradation of our national discourse. With no actual differences between the way the parties govern, differences must be invented. So Obama is a secret Muslim communist, and Newt Romney will turn out pregnant women and minorities to die in the streets should he obtain power. Absurdities, all.

This same nonsense has manifested itself in the search for the Republican nominee to oppose Obama. Having passed over the only candidate who has presented a plan to reduce our deficit within a single term--because he has dared suggest that the military wastes money and thus should see its budget cut, and because he doesn't pine to start a war with Iran--the GOP finds itself confronted with a demagogue and a charlatan: Newt Romney. Both candidates have previously staked out positions contrary to those they now espouse, which is to say that both are unprincipled moderates who will now say almost anything to get elected. The difference then, is one of style, not of substance. The primary process has devolved into teens squabbling over whether Team Edward is better than Team Jacob.

(I've gone link happy in this post, but I'll refrain from linking to any specific examples of the asinine arguments over whether Romney or Gingrich is the true conservative. Find a piece that takes a position, and the comment thread will brim over with opposition. The short answer, of course, is that neither candidate will do anything to reduce Federal spending, but don't think that will prevent Republicans from bickering like school children over the matter.)

The most interesting aspect of the right's new found love of Newt is that it is actually a manifestation of politics as a team sport. If Obama supports something, it must be bad. No thinking necessary. Similarly, if establishment Republicans--who are seen as complicit, but are still reliably reelected by the rank and file--and the media oppose Gingrich, that must mean they fear him, and that must make him good. Yet sometimes, the enemy of my enemy is still my enemy. Comprehending this has proven a bit difficult for the base, hence the otherwise inexplicable support for the consummate Washington insider.

Why Not Newt

2012-01-19T17:51:00.003-05:00

I read a good number of books. Arguably the most important I've read in the last several years was After Virtue by Alasdair MacIntyre. I cannot summarize it here, but the main thrust of the book is a critique of the moral philosophy of the Enlightenment, which attempted to derive rules for good living based on reason, with a suggestion that we return to the ethical approach of Aristotle, that is, one which emphasizes virtues.

I often find myself returning to MacIntyre's approach. For instance, those of us who follow politics might attempt to come up with rules--term limits, limits on the money a campaign can spend, etc.---to try to cajole Congress into better serving the interests of the people. There is some value in this approach, but our best laid plans falter if those we seek to restrain circumvent our rules. In short, and as per MacIntyre, the best way to ensure our government is honorable and virtuous is to elect men who are honorable and virtuous.

With this in mind, we can examine Newt Gingrich, and the recent interview of one of his ex-wives. Now, many of the Republicans are insisting that this is a past transgression, and therefore irrelevant in determining whether or not Gingrich is qualified to be president. Yet while the story is an old one, it's hardly immaterial in helping qualify the character of the prospective nominee, for two reasons.

First, it's imperative that a candidate be virtuous if we wish him to govern well. So much of the focus of the campaign revolves around the debates--whether candidate A handled a tough question well, etc. Yet possessing the skill to speak extemporaneously does not necessarily make a good president. Coolidge was famously laconic, but that didn't prevent him from being an exceptional president. Similarly, Obama's ability to charm the masses has failed to translate into executive ability. Moreover, one may say all of the right things, but then govern differently when one obtains power. Sniffing out the sophists ought to be the most important task of the political process.

Second, Gingrich's adultery represents more than a lapse: it exposes a pattern of vice. There is a grave difference between sin and living in a state of it. Gingrich did not make a solitary mistake: he chose a degenerate lifestyle for a prolonged period of time. And he did so while the Republican Congress was hounding the President for the exact same behavior. As Evelyn Waugh has Julia express it in Brideshead Revisited, Gingrich was:

Living in sin, with sin, by sin, for sin, every hour, every day, year in, year out. Waking up with sin in the morning, seeing curtains drawn on sin, bathing in it, dressing it, clipping diamonds to it, feeding it, showing it around, giving it a good time, putting it to sleep at night with a tablet of Dial if it’s fretful.

As Aristotle understood, habituation with sin mars one's character. Just as a man who practices acts of courage becomes courageous, a man who practices infidelity becomes unfaithful. Virtue can, in time, be restored, but without further information, voters should be suspicious of Gingrich's virtue. He may be as unfaithful to his constituents as he was to his wife. We cannot hazard a test.

Gingrich claims to have repented. This is between him and his God. I do not wish him ill, nor do I begrudge him the forgiveness and grace of the Almighty. But while he may still play a role in the conservative movement, conservatives cannot, in good conscience, support someone who has reveals himself to be so lacking in virtue for such an important office. Were he an honorable man, Gingrich would have stepped aside. There is still time to practice honor, by behaving honorably this time.

Irrationality begets the same

2012-01-06T17:45:00.010-05:00

There are too many contradictions in US foreign policy to tease out in a single post, but as the drum beats ever louder for war with Iran, I wanted to take the opportunity to examine at least some of them.

During the Cold War, the United States operated under a paradigm of mutually assured destruction. While those who ran the Soviet Union weren't concerned with the deaths of the proletariat in whose name they were ostensibly ruling--and who they were actually murdering by the millions--the leaders weren't too keen on suffering bodily harm to themselves.

Since nuking the United States would produce a retaliatory strike, the Russians were disinclined to exercise that option, however much they loathed us capitalist pigs. The two great powers managed to muddle through without the war turning hot.

The same logic ought to apply in our war against Islamic extremism--or terrorism, or Al-Qaeda, or whoever it is we're supposed to be fighting. But it does not, we are told, because the enemy is inherently irrational; he longs for death and therefore will not be disinclined to wipe Israel and the US off the map.

Now it is true that some people--suicide bombers, for instance--value other things more than their own lives. Since suicide bombing has been a weapon on the arsenal of the terrorists, it seems to follow that Islamic leaders would have no problem bombing some part of the Great Satan.

Yet this argument only make sense if we assume that the terrorists act only to inhibit the enemy, rather than to further some other goal. But the head terrorist himself, Osama bin Laden, has stated that such goals do exist. The aim of Islamic terrorism is not to destroy the west so much as it is to bleed and bankrupt the United States, forcing it to relinquish its presence in the Arabian world. Ironically then, U.S. military policy has proven indispensable in advancing bin Laden's objectives.

The argument that the terrorist hates us for our freedoms is imbecilic, but it is requisite for our foreign policy. If the terrorist has real objectives, he is at least partially rational. We are then faced with a decision to fight to thwart these aims or abjure them and refuse to fight. Only if the terrorists are totally consumed with hate are the wars essential.

Or are they? Are they not then even more futile than if our enemy were partially rational? If we assume that the leaders of Iran, let us say, cannot be reasoned with, this implies that they will answer only to force. Yet this is the very thing which they most desire. Those who wish to avoid another war are deemed appeasers, yet, in another irony, if Iran wants a civilization conflict, the warmongers are the real appeasers.

Moreover, it becomes impossible to levy criticism against foreign policy in respect to the allegedly irrational countries. Republicans have been claiming that Obama is showing weakness in front of Iran. The implication is that Iran would cease to agitate if confronted with strength, but this argument only makes sense if Iran is behaving with some modicum of rationality. Yet this alleged irrationality is the whole reason weakness is being decried; it's not as if any Americans fulminated when, say, Israel obtained nuclear weapons.

This illustrates that one cannot assume irrationality among others without falling into hopeless contradictions. Unless we have incontrovertible evidence that Iran's leaders are irrational--and I don't see how we could ever know this with any degree of certainty--it behooves us to treat them as at least passably rational beings. This would have the effect of returning our own policy into the realm of rationality, which would be a pleasant change indeed.

2012 Reading List

2012-01-02T11:17:00.006-05:00

I read a fair number of books. This year, I'll use this post to keep track of books I've read as well as those which I'm currently reading. This is partially because I'm curious to know how many books I read in a given year, and partially on the remote chance that someone is interested on my take regarding a particular tome.

At the end of the year, I'll try to give a bit of feedback regarding each book--at a minimum, something like this.

Currently Reading
Les Miserables - Victor Hugo
The Golden Bough - James Frazer (the one volume abridgement)
A Treatise of Human Nature - David Hume
Fear and Loathing: on the Campaign Trail '72 - Hunter S. Thompson

Read
Bourgeois Virtues - Deirdre McCloskey
Deer Hunting with Jesus - Joe Bageant

Bourgeois Dignity - Deirdre McCloskey

The end of the GOP?

2011-12-30T17:39:00.003-05:00

With less than a week to go until the Iowa caucuses, it looks ever more likely that Republicans will dutifully go to the polls to nominate Mitt Romney. Certainly, the big money is backing him--though even more is lined up behind President 99%. The media is doing everything in its power to marginalize Ron Paul, who is second to Romney--and even bests him in some polls. I remain hopeful that the good doctor can pull an upset, but at this stage, I think Romney will emerge victorious.

One should not, however, downplay the significance of Ron Paul's emergence as a top tier candidate even if he ultimately falls short in Iowa. Paul's emphasis on a non-interventionist foreign policy and his insistence that the Empire, which is an integral part of the State, is not sacrosanct and can therefore be cut, are not standard fare in Republican debates. In point of fact, for all that the Republicans insist that the Democrats are soft on terror, there is a bipartisan consensus in favor of war and defense spending.

These views are important, so we'll examine in them in some detail. Non-interventionists, as opposed to outright isolationists, insist that while there are criteria under which a nation may go to war, i.e. when that nation has been attacked, wars of aggression are immoral. They are also costly, in terms of both blood and money. The United States spends more money on "defense" than all other countries in the world combined. Our wars also produce what our CIA calls blowback: reciprocal responses to our policies. These responses harm our country, but they also have a tendency to provoke us into war, thereby setting us up for more blowback.

This message is resonating with a significant percentage of the electorate. The media, especially the Fox News crowd, refuses to consider the argument. Always on the lookout for prospective Hitlers to bomb, they insist that Paul's policies are bad for the country. Unfortunately, there's no evidence that this is the case. While GOP chicken hawks are eager to continue fighting the wars forever, and start new ones, too, the soldiers who fight the wars are proving reluctant to die for our Empire. For this reason, Paul has more contributions from military personal than do all the other Republican candidates combined.

From this policy stems Paul's insistence that the Empire--our soldiers in foreign countries, and the money to support this network of bases--be liquidated. Not only does it cost an enormous amount of money at a time when the nation is essentially broke, but it actually makes us less safe. Bush argued that the Iraqis and the Afghanis would welcome us with open arms. Instead, we found that civilians did not like being bombed, and that our policies made us less safe by creating enemies faster than we could kill them.

The criticism of Paul has everything to do with his foreign policy views. Republicans are so wedded to the warfare State that they cannot abide anyone who is insufficiently ready to spill the blood of others. Democrats meanwhile, don't particularly care about the war, as long as their President passes some sort of legislation to give more free things to regular people. That wars funded through inflation make all of us--except for the defense contractors--poorer, is not something we're supposed to notice. That's another strike on Paul, who keeps pointing that out.

Paul's rise, and corresponding witch hunt by media, left and right alike, has altered the political landscape. Conservatives and libertarians are noticing the way Paul is being treated. The same party that regularly touts pro-choice, anti-gun, big spending moderates, has shamefully accosted a long time Congressman with impeccable fiscal credentials for the heresy of questioning our foreign policy. This group may be, and indeed, probably is, too small to tilt the election to Paul, but they are not going to line up to vote for Romney after the way their candidate has been treated.

I suspect that this rift will cost Romney the election. The GOP elites will blame Paul and his people, but there is no rational reason why any conservative or libertarian would vote for a man who has shared almost every view of our current President; that he has absconded some of those views now that he is seeking the Republican nomination does him no good. He is a spineless weasel. That the elites prefer him to Paul tells one all one needs to know about the state of the party.

I will not even hazard a guess as to what may happen next, but I would not be surprised if this turns out to be the last election in which a Republican candidate runs for President. If Paul kills the soulless squid that is the GOP, he will have done this country a tremendous service.

Yeats on the candidates

2011-12-23T19:54:00.002-05:00

I stumbled across William Butler Yeats' poem: The Second Coming. This time through, I was struck by the lines:

The best lack all conviction, while the worst
Are full of passionate intensity.

Now, doesn't that almost perfectly describe Mitt Romney and Newt Gingrich? For while the former would make a dreadful president, he is at least a good man, whereas the latter fails on both accounts.

Smears away

2011-12-20T19:25:00.004-05:00

There's a terrific smear piece over at Politico today. It really needs to be read in its entirety to appreciate the depths to which the writers have sunk in an attempt to discredit Ron Paul.

We'll examine some samples:

Paul poses an existential threat to the state’s cherished kick-off status, say these Republicans, because he has little chance to win the GOP nomination and would offer the best evidence yet that the caucuses reward candidates who are unrepresentative of the broader party.

We're seeing this notion--that Paul will not be able to obtain the GOP nomination--more frequently. Yet the whole point of the caucuses and primaries is to determine who the people prefer since our system is supposed to be, you know, democratic. We could tweak things a bit if we've like, but essentially the only way we can determine if a candidate has support is to have the citizens vote. After January 3rd, we'll know whom Iowans prefer, and we'll go from there.

What especially worries Iowa Republican regulars is the possibility that Paul could win here on January 3rd with the help of Democrats and independents who change their registration to support the libertarian-leaning Texas congressman but then don’t support the GOP nominee next November.

Translation: what worries Republicans is that Ron Paul puts loyalty to his principles and his country ahead of loyalty towards the party. Unsurprisingly, this is a large aspect of his appeal. Republicans can bemoan his reluctance to bomb Iran all they like; it is precisely this position, held firmly when revoking it would be politically expedient, that attracts independents and Democrats.

There is no indication that these same groups wouldn't vote for Paul against Obama if he were to obtain the GOP nomination. In regards to foreign policy and civil liberties, Obama has been little better than Bush--though one wouldn't know it from listening to the right. This has hurt him with his base, who would be reluctant to vote for another Republican warmonger, but would be receptive to vote for Paul.

“People are going to look at who comes in second and who comes in third,” said Gov. Terry Branstad. “If [Mitt] Romney comes in a strong second, it definitely helps him going into New Hampshire and the other states.”

Romney is the establishment candidate this time around. He has loads of money, not from individual contributors, but from large corporations and banks, who know that Romney can be counted on to ensure that no substantial change occurs. The not so subtle message here is: Romney will be the nominee, so get in line and vote for him.

“Everybody has the perception that there’s absolutely no way [Paul] can win the nomination, whereas a Mike Huckabee coming out of nowhere at the end to pull out a victory here – he was a serious contender,” said Lamberti. “That’s the distinction that has the potential to do real damage to Iowa.”

Notice the double standard here. If Iowa is worried about discrediting the caucus system, they shouldn't bring up Huckabee, who turned out to be unelectable. Of course, no one knew much about Huckabee, whereas "everybody" knows that "there's absolutely no way [Paul] can win the nomination" so you can see how it's actually different. I'm familiar with the argumentum ad populum logical fallacy, but this is more absurd still. If I say that everybody knows that Lamberti is an obnoxious blowhard, I'm not telling the truth, but we have at least one example to lead us towards that conclusion.

“What has me concerned is that on Main Street Iowa people are coming up to me and saying, ‘What do you think about Dr. Paul?’” said Cable. “These are folks who have to be informed. They have to get past the 30 and 60 second ads. If you ask Iowans if they’re for legalizing marijuana or legalizing heroin, they’d say no. But Dr. Paul has said on many occasions that that’s ok. But people don’t all know that.”

This is probably my favorite part of the piece. Paul has consistently voiced his opinion on every issue about which he was asked a question during the debates. Granted, the Republicans were busy ignoring the "unelectable" candidates, so part of the ignorance is the fault of the establishment which is now doing everything in their power to downplay Paul's success.

Cable argues that the only reason people could be attracted to Paul is that they do not understand his views. This underestimates the number of people who are attracted to the entire program, along with those who, quibbles aside, understand that Paul stands with the people and against the ruling oligarchs on issues that matter.

But even when this isn't the case, he threatens the bifactional ruling party by widening the realm of acceptable discourse. The people are supposed to choose between Candidate A, who is prone to war and bailing out banks, and Candidate B, who is prone to bailing out banks and going to war.

The drug issue is a case in point. Not only are we supposed to support the War on Drugs, we're not supposed to mention it at all. So what if our policies haven't done anything to alleviate the drug problem? Who cares if inner-cities are uninhabitable and overrun with drugs? Why does it matter that hundreds of thousands of Americans have been incarcerated for non-violent crimes? The establishment tells us which questions we are allowed to ask, because this ensures we'll also come up with the right answers. These questions are not on the list.

Something very big is happening in this country right now. The extent of the corruption of the political system is coming to light If Paul wins Iowa, the establishment will have to decide if they will tolerate democracy, or if they will continue to smear the people's candidate--which will only make the corruption that much more apparent.

Now Rush, too

2011-12-15T19:35:00.005-05:00

I have to wonder if the Republican Party is sending out emails to some of these talk show hosts. The modus operandi in 2008 was: pretend Ron Paul doesn't exist; exclude him from debates and he'll go away. But then he didn't go away. The recession, which he had been predictin for years, compelled many Americans to examine his views, despite the media blackout. Meanwhile, McCain, the moderate who was supposed to be electable, was defeated by Obama.

This time around, they tried to ignore him again. But suddenly Paul is second in Iowa. We are told that everyone knows that he isn't going to win the nomination. But how do we know this? Can Republicans predict the future? If so, they shouldn't have nominated McCain. He lost.

Anyway, the smear brigade is out in full force against Paul. Hannity came out against him yesterday, and today Rush Limbaugh took up the cry: anyone but Obama--except for Paul. Here's a selection of the transcript from his show:

The Tea Party wants that government cut down to size and they want it to happen in a big step. And Ron Paul's giving them meat. But they're not hearing much about his foreign policy. So his support actually could be widespread throughout Republican primary voters. We don't know. But Ron Paul has said things, for example, make you think that he believes 9/11 was an inside job, Ron Paul. He hasn't said it word-for-word, but the only conclusion you can draw when you listen to him talk about his theories on it...

We covered this yesterday. Ron Paul does not believe 9/11 was an inside job. What he has said is in agreement with the 9/11 Commission Report: that our policies precipitated blowback in the Middle East. This is not to say that the terrorists are not responsible for the attacks, only that our policies made such an attack more likely. Rush would like it if his listeners kept their heads in the sand: the terrorists are irrational, so anything we do to appease them will not be enough, they will attack us anyway. Yet it should be obvious that invading and occupying someone's homeland won't cause those people to think too kindly of the United States. We really shouldn't have to revisit this argument every time we discuss 9/11, but apparently it is still necessary to do so.

Rush continued:

No question about it. Ron Paul said -- I don't know if it was the last debate or in a town hall somewhere, but it was recently, Ron Paul said that the White House celebrated when 9/11 happened because that was their ticket to go into Iraq.

Here's the clip to which Rush is referring. Now, the point Paul was making should be fairly obvious. Just as the Obama administration used the economic crisis to effect policy changes on the domestic front, the Bush administration used 9/11 as a pretext to invade Iraq. This does not mean that Bush was happy that Americans died on 9/11, anymore than it means that Obama was glad that millions of Americans became poorer during the recession. It simply means that both knew that one should never let a crisis go to waste.

We know for a fact that an Iraq invasion was being planned prior to 9/11. It is doubtful whether Americans would have been whisked to war were it not for lies about WMDs and Saddam's connection with Al-Qaeda. Paul's point, then, is sound. And Limbaugh is playing the demagogue.

UPDATE: Rush was on Greta's show last night. The transcript is available here.

He mentions Ron Paul, only to say: "But I think right now anybody other than Ron Paul could beat Obama if the election were tomorrow, easily."

Yet this is patently untrue. According to a recent poll, Paul comes the closest of any Republican candidate to beating Obama; the poll shows a dead heat. Romney trails by 7 points and Gingrich trails by 10 points. It's true that this poll only counts Iowa voters, but this is consistent with older polls which survey voters from other states. On the basis of the latest polls then, Ron Paul has the best chance to defeat Obama. Rush is ignoring the data so that he can continue to ignore the candidate who worries him the most.

Anyone but him

2011-12-14T17:56:00.005-05:00

On my way home from work today, I caught a bit of Sean Hannity's program. Hannity is a blowhard, but he has his uses, namely, in allowing us to see how the Republican party is reacting to various political news. Today he told us that while he could not yet make up his mind about which candidate to support, he could not support Ron Paul. This is interesting because most days Sean is bloviating about how Barack Obama is the most dangerous president ever, and that anyone would be preferable to him. Evidently he now prefers Obama to Ron Paul.

Hannity's reasons were twofold: Ron Paul is an isolationist; and he wrote some nasty newsletters back in the 90's. The first point is easily debunked, since Paul is not an isolationist. He's a non-interventionist; he was in favor of going after Al-Qaeda after 9/11 but wisely noted that failure to declare war would lead ensure that the conflict would never end. In fact, Paul has published a book which contains his many speeches he gave while in Congress. Reading this would enlighten Hannity, and prevent him from making foolish proclamations on national radio shows.

The newsletter issue is summarized here. Essentially, Ron Paul allowed someone else to edit and publish newsletters under his name. Some of the opinions therein were racist. Hence, the argument goes, Ron Paul should be disqualified from office. This is nonsense for a variety of reasons. For starters, Paul is only guilty of poor judgement if the newsletters were written by someone else. Moreover--and this is going to be a hard point to grasp since racism is seen as the worst possible crime--his policies are not racist; it's unclear how a libertarian would govern in a racist manner. This is not to concede that Paul is racist--no one who knows him or is familiar with his work makes this claim--only that if he were, it wouldn't be as bad as people might think. Obama is not racist against Middle Easterners, but that hasn't prevented him from killing scores of them in foolish wars. It's absurd to be more concerned about value judgements than policy implications, yet this is what Hannity is doing.

The truth is Hannity doesn't care about the newsletters. That these dubious charges of racism are the best dirt that his opponents--and yes, Hannity is an opponent of the good doctor--can dig up tells us a good deal about the strength of character which Paul possesses. No; what Hannity cares about is Paul's foreign policy views. Like any good neo-con, Hannity loves war. He's worried sick that Obama might not start a war with Iran, and he's tickled pink that the rest of the candidates have exhibited no trepidation towards yet another war.

The implications of this position are quite interesting. For both Gingrich and Romney share Obama's foreign policy views as well as his domestic views. It's true that both of the Republican candidates have told us that they will end Obamacare, but this aside, both are equally eager to continue deficit spending for years to come, rhetoric notwithstanding. On the war front, both are equally committed to Empire, though there might be some differences as to which countries we wouldn't invade--yet.

Now, Ron Paul also opposes Obamacare and promises to overturn it. He also promises to cut $1 trillion from the budget in his first year, which is 99% more than either Romney or Gingrich promise. However, he does have diverging views on foreign policy. By supporting Gingrich and Romney against Paul, Hannity is telling us that $1 trillion in spending cuts are not worth a change to foreign policy. In other words, he's more than willing to accept another big government conservative than concede any ability to wage additional wars. Never mind that we don't have the money to wage any more expensive wars since we keep nominating big government conservatives.

We know from talk radio that anyone who doesn't vote for Republican candidate X is really voting for Democrat candidate Y--never mind the logic; we're in talk radio land. So what Hannity is saying when he admits that he will not support Paul is that he prefers an Obama presidency to a Paul one. Which is to say that he will not give up Obama's foreign policy for Paul's, even if it means that we can repeal Obamacare and cut $1 trillion from the budget. This is very interesting, because it's a tacit admission that Paul is to "the left" of Obama on the war front, that is, he is less likely to go to war than our current president. This is precisely the reason Paul would do so well against Obama, who would be forced to run as a hawk, thereby alienating his base.

The inescapable conclusion is that there is no party for conservatives. The only thing that the War, err, Republican Party wishes to conserve is our Empire. Every other constituency must sacrifice its principles for the good of the party: pro-lifers have to tolerate pro-choice candidates, second amendment proponents must not quibble with candidates who promote gun control legislation, fiscal hawks must support big spenders. Only the imperialists are exempt from sacrifice.

The reality is that there are a lot of people who make an awful lot of money off of our Empire, and they're not going to see the spigot closed without putting up a fight. It's going to get very nasty for Dr. Paul as his campaign continues to grow. The good news is that this is forcing so-called conservatives to show their hands. Hence forth, it's impossible to view Hannity as anything more than a warmonger.

The electability canard

2011-12-13T19:08:00.003-05:00

As we head into primary season, the Republican race has been whittled down to three: Mitt Romney, bankster candidate with deep pockets of corporate cash, for whom the base has shown little enthusiasm; Newt Gingrich, serial adulterer and consummate Washington insider who is smart, and, most importantly, is not Romney; and the elderly and sometimes rambling libertarian doctor from Texas, Ron Paul.

The elites have ordained Mitt Romney as the most electable of the candidates, or even, the only one who can beat Obama. This tired argument is trotted out every time the party nominates a candidate who is anathema to the base. We saw it with Dole and again with McCain. Both of whom, interestingly enough, failed to win the elections despite their purported electability. The main reason, then, that this argument is a fundamentally foolish one, is that no one knows who will be the next President. In the end, only one candidate will prove to be electable, which is to say, elected.

But this is not to say that we cannot attempt to analyze how electable a candidate might be. The usual tactic is to assume that, since conservatives can be expected to vote for anyone not named Obama, the dullest, safest, moderate will attract votes from independents and moderates. There are two problems with this approach. For starters, it's unclear what is to be gained by nominating someone who doesn't share the same values as his supporters. If merely defeating Obama is the goal, the Republicans may as well run Hillary Clinton for president. I don't think they would be satisfied with the effects of any subsequent electoral victory.

The second problem is that it ignores the most important sector of the electorate: the non-voter. Obama won for a variety of reasons, but his campaign was undoubtedly helped by the many first time voters who came out to support him in his historic election. Neither Romney nor Gingrich is likely to exhibit such pull, but Ron Paul will draw in libertarians, young voters, disenchanted democrats who appreciate his stance on civil liberties and foreign policy, as well as independents who vote for candidates who are different from the usual fare--think Ross Perot.

Now, it's possible that those on the right who dislike Paul's positions on foreign policy will stay home. But it's less likely that life long Republicans will vote for Obama, so depending on the number of independents he would bring in, this may well be a wash. In any event, such a boycott would be instructive. Republicans are supposed to care about reducing the size of government. Lo and behold, a candidate offers to cut 1 trillion dollars per year, and to balance the budget during his first term. Alas, he is insufficiently enthusiastic about continuing our wars and starting some more--which, incidentally, costs a lot of money. That Republicans have not flocked to Paul reveals that the War Party cares far more about committing acts of aggression against other nations than it does about reducing the deficit.

Ron Paul now trails Gingrich by a single point in Iowa. I cannot claim to know who will be elected, but it seems clear that Americans will at least have the chance to nominate Paul, after which we can see what he can do against Barack Obama.

Extending and pretending

2011-12-07T23:06:00.003-05:00

Although the Eurocrats have managed to buy a little more time, the EU is still very much hosed. The biggest development as of late was the Federal Reserve's bailout of French banks--though of course it wasn't presented as such. This happened rather quickly, and gave the market a nice goosing which should suffice to carry through the holidays.

The Eurocrats are meeting again this Friday. There will be a great many rumors, but the only thing worth watching is whether the treaty will be modified so that European Central Bank (ECB) can purchase bonds from EU governments, just as the Federal Reserve monetizes American debt. The treaty disallows this at the behest of the Germans, who were reluctant to undergo a second hyperinflation in just under a century. If the Eurocrats can't get permission to buy more debt, the EU is totally doomed. Since they've been working on this project for over fifty years, I highly doubt anyone is going to let worries of currency collapse ruin dreams of world government.

Hence I expect that the treaty will be amended to allow limited purchasing of bonds. In short order, these limits will be gradually removed, at least until the German people revolt. Absent more inflation from the ECB, it appears that European banks will begin to fail in relatively short order, with drastic consequences for our equally insolvent institutions.

Almost there. Stay on target.

Forgetting foreign policy

2011-11-27T14:40:00.002-05:00

In Courting Disaster, Marc Theissen offers a frank defense of the Bush administration's policies in the War on Terror. Specifically, he maintains that the enhanced interrogation techniques—including, but not limited to, waterboarding—helped save countless lives. President Obama's reluctance to utilize these same procedures endangers the country, hence the title of his book.

In a superficial sense, his book is thorough; he quotes from a variety of different people to make his points. However, because the vast majority of his sources are merely defending policies which they implemented, his apologetic comes across as self-serving. Asking Dick Cheney whether or not waterboarding is meritorious is akin to asking Joe Biden whether the stimulus program worked. We know what we will be told, but we remain unsure as to the real answer.

Theissen offers a cursory defense of the morality of enhanced interrogation techniques, to wit, it's not torture, and anyway, there are different rules when dealing with terrorists. Yet the thrust of his argument is utilitarian: "We should be grateful to, and proud of, those who took on the difficult job of interrogating captured terrorists. They elicited information that saved countless innocent lives."

The danger of his approach should be obvious: if safety becomes the only test of morality, it is difficult to see which of our rights are inviolable. That some of our freedoms remain is beside the point: once this test has been admitted, there is no logical reason why government may not strip away our rights—one by one.

There is a greater flaw in Theissen's book, however. Until the very last chapter, he does not so much as examine why it is that terrorists may be attacking America. Then, he flippantly insinuates that terrorists are simply evil. He quotes Peter Rester, the director of the Joint Intelligence Group at Guantanamo, who notes that critics cite: "America's support for Israel; America's occupation of the Holy Land; America's occupation of Saudi Arabia" as policies which give impetus to terrorism against the United States. But for Theissen, discussions about policies are excuses, irrelevant to the discussion.

Nothing could be further from the truth. Theissen insists that if the terrorists attack again, the Obama administration will have blood on its hands, since the attacks could have been prevented had we continued to use enhanced interrogation techniques. Yet it is truer to say that American policies—indiscriminately bombing Middle Eastern countries, insistence on occupying these same countries, and unquestioning support for Israel against the Palestinians—produce what our CIA calls blowback. Terrorists attack us because of these policies; we know this because they have told us as much. This does not excuse the behavior of those who kill innocents, but it does make it partially explicable.

This does not necessarily mean we need to reverse our policies. But we need to accept that there are costs for our Empire—just as there are costs for refusing to utilize enhanced interrogation. A prerequisite to Theissen's book is an understanding of our foreign policy, and the role it plays in fomenting terrorism. It is puzzling that he considers something so essential to be of so little consequence.

Revolution watch

2011-11-25T09:23:00.003-05:00

Recently, I've been reading The Degradation of the Academic Dogma by Robert Nisbet. Therein, he argues that the academic dogma--that knowledge is important--has been degraded by a slew of changes to the university system between 1945 and 1970. The former date marks the moment at which universities began to accept large amounts of grant money for research from Federal and even State governments; the latter encompasses the student revolutions, which started at Berkley in 1964.

Today, I don't think that many would challenge the notion that the academic dogma has been swept aside in favor of other dogmas. As I've written before, modern universities are, with very few exceptions, at best, glorified trade schools. At their worst, they allow enfeebled middle class minds to hobnob about for half a decade in quasi resorts, without bestowing more than a modicum of knowledge upon the students.

What concerns me here, however, is not the death of the universities, but the prospects for revolution. For Nisbet offers ten criteria by which one may know whether or not a revolution may be imminent. We can use these criteria to apply the test to America as the year 2011 draws to a close.

I should not have to explain that such an examination has nothing to do with whether or not I desire a revolution. Being a hopelessly reactionary, on the whole, I think revolutions do much more harm than good. However, if a system is corrupt and unjust, and makes no motion to better itself, history testifies that if it is not satisfactorily reformed, at some point, it will be overthrown.

1) First, there must be a preceding period of sharp, almost convulsive changes in society, especially in the economic and social spheres.

Check. The Greatest Depression shows no signs of abating. This time, there are no soup lines because, unless one cashiers at a grocery store, it is not apparent which Americans are using welfare money to feed their families. Suffice it to say that these numbers are not insignificant.

The real crisis is still to come, however. By forcing down interest rates, Bernanke encouraged retirees to speculate in the stock market. When the stock market plunges, pension and 401Ks will lose value; those depending on them will be in for a rough ride.

2) Second, there must be a strong feeling of the breakdown of established authority.

Check. For all their infantile ignorance of, well, most things, the Occupy Wall Street protestors are right about this. In Washington, the rules are being changed almost weekly. Whether it was allowing investment banks like Goldman Sachs to act as commercial banks to receive money from the Federal Reserve, or whether it is the refusal to investigate fraud by the banks, in the economic realm, certainly, there is no authority. But the problem is not so much that banks police themselves as that they make bets with taxpayer money, paying executives nice bonuses if the bets work out, and coming to the taxpayer for more money if they do not.

The Republican Party Presidential debates further reinforce this breakdown in authority. With President Obama owned outright by the banks, a Republican candidate could capitalize by insisting that, as President, he would investigate all serious allegations of fraud. Instead, the candidates are telling the hippies to get jobs, which is utterly beside the point.

3) Third, there must be a considerable degree of affluence.

Not yet. This is a paradoxical point: one assumes that the poor would rise up in a revolution, but it is always someone with comparative affluence who leads them. Many of the Founders were merchants; Robespierre and Marat weren't exactly impoverished.

The candidates here are the recently unemployed finance workers. While much of the middle class is faced with the prospect of making due with less money, or else postponing retirement, finance workers--the best and brightest; follow the money--are being forced to come to terms with the fact that they went into the wrong field. You can bet your Goldman stock that those who have been booted off the gravy train are none too pleased about it. My suspicion is that the leaders of the revolution will come from the displaced finance sector.

4) Fourth, there must be a substantial measure of liberalization achieved during the period before the revolution.

Not yet. If anything, the police state has been trying to assert itself all the more readily as of late. And the War on Drugs continues apace. Yes, the Internet has provided a liberalization of sorts--which is why the Congress is hoping to impose a Great Firewall. Still, Nisbet demands that this take place "in political and legal as well as customary terms." So I would say we have a ways to go.

5) Fifth, there must be a striking politicization already going on.

Check. I would say that the Tea Party and the Occupy Wall Street movement have demonstrated that pretty well everything is heavily politicized. That the former has been co-opted by the Republicans, and that the latter will almost assuredly become co-opted by the Democrats is, I think, beside the point.

6) Sixth, there must be power-sensitive, power-eager, intellectual elites.

Unsure. Does a civilization which is degraded as ours produce elites anymore? Comparatively, perhaps. Again, I think the displaced finance workers are the group to watch. For decades now, the sharpest and most well-connected students went to Ivy League schools after which they proceeded into finance. If the establishment can't find a way to place these recently unemployed, there are going to be some very bright people, who--and this is important--know the system very well. So far, the rhetoric of Occupy Wall Street has been unimpressive. But if the former-bankers get involved, the criticisms of Wall Street will become much more pointed.

7) Seventh, there must be some precipitating incident or event, one that, while in no way necessarily related to internal conditions, succeeds in bringing passions to ever greater boil and, with this, potential mobilization of numbers.

Not yet. It is tempting to claim that police brutality against peaceful protestors has helped mobilize the Occupy Wall Street movement. And this is true to some extent. But it remains a fringe movement, for the time being. I suspect that this event lies somewhere in the not too distant future.

I should note, too, that some of these protestors have turned violent. So not all of the police violence has been unprovoked. But there is no excuse for shooting people in the head with rubber bullets or pepper-spraying innocents. The police are losing the PR battle, which is why I suspect that an over-reaction by the men in blue will facilitate a much more significant uprising.

8) Eighth, the moral issues must somehow be made appealing to substantial numbers.

Not yet. The right remains oblivious to the wrongs done by the banks; the left remains equally oblivious as to the role played by the government in facilitating theft by the banks. Someone will need to connect the dots so that the outdated left-right divide can be thrown out in favor of a dichotomy that makes sense. There are those who try to do right by serving one another without compulsion, and there are those who become rich through government force. That is the real division. Too few realize this--as yet.

9) Ninth, it must be easy to contrast an existing scene of declared corruption, hypocrisy, and insensitivity to human rights with a utopia summoned up either from the romanticized past, some primordial Garden, or from the imaginary future.

Not yet. The continued economic contraction should make this more plausible. When the rationing begins--for the people of course, not the elites--making the case for utopia will be trivial. Before then, it will require a bit more imagination.

10) Tenth, there must be a certain reservoir of guilt in the Establishment of a social order or institution if revolt is to be gotten off to a good start.

No. The elites don't seem to care one bit. Obama has expressed some sympathy with the protestors, but this has been mere rhetoric. Likewise, the entire Republican field, as well as most of Congress, expresses no guilt for what has been done to the people. More importantly, nothing has been done to show that Washington is not run by the bankers. In fact, Obama wishes to give the banks a get out of jail free card in exchange for a fine. That's just not going to be acceptable to the masses--once they figure out what has transpired.

Thus stands the revolution. We shall continue to watch carefully in the months and years to come.

The regulation distraction

2011-11-17T17:49:00.004-05:00

The topic of regulation has poked its head into what passes for political discourse in our country. The Democrats insist that deregulation caused the economic crisis; it follows then that tighter regulation is needed to ensure no future crises occur. Meanwhile, the Republicans maintain that regulation restricts growth; that various pieces of legislation which Obama has signed into law--including his eponymous healthcare bill--ensure that the economy will not add jobs at a rate sufficient to bring about an economic recovery.

All this talk about regulation is little more than a curious canard. For what occurred during the housing bubble was no less than grand scale fraud by the banks. Fraud is not something one regulates against. It is prosecuted, not because it is a violation of some arcane minutiae buried in some back page of a manual at a regulatory agency, but because it is a provision of common law. Prohibition against fraud is an integral part of the western tradition. It has also been written into the United States Code of Law:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

No one knows how much fraud the banks have committed. We know that there has been some. There are probably more guilty bankers out there, which is why, despite their economic ignorance, the Occupy Wall Street movement is still by and large a good thing. The protestors realize what many of the Republicans and President Obama deny: the rule of law is not being applied fairly to those who are rich and well-connected.

Indeed, just this week, a story was published in which President Obama alluded that the actions taken by bankers were "not necessarily against the law." Yet he has no way of knowing to what extent the law has been broken. But rather than investigate banks to determine if fraud has been committed, he wants the banks to pay a measly $20 billion fine to handle the mortgage mess. That may seem like a lot of money, but it's not to bankers. If they have committed no crimes, this fine is unjust, but if they have broken the law, the people have a right to know about it--and for the criminals to be punished accordingly.

This focus on regulation is distracting us from a very discomforting fact: the rule of law no longer applies in America. Bradley Manning is being held indefinitely, without charges; an American citizen was assassinated by our own government; banks commit fraud, pay small fines, and get bailed out. We should hear no more talk of regulation from presidential pretenders. What the American people need to hear is whether or not the rule of law will again apply, or whether we shall continue to be ruled capriciously by despots. Bromides to American greatness may convince the willfully duped, but those with eyes to see are beginning to notice that the image projected by politicians bears little resemblance to the reality: that we can no longer be considered a great country.

Generational breakdown

2011-11-16T17:53:00.005-05:00

During the last few years, America has witnessed the birth of two seemingly dissimilar movements: Occupy Wall Street and the Tea Party. Indeed, one is only supposed to compare the two to disparage the other. To the Tea Party, Occupy Wall Street protestors are dirty hippies who ought to find jobs; the protestors see the Tea Partiers as stodgy old Republicans, out of touch with the world. Yet there are similarities between the two groups. Both represent dissatisfaction with present realities and the total absence of political will to improve matters.

The Tea Party is concerned--and rightly so--with government growth. Yet this problem is not exactly a new one. It is true that Obama has added more to the debt than all of his predecessors combined, but this has far more to do with the machinations of fractional reserve banking and the compounding of interest than any especial radicalism of the President. Had McCain been elected, he too would have "stimulated" the economy, probably by bombing Iran and cutting taxes--which also would have increased the national debt substantially.

It is distressing then, that so many former Republicans--despite the re-branding, Tea Partiers are still, by and large, GOP faithful--took so long to notice that government was getting bigger. Ironically, it was Republican presidents--chiefly Reagan and George W. Bush--who added most of the pre-Obama debt. Charges of hypocrisy then, are fair. But they are also beside the point. We cannot undo past profligacy. Any movement which seeks to curb spending is acting in the interests of the American people, however ineffectual it may be.

There is another arresting fact about the Tea Party. It is made up largely of older citizens. This leads to the second great irony of the movement: these supposed opponents of government depend upon it continuing to function as it has. Many members of the Tea Party are retired. They have worked hard and expect to enjoy the fruits of their labors in their golden years. Yet in this they are--however begrudgingly--dependent on government programs, namely Social Security and Medicare. Alas for the retirees, the money they have paid in has already been spent. These programs must now be paid for out of the general fund. As our debt climbs, it becomes increasingly unlikely that these programs will continue to be funded. No politician is insane enough to propose major cuts now, but through a combination of means testing and rationing, the programs will invariably be reduced.

Which brings us to Occupy Wall Street. Since the movement is newer and has not--yet--been co-opted by one of the major parties, it's a bit difficult to discern the agenda of the group. We know that, to their credit, they are mad at Wall Street and the bankers. For while envy of the rich is not virtuous, demanding that those who committed crimes be brought to justice is. Indeed, not only have the banksters escaped jail, they have been bailed out. It's true that some of the protestors are youthful idiots, whose mushy heads are receptive to socialist nonsense; this should not cause us to forget that they are largely correct about the banks.

The most obvious difference between the two groups may be the age disparity. This is significant. Our entitlement programs are Ponzi schemes. Since Occupy Wall Street types tend to be younger, there is no chance that they will receive any of the benefits of these programs. No one knows when the insolvent programs will be abandoned; retirees are hoping that it will be after they die; young people know that it will be before they retire. In any event, some retirees will be left without any money, which is why one should think carefully about retiring, if one retires at all

Much of the criticism against the Occupy Wall Street movement has focused on the entitled nature of the protestors. Certainly those who demand a free college education seem to fit the bill. But youngsters will not be able to act entitled for long. Just today, the national debt surpassed the $15 trillion mark. No one can fathom these sorts of numbers; still, the message is clear: the US Government will go bankrupt fairly soon. Younger people will have to do without the nanny state--but so too will older people.

Political prophecy is a tricky thing, but I think the end result is pretty obvious. Old folks vote in large numbers. For awhile, they will ensure that no politician dares upset the Social Security and Medicare gravy train. But the State will not be able to continue to force taxpayers to pony up in perpetuity.

In their own clumsy way, the Occupy Wall Street protestors are adumbrating the coming generational clash. If we are governed by responsible adults, the transition will proceed peacefully. If we continue to be governed by children in thrall to the banks--and I see no indications that this will change--the transition will take a violent turn.

The details are murky; this is a topic to which we shall have need of returning in the upcoming months. The police may have sent the protestors scurrying for cover, but the problem remains. The young and the old have been pitted against one another by a government that takes from the former to give to the latter. This is a problem that must and will be solved.

The Costs of College

2011-11-09T00:18:00.003-05:00

I threw this together with the tentative plan of presenting the information to students at my former high school. As it turns out, I know very few of the teachers who still teach at said school, so I'm left with an essay in presentation form. Enjoy.

"There's no such thing as a free lunch."

This phrase has been popularly attributed to the economist Milton Friedman. Although he believed in the wisdom of the saying, he never claimed to have been the originator of it. Instead, he utilized it to illustrate an important economic concept. Every action costs something. Often this is denominated in dollar terms: a pop costs a dollar. Other times, the terms are different: the cost of writing this piece is reading a book. Economists refer to this as opportunity cost. It's a very good habit to account for this when contemplating any significant decision.

We'll come back to opportunity costs in a bit. For now, I'd like to talk briefly about the benefits of a college education. The primary benefit is that possession of a college degree increases the likelihood of employment; it also, on average, enhances earning potential, as college graduates can out bid non-graduates for preferred jobs. The latest numbers from the Bureau of Labor Statistics¹ suggest an unemployment rate of 4.2% for American citizens with at least a bachelor's degree as compared with a rate of 9.7% for those who possess only a high school diploma. Other numbers, also from the BLS², place take home pay at $1038 per week for college graduates as compared with $626 per week for those who have only completed high school. There are exceptions, of course: despite never completing college, many founders of businesses—Mark Zuckerberg, Bill Gates, etc.—obtain remuneration which far exceeds that of the average college graduate. Nonetheless, these general truths do hold.

This does not necessarily imply, however, that the college education is the cause of the benefits. This would be an example of the post hoc ergo propter hoc fallacy, Latin for: "after this, therefore because of this." Typically, the best and brightest high school students are encouraged to attend college; it should not surprise us if this same group has more success in the job market. This is not to say that college education has no influence on the employment prospects of graduates, only that this influence is not necessarily causal. Intelligent, hard-working people tend to succeed in relatively free societies such as ours.

As an aside, I should add that data gathered during our current recession suggests that the job picture has darkened, though this holds for both college graduates as well as those without college degrees. In many cases, the former are displacing the latter and squeezing them out of the labor market.

Since we haven't really proven that college education makes a difference, it's worth examining some of the reasons it might do so. To do this, we have to separate the two disparate functions of education: that of providing a classical liberal arts education, and that of providing training for a specific vocational function. The former was the traditional aim of all institutions of higher learning. So a student would learn Greek and Latin; he would read Virgil and Homer in the original, and provide his own translations. As our educational system began to let in more students, the emphasis on the classics faded. This is an important development for our civilization, but it's not terribly relevant here.

The second function of education, and, for all intents and purposes, the only aim of education today, is to provide training for employment in specific fields. I received a degree from Michigan Tech in Computer Engineering; so I received instruction in physics and math, circuits, software design, computer hardware, etc. Elementary education majors learn how to teach classes, accounting students learn how to keep books, and so on and so forth. Schools will still require a handful of general electives, but it's basically correct to say that modern universities are glorified trade schools.

Earlier, we looked at some statistics comparing college graduates to high school graduates. Yet when we see universities as trade schools, we should also see that lumping all college graduates together doesn't make a lot of sense. In economic terms, the BLS is aggregating dissimilar goods. The market is prepared to pay software developers different wages than teachers. This may or may not be just, but it is reality. So when one hears statistics that suggest that college graduates make more money, be sure to compare remuneration across degrees. When doing so, it's interesting to note that professions which pay well are thoroughly documented. Finding any sort of data on Women's Studies majors proves difficult, but implicitly tells us something about the wages such graduates command.

Even after we've accounted for varying fields of discipline, we need to account for the quality of the institution. Possessing a business degree from Harvard is going to be worth more than possessing a business degree from St. Cloud State—even if my brother refers to his alma mater as the Harvard of the Midwest. This isn't to say it's imperative to get into the best college; certainly Michigan Tech is a far cry from MIT, and yet I'm gainfully employed. But at the high-end, a degree generates some extra pull, and at the bottom end, that is, at the for profit colleges, the degrees may not even be worth the paper on which they are printed.

Returning to Friedman's admonition—"There is no such thing as a free lunch"—and examine the costs. First, and most obviously, there is a financial cost. Financial aid and scholarships are available, often depending on one's race and socioeconomic status; still, as the Huffington Post reported just over one year ago, "The average cost of a four-year, non-profit private college is $35,000, while cost for four-year public college comes in at just under $14,000."³ However, these numbers come from data comprising the 2007-2008 academic year. Tuition has increased since then; over the last ten years it has gone up at a rate of six percent annually. An online resource⁴ that assists students and parents in saving for college suggests that students can expect to pay $119,400 for a four year degree at a private college, as against $33,300 for students staying in state to attend a public university.

These figures do not include the cost of room and board, books, and other living expenses; these are not insignificant costs⁵. This also assume that the student will graduate in four years, a prospect that has become increasingly dubious for a variety of reasons, not least of which is the creative scheduling undertaken by colleges to ensure a steady stream of income. A staggeringly high 47% of students fail to graduate within six years.⁶

These numbers are vital because they help us gauge how much debt students must take on in order to obtain that important piece of paper. Even though college graduates do, on average, make more money than those who possess only a high school diploma, the former are awash in debt, while the latter should be able to stay relatively debt free. Moreover, not all college students work while attending class, but high school graduates have four or more years of accruing work experience and earnings. These years, coupled with student debt, constitute the chief opportunity cost of a college education today.

I'm going to run though a simple calculation to try to better quantify this cost. Again, numbers vary based on school, financial aid, degree, and so on, so it's best to run some of these calculations on your own, with your own numbers. Regardless, the exercise should prove worthwhile.

We'll say our hypothetical student took found a job making $1,038. But, because he was such an average student, he had $25,250 in debt upon graduating.⁷ The average debt for Minnesota students is actually higher⁸. Calculating an average interest rate is exceedingly tricky; there are a variety of different loans, with the rate on unsubsidized Stafford student loans coming down to 3.4% shortly, and private student loans carry a much higher rate. We'll use 7%, but this number may be too conservative.

CNN has a nice little calculator⁹ that requires the amount of debt as well as the interest rate; we're just missing the monthly payment. We're going to select an aggressive $412 a month, which is the effective bump in salary our average student obtained by graduating from college.

Based on these numbers, it will take six and a half years to pay off this debt. During this time frame, the student will be forced to live the same lifestyle he could have had with his high school job. Moreover, the high school student would have had the four plus years of college during which he was earning an income. At a minimum, it will take our average student ten years to surpass our high school graduate in terms of one's standard of living.

Yet most college graduates are not willing to make these aggressive payments, so let's run the numbers again based on a monthly payment of just $200. This time, it will take our student over nineteen years to pay off his loans. Compound interest is a powerful force and making minimum payments is a recipe for permanent indebtedness. If our student had reduced his payment by just $50 per month, it would take him over fifty-seven years to pay off his student loans. Students who take on one-hundred or even fifty thousand dollars in debt will find it virtually impossible to pay off their loans.

At some point then, college is no longer a bargain: it is an outright ripoff. But the tale gets grimmer still, due to a series of reforms enacted by the Obama administration, as well as that of the second president Bush. It is all but impossible to receive debt forgiveness on one's student loans. Commentator Vox Day utilized data from collegescholarships.org¹⁰ to summarize¹¹ the all too typical process:

The private SLM corporation [Sallie Mae] provides a student loan.
The student defaults on the loan.
The federal government pays the balance of the loan and its interest to SLM.
The government sends the debt to a collection agency which adds a collection fee and a commission totaling more than 50 percent to the total. The agency is owned by SLM.
The collection agency garnishes wages, income and even Social Security checks. The former student, now a debt-slave, will literally be paying until he dies.

This holds true, even for those unfortunate students who never obtained a degree. This is deeply troubling, as there is very little economic value for attending classes without graduating. Real reform is imperative, but it will not be forthcoming since the universities and the private loan companies receive the money irrespective of the performance of the student; the government, meanwhile, has made things worse for students, while making sure that schools and corporations never suffer for enrolling students who cannot graduate. Regrettably, then, students will have to fend for themselves.

Unfortunately, I am not capable of rendering an informed judgment as to whether or not someone should attend college. No doubt many of you are feeling pressure to enroll in a university and continue your education. For some of you, this is probably the right step to take. But for others, it would be a dreadful mistake. It would actually worsen your prospects by swamping you with debt. Before you make this decision, I encourage you to do all you can to determine the true costs of education. The benefits are well known, but the sometimes hidden costs are equally important.

1 http://www.bls.gov/news.release/empsit.t04.htm

2 http://www.bls.gov/emp/ep_chart_001.htm

3 http://www.huffingtonpost.com/2010/08/25/the-average-cost-of-colle_n_693226.html

4 http://www.savingforcollege.com/tutorial101/the_real_cost_of_higher_education.php

5 http://www.thefiscaltimes.com/Articles/2011/06/15/Hidden-Costs-of-College-Raise-Total-to-Extreme-Levels.aspx#page1

6 http://www.usatoday.com/news/education/2009-06-03-diploma-graduation-rate_N.htm

7 http://www.dailyfinance.com/2011/11/03/average-student-debt-hits-record-high-in-2010-25-250/

8 http://www.twincities.com/ci_19255431?IADID=Search-www.twincities.com-www.twincities.com

9 http://cgi.money.cnn.com/tools/studentloan/studentloan.html

10 http://www.collegescholarships.org/research/student-loans/

11 http://www.wnd.com/?pageId=254821

Sweet, sweet default

2011-11-05T09:46:00.002-04:00

I recently read This Time Is Different: Eight Centuries of Financial Folly as part of my attempt to gain a better understanding of the ongoing economic crisis. It's a very fine book, with an impressive amount of data relating to the many calamities which have wrecked economies throughout history. There are many takeaways, but the one on which I'd like to focus is the frequency of sovereign default. It would be very easy to extract a libertarian lesson in sound money from the propensity of nations to default on their debts, but I wish to focus on another, albeit related, lesson from the book.

Sovereign default is not the end of the world. No doubt it causes great harm for those who were dependent on the state fulfilling its obligations, i.e. creditors and beneficiaries of government largesse. For America today, the former are mostly foreign governments, though most banks throughout the world are invested in American treasuries. The latter is made up of the recipients of social security and medicare payments, as well as retirees with government pensions, along with any company with its hands in the pockets of Uncle Sam, from military contractors to the large banks. If the United States defaulted, there would be significant and far-reaching consequences for a large number of disparate parties.

But this does not mean it's a bad idea. The alternative is to double down on an over-leveraged banking system in the hopes of spurring economic growth to get us out of this mess. There are a variety of problems with this approach, not the least of which is that with out present ratio of debt to GDP, growth is exceedingly unlikely. The authors of the aforementioned book note that 90% is the key ratio, beyond which default becomes all but certain. We passed that Rubicon some time ago.

Incidentally, default makes growth more likely, albeit after a painful period in which debt deleveraging can occur. Karl Denninger does an excellent job of explaining the details in his book, Leverage, but I can offer a short explanation here.

Under our system of fractional reserve banking, banks are only required to keep some portion of deposits on hand. The rest can be lent out. Credit is created when banks lend out these "excess reserves." This credit creation facilitates a boom, during which everyone appears to be making money hand over fist and the economy seems to be doing well. Yet this growth is largely illusory. When deposits dry up--usually due to a tightening of the money supply of the central bank--asset prices begin to fall. The over-leveraged banks, i.e. almost all of them, are in trouble, for leverage is a cruel mistress: it multiplies profits on the way up, and multiplies losses on the way down.

The various government bailouts were intended to shore up the accounts of the banks and stave off the deleveraging process. This has only served to postpone the process. Fortunately, here in the United States, the Tea Party and Occupy Wall Street movements make future bailouts less likely, unless the Federal Reserve surreptitiously gives money to various banks. On a related note, this is precisely why Ron Paul has focused on auditing the Federal Reserve, and why anyone who fails to see the necessity of such an audit--such as Herman Cain--merits no consideration as a presidential candidate by anyone who understands economics.

Although no one can be certain of the day nor hour, default is in our future. The sooner we embrace this solution, the sooner the bad debt can be cleared from the books and the sooner we can return to real economic growth--as opposed to the increase in GDP which is a direct result of taking on more debt and, therefore, does nothing to employ more Americans.

While Greece is contemplating whether to accept another "solution" which purporting restores solvency to a bankrupt country, the example set by Iceland is illustrative of the benefits of default:

Iceland, whose banks defaulted on $85 billion in 2008, completed a 33-month International Monetary Fund program in August. The Washington-based fund expects Iceland’s economy to grow faster than the average for the euro area this year and next. It costs less to insure against an Icelandic sovereign default than it does, on average, to hedge against a credit event in Europe’s single currency bloc, debt derivatives show.

Since we have spent the last three years pretending to solve a problem by doubling down on our bad debt, 33 months is far too conservative for the deleveraging process. Yet this time period can only increase if we continue to delay the inevitable.

A modest prophecy

2011-10-25T23:46:00.003-04:00

My computer is finally working again, so I can throw together a quick post. Unless the market tanks hard, and soon, it doesn't appear that Hillary will be pushing Obama aside. We can't quite count it out yet; a former Goldman employee is actually facing charges, so if Obama proves serious about holding the banksters accountable, the elites could replace him with a more palatable figure. Still, until we receive more information to the contrary, it's safe to say that Obama will remain a Wall Street candidate.

Only one of the Republicans candidates interests me in the slightest, but I find amusement in handicapping the race. Huntsman, Bachmann and Santorum should wash out soon. Perry has plenty of establishment cash, but he can't manage to string together more than a couple of sentences. He looks presidential--and yes, pathetically, that does matter--at least until he opens his mouth.

That leaves Newt, Cain, and, of course, the frontrunner himself, Romney. Gingrich has a certain appeal; he's coherent, and consistently bashes Obama, which plays well with the base. But he has nothing in the way of specifics to offer; trimming waste and reducing regulations were goals he should have achieved during the Contract With America. However he may campaign, he remains a Washingtonian insider. When this election cycle ends, Newt will be back on television, arguably where he belongs.

Cain is presently challenging Romney for the lead. This says more about the lack of fervor for Romney than does about Cain, whose pro-life credentials are, shall we say, dubious. Moreover, Cain, like Romney, was in favor of the TARP bailouts. With the still bankrupt banks looking like they could use another injection of cash, the last thing the Republican base wants is a candidate who will support a bailout. Last, but not least, Cain's vaunted 999 plan will increase taxes for most Americans. His plan is catchy, but does not stand up to scrutiny.

This leaves Romney alone. Actually not quite. Ron Paul's appeal is limited; he has been marginalized when he has not been ostracized as crazy. Moreover, despite their purported desires for limited government, many Americans still cling to Empire; Paul's insistence that we mind our own business, paying only for defense is too often seen as isolationism.

Still, Paul has offered $1 trillion in spending cuts--in one year. Romney promises that he will create all sorts of jobs, but cuts will come to a mere $20 billion. Now the raison d'etre of the Tea Party was opposition to government spending, which has left out country deeply in debt, and impoverished children not yet born. If the Tea Party is serious, they will have to support Ron Paul. His other views are simply not relevant given the enormity of the debt problem.

I have no doubt whatsoever that the Republicans will spurn Paul for the "more electable" Romney. But if the chance of a Paul nomination remains remote, it is less remote than it once was. Perhaps the Stupid Party will, just this once, fail to live up to its name. If they make the right choice, I will offer a very joyous mea culpa.

Regardless, a choice we shall have, between yet another lackluster establishment candidate and one who has a lengthy history of consistent opposition to that opponent of life and liberty, the State. Such is more than we could have expected this late into the republic's decline. May we choose wisely.

Assassinating Americans

2011-10-06T01:36:00.003-04:00

My computer situation has been rather dicey as of late. I'm in the process of obtaining another copy of Windows 7 to reinstall; in the meantime, I've been running Fedora, booting from my DVD drive. It's not terribly stable.

So I'll make this short. I'd like to put something together later about the lawlessness of American society. We seem to be in a state of anarcho-tyranny. Large crimes go unpunished, but the citizens are held culpable for a seried of bizarre and insignifcant infractions. The fact that no one has been held accountable for the financial mess is a good example of this. Not only should the regulators who failed to detect any malfeasance be fired, but an investigation should be started to determine the extent of the fraud perpetuated by the banks.

Another example of anarcho-tyranny is the assassination of the American citizen Anwar al-Awlaki. Conventional wisdom has is that he was a terrorist and as such deserved to die. But we really don't know if he was a terrorist, both because the term as used by our government is sufficiently broad enough to cover a panoply of behaviors, but also because the government has not released the information it possesses which proves that he is, in fact, a terrorist.

Yet this obscures the greater point, which is this: the rule of law is an intregal component of any well-ordered society. It separates civilization from barbarism. As such, any attempts to go around our legal system should be viewed with a modicum of skepticism. Our justice system is far from perfect, but circumventing it hardly constitutes an improvement.

Anwar al-Awlaki was not charged with a crime. He was not tried and found guilty. He was executed at the discretion of our President. Awlaki is an exceptional citizen in many regards. Yet there is nothing to prevent the President from issuing similar orders against any other citizen. He may very well have been a terrorist, but since he was never charged with a crime, he is not objectively different from any other citizen.

This is an alarming precedent. We will come to regret that we stood silently by as our government abrogated our constitutional right to due process under the guise of fighting our never ending War on Terror.

Quantitative Easing III

2011-09-20T20:54:00.003-04:00

Here's my quick take on Bernanke's announcement, to be made tomorrow just before market close, leaving us plenty of time for a bloodbath if he doesn't give the robots precisely what they're looking for. I'll list the possibilities, coupled with my short term prognostications. In the long run, Bernanke will be unable to prop up the markets forever, and we will enter into a depression, but this will occur regardless of tomorrow's announcement.

1) Nothing. In Bernanke speak, we're keeping an eye on indicators, and we have tools, but the recovery is proceeding, albeit slower than expected. This should trigger a huge sell off. In all likelihood the markets have priced in QE3 already, at least partially. Also, tanking the market is the best way to get Helicopter Ben to use his "tools", i.e. print more money to give to corporations and bankers.

2) Operation twist. We should see a short run before a healthy sell off. This seems to be where the prevailing wisdom is heading. The problem is that the markets almost assuredly have this priced in, so it's unclear how it could help for more than a few days. If he pursues this route, the FOMC will have to consider using its tools again, at least if it wishes to save Obama from a disgraceful defeat in the coming election.

3) QE3. Or: more money for the plutocracy. This will help the markets, at least for a few months--say, through Christmas. Of course, depending on the amount, the markets could have this priced in already, which means we're looking at a shorter run before a sell off.

With the political front gridlocked--the Republicans are in full on stonewall mode, and Obama is finally pandering to his base, giving some evidence of a backbone--tomorrow's announcement is actually quite important. Bernanke can't fight economic gravity forever, but he might have a few rolls of the dice left. If we see QE3 stocks will indeed rise, but the real winners will be commodities like silver and gold. The real losers, as per usual, will be the American people.

UPDATE: The markets got the twist, whereupon they tanked. I fully expect Bernanke to announce QE3 once it is clear that: 1) Europe is in a very bad way; and 2) Obama's fifth stimulus plan is dead on arrival in the Republican controlled house. I also expect gold and silver to rebound on the news, the steep drop due to a recent margin hike notwithstanding.

Cultural suicide

2011-09-11T22:14:00.004-04:00

The most important development of the twenty-first century is likely to be the great extinction of peoples and cultures. Like Greece and Rome, Europe has lost faith in itself; though incomparably richer than the peasants who built the Cathedrals, the denizens of what used to be Christendom spend only on themselves, with no thought for the morrow. They have failed to attend to the most elementary task of a successful civilization: raising children. In no European country is the birthrate at replacement level. As David P. Goldman, Spengler of Asia Times Online, tells it, not only is the old world dying, it has reached the demographic point of no return.

The title of Goldman's book is How Civilizations Die, but the addendum, And Why Islam is Dying Too, may be more important. For there is almost no awareness that the Muslim world is following in the footsteps of western civilization. Indeed, a popular narrative among those who seek to revive Europe has it that Muslims will soon rule the continent. But while European Christianity eventually lost the fight with modernity, Islam has fared worse.

Iran proves illustrative. "An educated twenty-five year old Iranian woman today probably grew up in a family of six or seven children, but will bear only one child." As of 2010, Iran's fertility rate stands at 1.7 children per woman. Decadence has enveloped the nation; drug use is rampant, and a sizable portion of the women work willingly as prostitutes. Paradoxically, this makes the Islamic world more dangerous, at least in the short term: "For in their despair, radical Muslims who can already taste the ruin of their culture believe that they have nothing to lose."

Of considerable interest was Goldman's account of the Thirty Years War, which ravaged Germany in the 17th Century. The German population declined "from 21 million to perhaps 13 million, mostly due to starvation." Ostensibly, the war was fought to decide whether the German people would become Protestant or remain Catholic. But there was considerably more afoot: Protestant armies were bankrolled by Cardinal Richelieu and Father Joseph du Tremblay, two French clergymen who had no trouble putting State ahead of Church. Their plan was to gain hegemony over Spain by bankrupting her. It worked. The senseless slaughter continued long past the point when battles decided anything—as in the American Civil War after Vicksburg. As Goldman tells it, nationalism was never fully subordinated by the Church; this failure, which first manifested itself under Richelieu, would haunt Europe until the middle of the twentieth-century.

Goldman finds two exceptions to the ennui that will lead so many nations to destruction in the coming century. The first, Israel, is well established; even secular Jews who live in Israel have children, and the ultra-Orthodox have large families—eight or nine children on average. His second example, America, is less convincing. True, religious Americans have proven less susceptible to the siren song of modernity. This has given the country a birthrate which remains at replacement level: 2.1 children per woman. Although he offers reasons for American demographic exceptionalism, I am forced to charge Spengler with too much optimism.

He is on firmer ground when he notes that: "America's demographic momentum offers a generation's grace period." Yet what evidence is there that we will do anything but fritter it away? For that is the approach America has taken with her debt problem, one that is not altogether different from its demographic dilemma. A nation does not run up too much debt for the same reason it raises children: it believes in its future. Presently, America lacks the political will to bequeath a worthy culture to its progeny. The demographic data tell a slightly different story—for now.

Spengler's Universal Laws

2011-09-09T23:43:00.013-04:00

I've been reading David P. Goldman's new book, How Civilizations Die: (And Why Islam Is Dying Too). For the last decade or so, Goldman has been writing brilliant columns under the nom de plume of Spengler, the German historian whose Decline of the West offers the supreme example of the fatalist view of history.

Unsurprisingly, Goldman's book is excellent, at least so far. I hope to finish it and post a review sometime this weekend, but I'd also like to enumerate Spengler's Universal Laws, which are scattered throughout this book. Some of these laws have already been featured in Spengler's columns, in which case I have provided a link to the original formulation. In any event, I thought it might be useful to have them all in one place.

Spengler's Universal Law #1: A man or a nation at the brink of death does not have a "rational self-interest."

Spengler's Universal Law #2: When the nations of the world see their demise not as a distant prospect over the horizon, but as a foreseeable outcome, they perish of despair.

Spengler's Universal Law #3: Contrary to what you may have heard from the sociologists, the human mortality rate is still 100 percent.

Spengler's Universal Law #4: The history of the world is the history of mankind's search for immortality.

Spengler's Universal Law #5: Humankind cannot bear mortality without the hope of immortality.

Spengler's Universal Law #6 (courtesy of Warren Buffett): You don't know who's naked until the tide goes out.

Spengler's Universal Law #7: Political models are like automobile models: you can't have them unless you can pay for them.

Spengler's Universal Law #8: Wars are won by destroying the enemy's will to fight. A nation is never really beaten until it sells its women.

Spengler's Universal Law #9: A country isn't beaten until it sells its women, but it's damned when its women sell themselves.

Spengler's Universal Law #10: There's a world of difference between a lunatic and a lunatic who has won the lottery.

Spengler's Universal Law #11: At all times and in all places, the men and women of every culture deserve each other.

Spengler's Universal Law #12: Nothing is more dangerous than a civilization that has only just discovered it is dying.

Spengler's Universal Law #13: Across epochs and culture, blood has flown in inverse proportion to the hope of victory.

Spengler's Universal Law #14: Stick around long enough, and you turn into a theme park.

Spengler's Universal Law #15: When we worship ourselves, eventually we become the god that failed.

Spengler's Universal Law #16: Small civilizations perish for any number of reasons, but great civilizations die only when they no longer want to live.

Spengler's Universal Law #17: If you stay in the same place and do the same thing long enough, some empire eventually will overrun you.

Spengler's Universal Law #18: Maybe we would be better off if we never had been born, but who has such luck? Not one in a thousand.

Spengler's Universal Law #19: Pagan faith, however powerful, turns into Stygian nihilism when disappointed.

Spengler's Universal Law #20: Democracy only gives people the kind of government they deserve.

Spengler's Universal Law #21: If you believe in yourself, you're probably whoring after strange gods.

Spengler's Universal Law #22: Optimism is cowardice, at least when the subject is Muslim democracy.

Spengler's Universal Law #23: The best thing you can do for zombie cultures is, don't be one of them.

Burke as gold bug

2011-09-07T23:32:00.004-04:00

In his famous Reflections on the Revolution in France, Edmund Burke takes a swipe at fiat currency:

They have found their punishment in their success: laws overturned; tribunals subverted; industry without vigor; commerce expiring; the revenue unpaid, yet the people impoverished; a church pillaged, and a state not relieved; civil and military anarchy made the constitution of the kingdom; everything human and divine sacrificed to the idol of public credit, and national bankruptcy the consequence; and, to crown all, the paper securities of new, precarious, tottering power, the discredited paper securities of impoverished fraud and beggared rapine, held out as a currency for the support of an empire in lieu of the two great recognized species [i.e. gold and silver] that represent the lasting, conventional credit of mankind, which disappeared and hid themselves in the earth from whence they came, when the principle of property, whose creatures and representatives they are, was systematically subverted.

Burke's argument may seem insubstantial, yet he was right to distrust the French currency. For the Assignat was destroyed through hyperinflation. Napolean replaced the worthless currency with the Franc in 1803, shortly after he came to power.

If one were to argue in favor of fiat currency, one would be compelled to insist upon government restraint. So long as the government could be trusted to refrain from debasing the currency, even worthless paper could serve well enough for a period of time. But governments do debase the currency if those who govern believe it will serve their ends.

On a related note, our own master of the Assignats is to speak tomorrow night, before giving way to our Napolean who will also speak. The president's plan is irrelevant since the Republicans house will stonewall anything which originates from the desk of the chief executive. Bernanke could conceivably announce QE3, but I think this unlikely--at least for now. Regardless, we will be entertained by some fine political theater, after which the NFL season begins.

But if I were looking to invest, I would follow Burke, and move my fiat currency into "the two great recognized species... that represent the lasting, conventional credit of mankind."

Back to barbarism

2011-09-04T12:57:00.010-04:00

Regency Publishing makes a pretty penny putting out books written by conservatives which are, judging from the paucity of substantive negative reviews, read almost entirely by the choir. Although the appetite for books of this type appears to be significant, their corresponding value tends to be slight; one's progressive uncle is not going to see the light by reading After America. There's enough Obama bashing that an inattentive reader will be able to conclude that this is simply more political pap, meant to fire up the base for another meaningless election.

This is too bad, because Steyn's book is actually much more than that. Sure, it contains an obligatory plan to roll back Big Government, filled with the sorts of empty promises Republicans have reneged on for nearly a century. But Steyn's heart isn't in it: he tells us that this will prove "difficult", which is a little like explaining that Sisyphus has some hours of work to do.

After America highlights the recklessness of the present administration, but it does so by noting that "Barack Obama is a symptom rather than the problem." If the president does not value life, liberty and limited government, this is equally true of the citizenry that elected him. A government that steals from generations unborn to finance its profligacy and views entrepreneurs as annoying hindrances to the business of government is problematic. Yet it is only a manifestation of a much larger flaw: its citizens no longer value those things which—Steyn argues—have made America so great.

The book is less a defense of things American than it is a critique of the soft socialism typified by Great Britain and Greece. Since FDR at least, the US has sought to shed its Jeffersonian trappings for a Big Government patterned on those of Europe. This trend has only accelerated as of late, not simply under Obama, but also under Bush, the "compassionate conservative" who gave the American people Medicare Part D and the TSA, which now gropes granny lest it be found guilty of profiling.

Greece and Great Britain are both doomed, and for essentially the same reasons. Government debt is overwhelming demographic reality. The people have lost the will to thanklessly perpetuate civilization. Both have middling productive sectors, upon which a large parasitic class feeds. And what feasts! In Greece, public sector employees retire at fifty-eight, whereupon they receive fourteen monthly pay checks until death. That was the plan, anyway. With the Greek birthrate at 1.3 children per couple, the math doesn't work. One can only run a Ponzi scheme if there are ever more suckers from whom to appropriate funds—as the soon to default Greeks are about to realize.

Great Britain may actually be in worse straits: "The United Kingdom has the highest drug use in Europe, the highest incidence of sexually transmitted disease, the highest number of single mothers, the highest abortion rate; marriage is all but defunct, except for toffs, upscale gays and Muslims." And this was before the London riots. Technically this makes Steyn something of a prophet, as does his insistence that America will soon see its credit rating downgraded. The remarkable thing is not that Steyn can point out the obvious consequences of liberalism, but that so many remain oblivious even while its fruits are rotting before our eyes.

The paradox of progressivism is that the creation of a social safety net has rendered man ever more fearful of risk. Instead of starting a business or raising a family, corpulent westerners curl into the fetal position in the gentle hands of government. This is not the way of civilization: it is the path to barbarism, shortly coming to the post-American world near you.

NOTE: Bloggers software appears to be inserting a link around a certain term shown above in green. Removing the link is of no help. If this were an ordinary post, I'd simply change the wording, but as I cross post my book reviews to Amazon, I thought it best to keep the text consistent. Hopefully the bug is fixed relatively soon.

UPDATE: As a commenter from Amazon pointed out, Steyn's publisher is Regnery, not Regency.

But he's unelectable!

2011-08-22T23:03:00.002-04:00

In the newest poll from Gallup, Ron Paul does very well against Obama:

President Barack Obama is closely matched against each of four possible Republican opponents when registered voters are asked whom they would support if the 2012 presidential election were held today. Mitt Romney leads Obama by two percentage points, 48% to 46%, Rick Perry and Obama are tied at 47%, and Obama edges out Ron Paul and Michele Bachmann by two and four points, respectively.

This poll partially highlights the weakness of the president. It's not inconceivable that Obama declines to run again, allowing the Democrats to appoint someone--such as Hillary--who doesn't reek of failure.

But it also reveals that Paul is a stronger candidate than Republicans are willing to admit. Moreover, he does well among independents. This is not surprising, since despite his radical views, on two very key issues, he is in agreement with the American populace.

He is almost virulently anti-war. Neo-cons insist he is an isolationist, but rolling back the Empire does not an isolationist make. We've spent about one billion dollars on a curious mission to overthrow Gaddafi in Libya; even if it succeeds, we have no assurances that the new government will be any better. We have wantonly destroyed life and become poorer in the process, a reasonable summation of U.S. foreign policy.

Paul is also right about the pernicious influence of the Federal Reserve and the role it plays in monetizing U.S. debt. Comparatively few Americans understand the power wielded by the central bank, but that minority is growing. Moreover, Paul is fully capable of explaining to the American people the dangers of inflation and the wisdom of sound money. It's true that his view of limited government is not in complete accord with the American people, but he offers a way back to solvency, something no other candidate offers. However much the citizenry may pine for a soft socialism, it is economically untenable. I cannot promise that the people accept what Paul offers; nonetheless, he explains what they need--though not necessarily want--to hear.

Still, the good doctor's first and toughest battle will be to obtain the nomination. After that, we will find out if he is truly "electable".

Iowa straw poll

2011-08-14T11:30:00.002-04:00

Let me offer a few quick thoughts. I don't think that it's worthwhile to put too much effort into breaking down the results: not only is it still very early in the campaign season, but it's pretty easy to do well in this event so long as one is willing to pony up the cash for tickets for one's supporters. This is actually reasonable shorthand for what Bachmann did.

Still, she has to be considered a winner here. The left has a visceral hatred of her, surpassed only, perhaps, by the same for Sarah Palin. As a libertarian, I don't care much for either lady, though from a foreign policy standpoint, Bachmann's views are less completely neo-conservative. These women are particularly loathed by the feminists. John Derbyshire's take on the matter, which I can't seem to find, is that women are not supposed to leave the reservation. The narrative has it that feminism has brought untold blessings to womankind--or at least those who avoided being put to death by their mothers. To identity oneself as a conservative or a Republican is to turncoat against the Democrats, purveyors of these essential blessings. That Bachmann and Palin are mothers only increases feminist rage. As Roissy put things:

There’s no better way to remind a hip clubgoing single chick in the city who loves to travel and sip pinot noir of her impending infertility and genetic obsolescence than with the image of a woman who’s chosen not to ignore her biological imperative in favor of playing the field indefinitely.

Critics of Palin and Bachmann insist that the women are not very bright. I've been less than impressed with Palin: not that she's necessarily unintelligent, but that she's not informed. She would have done well to spend her time reading books to increase her knowledge rather than waxing vapidly on Fox News. Bachmann appears to be smarter, though this won't stop the left from uttering endless bromides insisting that she, like every non-moderate Republican in history, is an imbecile.

Bachmann has thus emerged as a serious candidate. Hence she will face increasing scrutiny in the months to come. She's a polarizing figure, so her utility in an election depends on whether she can ratchet up more support among the tea partiers than she can convince Obama weary Democrats to punch the lever against her. She strikes me as a far more formidable candidate than others have supposed, though admittedly much can change in the next year or so.

Ron Paul was the other winner yesterday, as he finished just behind Bachmann. Most of the stories and commentary I have read have ignored Paul's accomplishment. I suspect that, just as in 2008, this will help Paul, as the perception that he is feared by the party elites--as indeed he is--reinforces the notion that he is different from the run of the mill politician.

One last point: it looks as if those party elites have drafted Perry, since it is becoming increasingly clear that Romney is not going to take. I have no idea why anyone suspects that the base will be receptive to Perry, but the elites were successful in getting people to vote for the lackluster McCain. It might seem, then, that a Perry-Bachmann ticket could be in the works, but Bachmann is a possible presidential nominee, whereas Palin only became so after she was plucked from obscurity by McCain.

None of the above should be taken as evidence that the republic is in anyway salvageable. The 2012 election is nothing more than political theater, but it succeeds wonderfully in that capacity, and therefore merits a modicum of attention.

Prospects for a U.S. monetary collapse

2011-08-13T00:02:00.004-04:00

My understanding of the debt crisis has led me to believe that the United States, and, indeed, much of the world, is on the short track to economic disaster. I base this primarily on the insight of the Austrian school: that since accumulating too much debt caused the problem, attempts to incur more debt will only exacerbate matters. Secondarily, our political class seems incapable of doing anything to address this problem; I expect economic conditions to worsen until either the currency is rendered worthless by too much inflation, or austerity measures are adopted, whereupon we shall find ourselves in the midst of a depression.

Thus I read with interest a piece which claims that things might be less dire. The author attempts to refute some of the myths of the doom and gloom crowd. Alas, I remain unpersuaded. His debunking shall thus be subsequently debunked.

Purported Myth: "Printing Money Does Not Create Wealth"

Explanation: "The example I like to give is that the Sovereign US Government can start this totally useless agency, yet the money will eventually flow to those who create wealth. Therefore, printing can eventually lead to wealth creation...

If the new ear pickers go into their communities and spend it at local businesses, the printed money goes from useless employees, into the accounts of productive businesses..."

Rebuttal: As one of the commenters has pointed out, this is a classic example of what Frederic Bastiat calls the broken window fallacy. It's true that any money which the government prints will go into the economy, but it only adds to wealth creation by simultaneously subtracting from wealth creation. If a government worked spends a dollar, he may pay a producer, but he has taken that dollar from the citizenry who would have spent it on something else. One could similarly argue that thieves participate in wealth creation by robbing from the rich so as to spend on themselves, which is actually reasonable shorthand for most government spending.

Wealth is created through production. Redistributing the currency--which is what inflation does--can alter the productive process by ensuring that different goods are produced, but it cannot increase the amount of goods provided.

Purported Myth: "Businesses and Foreigners Will Stop Accepting US Dollars"

Explanation: For some reason it is just assumed that the marketplace will all of a sudden stop accepting paper US dollars...

The US Government has determined that taxes are to be levied on owners of property and services, and those taxes will only become extinguished in the form of paper dollars. Failure to submit to this monster will require time in prison. So under the motivation to not spend time in jail, citizens work tirelessly, offering labor and goods in exchange for paper dollars so they can feed the tax monster."

Rebuttal: While it is true that the government monopoly on money ensures that people will use the dollar even when they would prefer to use something else, this ignores the potential for a black market to arise when the currency depreciates sufficiently. Excessive taxation and regulation actually make it more likely that a black market will develop, because in addition to dealing with that which cannot be devalued through inflation, one will also be able to avoid paying government for the privilege of engaging in mutually beneficial exchanges.

Purported Myth: "America Will Soon Not Be Able to Afford the Interest on the National Debt"

Explanation: "Burkett prophesied that America, by the turn of the century, would have so much debt that they could not afford the interest on the debt. Since his book made this claim, the debt has doubled. Now the current doom and gloom crowd is saying, yet again, that we will not be able to afford the interest on the debt."

Rebuttal: No one knows how long extend and pretend will last. What is clear, however, is that the more indebted a nation becomes, the higher the interest rate the market will demand. In a matter of months, Greece went from a nation which was seemingly economically sound to one which could only take on more debt at ever increasing rates of interest. The speed at which this occurred was astounding, even to economic pessimists.

Momentarily, the United States is better positioned than Greece, partially because our debt levels are smaller, and partially because we've been able to suppress interest rates thanks to a Federal Reserve which has made a habit of monetizing the debt.

We are probably still a fair ways from Greece, though ultimately no one knows. What is clear, however, is that a nation which refuses to reduce its insatiable appetite for debt will find it harder and harder to find willing borrowers. I think it likely that the current monetary system will collapse before we reach this stage, but the pessimists are correct in their reasoning, and right to be concerned.

Purported Myth: "Paper Dollars Are Worthless and Backed By Nothing"

Explanation: "Dollars are just worthless pieces of paper. It has no value by itself and is today backed by nothing. I agree with this argument. Consider this though: Oil in and of itself is also worthless. It is just sticky goo that could ruin the environment if it ends up in the wrong place...

The event that causes worthless oil to be in demand is when a company turns it into gasoline. The event that causes worthless paper dollars to be in demand is the prosecution process for failing to pay taxes."

Rebuttal: The first paragraph is basically sound. The error shows up in the next paragraph. It's preposterous to pretend that a nation can jail the citizenry for failing to pay taxes without destroying itself in the process. America, like any other nation, functions because of a relatively small group of people who produce goods and provide them for others. These are the same people who are taxed by the government, and maligned for failing to do more for the country. Jailing these citizens is the height of idiocy, for it turns a producer into someone who acts as a drain on the economy.

It is true that the government can force citizens to use their currency, giving superficial support to the dollar. But it can only do so if it is willing to wage war against the productive class. Expect to see an increase in tax evasion in the next few years, in which case it will be very interesting to see what the IRS decides to do to such "criminals." It is difficult to envision a response that would strengthen the regime.

There is another point which our author misses. If the dollar cannot buy as much, it will become less attractive to work as an agent of the IRS. Thus in late Rome, the soldiers refused to tolerate the currency which had been mixed with base metals; so the wise emperor paid them in coins which had not been debased. Without employees willing to accept the government's money, the government has no one with which to force the citizens to accept that same money.

Purported Myth: "Every Fiat Currency System Eventually Fails"

Explanation: "I hear (and used to believe myself), that the fiat currency system is about to collapse because all fiat currency systems in history have collapsed...

The problem is, these proponents are comparing apples with oranges. Never in history has the entire world been on a coordinated, floating exchange-rate, fiat-currency, system. Therefore, do they really have anything with which to compare today's situation?"

Rebuttal: To answer the question, yes, we do: we have the graveyard of fiat currencies. Countless times in the past, governments have debased their currencies until the populace escapes to anything and everything else. Traditionally, this has been gold and silver, but it could be alcohol, or ammunition, or canned food, or diesel fuel. It does not matter. When the government is printing money so quickly that one cannot make money fast enough to spend it, people will no longer use it; at this point, the currency has been destroyed.

Part of the confusion from which our author suffers is that he assumes that because every central bank is inflating its currency, people have nowhere to turn. Now, it's true that historically, when the British, say, inflated, people could fly to the dollar, thereby checking the British bankers. But the absence of this check--that is, any currency backed by gold--actually makes it far likelier that people will abandon the dollar. The confusion comes because he thinks people have to begin to use something that is already a currency; on the contrary, whatever good people begin to acquire will take hold as the new currency.

Now Bernanke has a good deal of inflating to do until we reach this point, but history is very clear about what happens when we do reach it.

Purported Myth: "Printing Money Will Cause the US Dollar to Lose Reserve-Currency Status"

Explanation: "The US economy is still the biggest in the world by a large margin. The military, which we are not afraid to use, is the most powerful. Until another country holds title to either one of these claims, our reserve currency status will likely remain intact."

Rebuttal: At this point, the dollars status as a reserve currency is only tangentially connected to our economic and military power. In fact, it was not long ago that the U.S. dollar was, at least theoretically, backed by gold. Other countries value the dollar because they know they can turn around and get something else for it. As that something else diminishes, countries will begin to look elsewhere to sell their products. Moreover, while the U.S. will probably remain the nation's largest economy, its diminished purchasing power will further incentivize sellers to look elsewhere for customers.

I suspect that in the next several decades, we will see a world without a reserve currency per se. Regional currencies will develop, regions which will not correspond exactly to the present boundaries of maps. This will greatly reduce international trade--though piracy will see a boost--and thus diminish the goods available to the average consumer. This is unfortunate, but if black market activity reduces the scope in which governments may interfere, I see it as an essentially inevitable result. Moreover, while the interim period will be rife with bloody conflict, a world of small, homogeneous regions should prove more stable than have our gargantuan nation states.

Purported Myth: "If Money Printing is Good, Then Just Print Enough To Give Everyone $1 Million"

Explanation: "If printing is not a big deal, then why not just print away? The doom and gloomers jump to the conclusion that if I think printing won't cause the collapse of America, it must be a good thing. So why not seek more of that good thing? The answer is simple...

There is a limit to the productive capacity of the economy."

Rebuttal: The author insists he is not a Keynesian, so I'll take him at his word, but I do note a curious resemblance. I suppose I see all inflationary systems as similar in nature: printing money is good, but only to a certain point; that point cannot be clearly delineated, and any inflation which does not produce the desired effect will be decried as too small, but a theoretical upper limit is recognized.

Of course, if the government did give everyone one million dollars, every one of the myths above would come true virtually overnight, but setting that aside, I want to focus on the last sentence of his explanation. For while this statement is undoubtedly true, it essentially undermines his entire argument.

Earlier, we learned that printing money can create wealth. Here we learn that wealth is not limited by money, but by something else entirely. As I have said, this is correct, but if it is correct, then printing money can do nothing whatsoever to increase wealth. It can only, as I have said, alter the distribution of that wealth.

If inflationists wish to be taken seriously, they need to explain how much inflation is needed to salvage a depressed economy. Typically, the response is to demand more inflation when a jolt of easy money fails to awaken the sleeping patient. But until we can be told with certitude that we are not inflating too much, I am far from certain that it can be safe to inflate at all.

Purported Myth: "The US Dollar Has Lost 96% of its Purchasing Power - Thus Printing Makes Us Poorer"

Explanation: "Instead of looking at how many dollars it takes to buy a candy bar today compared to 30 years ago, I would challenge you to instead value the candy bar in hours of labor to obtain it. While it might take many more dollars to buy that candy bar, you get many more dollars for each 60 minutes of work. So even though the candy bar costs 1000% more, it may take you 30% less work now to buy it. Therefore, you are in fact richer, even though the value of your dollar does not go as far."

Rebuttal: This is a curious way of looking at the debasement of the currency. The issue at hand is not whether we are richer than our ancestors were decades ago, for this is undoubtedly true, but whether or not inflation has made us poorer than we would have been had the Fed left the money supply alone.

It should be obvious that the Fed has stuck it to the American people, or at least some of them. I've covered this before, but inflation is a tax on savers; the beneficiaries of inflation are debtors, as well as anyone who is politically connected, for they receive the newly printed money before its debasement has been discovered by the market.

Savers provide the capital with which producers make the things which we can then buy. Our tax code attacks producers, while our central bank attacks savers; a more idiotic system would be hard to implement. The establishment class in Washington, as well as their friends from the banks and corporations, have benefited tremendously from the wealth redistribution that occurs courtesy of the Fed. Concomitantly, the people have been harmed. While it is true that, in general, and excepting the present, we have been getting richer as a society, this should not distract us from the real wrongs the people have suffered through inflation. It is the height of absurdity to suggest that the people should be happy that they are a little richer than before, while the banks make money hand over fist, courtesy of a central bank which takes wealth from the people.

In short, things look very bad indeed. Much can change, and the pessimists may be wrong about the timeline, but a sober reading of the tea leaves demands concern. It wouldn't hurt to have some precious metals lying around, either.

Debt deal

2011-08-01T20:21:00.002-04:00

It is finished--like the American Republic. There is no real surprise here, as anyone who follows politics could have foreseen that pigs would fly before Congress considered cutting spending.

No attention should be paid to anyone who talks about spending cuts. For as we shall find out, they do not exist in any meaningful sense.

The only interesting part of this story is how dreadful the eventual compromise turned out to be. Naturally, Republicans and Democrats will argue over which side won; what is clear is that the American people did not. Karl Denninger has the details:

Lie once again about "cutting spending." It does no such thing. It increases spending - every year. Bogus and outright-fraudulent "baseline budgeting" means that if they intended to boost spending $300 billion but only increase it $200, that's a $100 billion "cut." If you ran your household like this you'd be broke in a week. For the US, it will take a bit longer.

No tax increases. That's nice, but let's not forget that while the Democrats scream about the "Bush Tax Cuts" the FICA tax cut was theirs. Obama signed it. You cannot keep reducing income and increasing spending forever.

The cuts, fraudulent though they are, aren't even real anyway - and not binding either. There's nothing before 2013, which means a downgrade is almost certain. Further, raising the debt ceiling now for the whole among but allegedly finding the "cuts" over 10 years is an outright fraud by a ratio of 10:1.

A 2013 timeline for actual changes means nothing, since the next Congress is not bound by what this one does. Period.

What a flaming pile of excrement. The Republicans rejoinder will be that they could only do so much with so little power. This is an insult to the intelligence of anyone who understands how representative government works. Since the Republicans controlled the House they could have prevented the debt ceiling from being raised. It's possible Obama could have ignored the debt ceiling, thereby instigating a Constitutional crisis; but this doesn't negate the fact that the Republicans had power; they merely lacked the courage to use it.

Now it's true that the banks would have ensured that the market tanked and that the ratings agencies followed through on threats to downgrade the credit rating--itself a ridiculous farce--of the United States. In other words, refusing to raise the debt ceiling would have been politically painful. But that doesn't mean it would have been the wrong thing to do.

Republicans could have explained that a painful recession was the cost of our profligacy; going deeper and deeper into debt hasn't helped our economy, and it cannot, for sooner or later the piper must be paid. We can do the manly and honorable thing and endure a recession, or we can keep debasing the currency until the financial system collapses. Those are our two options.

The Democrats are insistent on pursuing plan number two. Bernanke will keep printing money until he collapses in tears, having realized that the logical end of Keynesianism is hyperinflation. At which point we'll have ourselves a nice recession anyway, albeit without a functioning currency.

The Republicans had a chance to explain the shortcomings of this plan; predictably, they punted. It's certainly possible, indeed, probable, that Americans would reject honesty from their elected officials. Alas, we may never know, because with one exception, Republicans continue to insist that the problem has gotten better because of this dreadful compromise. The party has sacrificed a chance, perhaps its last one, to be forthright, instead hoping that the electorate will continue to pull the lever for the lesser evil.

The Obama presidency has been little more than an embarrassing joke. He has done nothing to address the debt problem which, admittedly, he inherited from our previous charlatan in chief. But by exacerbating the crisis, he has made it his own. There is no Democrat in Washington who is concerned in the slightest about our debt woes. The party is far more concerned that somewhere, some bureaucrat may have to forgo a raise, or that the bankrupt entitlement system is meddled with in the slightest. So the American people will get no help from them.

But the Republicans have sold them out, too. They insist that once Obama is defeated, all will be well. Yet there is no evidence whatsoever that the Republicans will reduce spending even if they control Congress completely. As recently as the Bush administration, they did possess such control, whereupon they racked up record deficits.

It could be argued that the Republicans have learned their lessons from the Bush years. If so, I fail to see any evidence for this supposition. In fact, all the data points the other way. The Republican house dutifully kicked the can for Obama so that no one in Congress has to deal with the debt ceiling until after the next election. In exchange for this exercise in irresponsibility, the Republicans were bought off by non-existent cuts and slightly more meaningful ones at a much later date.

It will be well into 2013 until Congress will consider addressing our debt woes. They will have worsened by then, making it likely that Congress will simply kick the can again, as it always does.

At least the Republicans are being recognized for magnanimously giving Obama a nice deal, right? Oh, wait, Vice President Biden is castigating the tea partiers as terrorists. So in addition to gaining nothing for the American people, it's unclear what political capital was gained by Boehner's Faustian bargain.

During the next year and a half, I recommend stocking up on whiskey. For one, it makes a useful commodity in the case of a collapse in the nation's currency. For another, it is the only thing I have found that makes it possible to stomach the pusillanimity of our supposed representatives.

Government for the government

2011-07-27T23:19:00.002-04:00

Presently, the national soap opera, which is to say, the debate over the debt ceiling, is providing much amusement. In order to hike the debt ceiling, the Republicans are holding out for meager "cuts" and--where have we heard this before?--no new taxes. The Democrats would like the debt ceiling to be raised more; they would also like even less significant reductions in future spending, coupled with increases in taxes, but only on the infernal rich--except, apparently, for the bankers who have been given billions of dollars in bailouts. This is to over-simplify the narrative somewhat; there appear to be at least a handful of Republicans who are seemingly serious about making actual reductions to the deficit, which hampers speaker Boehner's hope for a united front.

Missing entirely from the dog and pony show is any genuine concern for the fate of the American people. The Democrats would like to avoid having to raise the debt ceiling again before Obama attempts to win reelection. The Republicans would prefer that the American people are reminded often of Washingtonian profligacy so that blame is pinned on the president and his party. These stances make a certain amount of political sense, but they are indefensible from any other perspective.

If we consider the situation without pondering any political implications, a few things become clear. First, the United States is deeply indebted. Our ratio of debt to GDP is roughly one. It's good to be suspicious of GDP insofar as it takes into consideration government spending--government programs devoted to digging holes and refilling them would boost GDP--but the ratio between debt and GDP is a reasonable indicator of a nation's solvency. There is no magical ratio, up to which debt is tolerable, or beyond which debt is assured, but given ours at present, it is exceedingly likely that we will never be able to pay back our debt.

While it is certainly possible that I am wrong in thinking thus, it would be exceedingly imprudent to assume that U.S. solvency is assured. If default is not inevitable, it nonetheless must be considered a real possibility. Our debt problem is not new. It came into being with the creation of the Federal Reserve, the subsequent abandonment of the gold standard, and the slew of social programs which were enacted from FDR onward. The actions taken by the last several Congresses--such as the wars in Afghanistan and Iraq, legislation related to Medicare, TARP, stimuli, and so forth--have exacerbated the problem. This current Congress, then, can continue in the ignoble tradition of that venerable institution, or it can take actions which lessen the debt burden. This step would not be unprecedented, but it would be the first such action pursued in many decades.

What would such a step entail? We are told that a failure to raise the debt ceiling will ensure that the U.S. defaults. This is not true. Tax receipts are sufficient to cover interest payments on the debt with money leftover. Should the Congress fail to authorize an increase in the debt ceiling, only foolish and pernicious action by the President would lead to default.

Contrary to the nonsense emanating from Washington then, an increase in the debt ceiling makes default more likely. It is not in the interest of the American people to be burdened with more debt. Instead, the United States Congress must pass a budget which ensures that they are not dependent on debt to make ends meet. The Federal Government is projected to take in 2.1 trillion dollars in fiscal year 2011. This should be sufficient to cover our expenditures. To ensure that this is so, Congress need only do its job: make the cuts necessary to restore solvency. Instead, both parties are taking purely political positions which will do nothing to alleviate the debt crisis.

It is true that making these cuts will be difficult. Present revenues are insufficient to cover Social Security, Medicare and Defense. Hence, even if we scrap every other Federal program, we will need to trim one of the big three to eliminate the deficit. Yet, far from getting better, the problem will become more acute each and every year. Boomers will retire--senselessly I might add, given the nation's impending bankruptcy--putting more stress on Social Security and Medicare. Nor is Defense likely to be willing to take a haircut. Judging from right-wing talk radio, cuts to defense are as intolerable as tax hikes; the Democrats, meanwhile, under our Nobel Peace Prize winning president, have wars going with six countries--Afghanistan, Iraq, Pakistan, Libya, Yemen and Somalia. So the cuts will be difficult to make. Yet this, precisely the task to which our representative are supposed to be devoted, is furthest from Washington's mind.

I cannot say that I see a way out of this mess. We will certainly not grow out of it. Even supposing generous--read: dubious--rates of growth, our entitlement programs and our Empire are too expensive for an aging populace, dependent on Mexican migrants to replace aging boomers. The recession has technically ended, but it continues a world impervious to Keynesian economists.

In all probability, Washington will continue to try to avoid making any hard decisions; we will take on ever more debt, and the parties will try to blame the respective other; the Federal Reserve will purchase any treasuries the Chinese prove unwilling to take; the government will still be able to pay its bills; the people are compelled to make ends meet with depreciated dollars. So it works out for everyone, unless one happens to be a member of the American populace.

It is not the decline and fall that saddens me; as we well know, all good things come to end. No, the tragedy of the American experiment is that we have given no resistance to this great evil. Indeed, we have given it our sanction by continuing to vote for and elect people who care not a whit for us. If this indifference is not painfully obvious now, I cannot say when reality will impinge upon our splendid little fantasies. This grand experiment cannot continue if we are to be governed by those who concern themselves only with the attainment and retention of power. When one puts aside the minute political difference, this, more than anything, unites the two parties. The people are without a voice in Washington.

When lies end

2011-07-17T23:15:00.005-04:00

"It will accumulate: moreover, it will reach a head; for the first of all Gospels is this, that a Lie cannot endure for ever." - Thomas Carlyle, The French Revolution

"As indicated in today’s policy statement, the economic recovery appears to be proceeding at a moderate pace, though somewhat more slowly than the Committee had expected, and some recent labor market indicators have also been weaker than expected." - Ben Bernanke, 7/22/11 Press Conference

If one simply points out that there has been no recovery, one is liable to be taken for a biased observer. Those who believe that things are bad--as indeed they are--fail to note--or so we are told--how much worse things would have been had the Federal Reserve and the U.S. Government not acted as they did. This is intended as a serious rebuttal. Yet the very impetus for doubling the monetary base, coupled with the largest stimulus program in the history of civilization, was the fear that without such drastic measures the world as we know it would have descended into violence and chaos. It follows then, that so long as the world stands, the stimulus worked. Only when the apocalypse is upon us will we be able to second guess the wisdom of recent monetary and fiscal policy.

This is convenient for the architects and advocates for said policies, but it's hardly a persuasive argument, especially since there is no proof that the collapse of the housing market would have resulted in Armageddon. Iceland did not pursue the same policies as the Americans, but--as yet--its citizens have not resorted to cannibalism or virgin sacrifice. Whether or not economic stimulus is helpful, then, we know that civilization may continue without it. We will never know how America would have fared had our politicians not proceeded to give billions to bankers and spend borrowed money on dubious political products. All we can say is that we did those things and that the economy is still doing very poorly. We cannot empirically verify that the policies of our government caused the economy to worsen--though we could demonstrate theoretically why it may have done so--but we can emphatically insist that the recovery has not been delivered as promised.

Ben Bernanke is an academic. Recently, he has learned that the neat theoretical world of Keynesian macroeconomics is quite different from the messy world in which he finds himself head of the central bank of the United States. Yet being an academic, it is unlikely that he will alter his beliefs in the theories on which he has expounded for many years. He knows that what he did was right and that the economy should be recovering. He also knows that the economy is not performing as expected. This disparity between reality and his theoretical models can be explained by temporary factors, such as "the aftermath of the tragic earthquake and tsunami in Japan." In fact, it has to be explained in this manner, for his theories cannot be wrong.

Bernanke also points out that: "consumers’ purchasing power has been damped by higher food and energy prices." He offers no word on what may have caused the prices of food and energy to rise, which is to say, he's not about to finger the Federal Reserve as the sole vehicle of inflation. His charts show that inflation is under control, so increases in food and energy prices must be... temporary.

Bernanke's problem is that temporary is becoming more permanent. The sycophantic media believes that he saved the global economy, so they will continue to give him the benefit of the doubt. But we are still something of a Republic, so the people believe their opinion about these sort of things matters. Most Americans have not heard of Bernanke; fewer still have heard of John Maynard Keynes, the defunct economist to whom the Federal Reserve Chairman is a slave. Yet they know when prices go up. They know when jobs go away--and when they don't come back.

Since both parties are enthrall to the corporations and banks at whose behest the stimulus was passed in the first place, prospects for a drastic alteration of fiscal and monetary policy are not good. Some of the tea party candidates show indications of an independent streak, but with the Republicans set to capitulate and raise the debt ceiling in short order, it's save to say that the moneyed interests who caused the housing bubble and also benefited from its bursting, still very much rule the United States.

Which brings us, at long last, back to Carlyle. There are very real limits to how long a lie can be told. In a sit-com, the truth is propounded by the end of the half-hour episode. In the real world, a lie can masquerade as truth for much longer, yet it will eventually break under the weight of its own contradictions.

The Government cannot forever print money for billionaire bankers, thereby impoverishing the rest of Americans, all while insisting that we are on the road to a recovery. I do not say this because I think Americans as a people are extremely intelligent and thus difficult to dupe. On the contrary, in our present state of torpidity, the flicking of television sets has caused us to be duped for a considerable period of time. Yet, as Louis XVI discovered, it is an unwise policy to expect that which is dormant to remain thus forever. Poke him enough, and even the laziest of dogs will awake and attack. And, although he often gives cause to make us forget, man is nobler than any beast.

One cannot mention Carlyle and the Revolution in France without clarifying one's position regarding the prospects of another. At present, the American people, or those that pay attention to these sorts of things, are distracted by the political circus in Washington. The conservatives labor under the illusion that ousting Obama will somehow right the ship of state while the left, with equal lack of sense, believes that handing over the Executive to a Republican would render significant harm to the nation. Comparatively few realize that electoral politics are a mere diversion at this late stage of the Republic. Once the people realize that they are powerlessness to affect reform through official channels, we move one step closer to revolution.

So, for awhile at least, we will remain as we are. But the lies are mounting, moving us closer and closer to a precipice. In a subsequent post, I'll try to flesh out this idea more fully, but for the moment it pays to watch the narrative as constructed by the media to defend government policies and the reality, insofar as we can grasp it, as documented by various marginalized media outlets. The tension between the narrative and reality will become more strained as the former is exaggerated to compensate for the inability of stubborn reality to conform. The days of these particular lies are numbered.

Newt so good with money

2011-07-16T16:06:00.003-04:00

The loathsome Newt Gingrich has some bad news. His campaign is evidently over one million in debt. Were this an Onion article, we would get a quote from one of his campaign staff noting that this is good preparation for becoming president of a nation which is many trillions in debt. Alas, this is not satire, this is merely an establishment Republican candidate who is so inept that Fred Thompson is embarrassed.

With the notable exception of Ron Paul, none of the Republican presidential candidates have shown that they understand two very important things. First, the country cannot return to solvency by closing loopholes in the tax code and defunding Obamacare. Social Security and Medicare are both bankrupt; in the short term they can be financed through the general fund--so long as everything else is cut--but in the longer term, even this is unsustainable. Second, in addition to being extremely costly, the Empire foments hatred of the U.S., which is to say that endless wars are counter to the ends at which our country is aiming. Any candidate who professes to tackle out debt problem while leaving military cuts off the table cannot be taken seriously.

One last note. Since Ron Paul is no longer running for Congress, he could run as a third party candidate. I do not expect him to do this, as the primary intention of his campaign is to spread the message of liberty, but it is interesting nonetheless. When the idiot Republicans nominate someone else, Dr. Paul will be able to return to his home to be with his family in retirement--one that is well deserved for the only public servant for whom the appellation is not disappropos.

Unsound Roman money

2011-07-13T22:53:00.004-04:00

The difficult task of explaining with exactness the utter demoralization of the currency at the moment when Diocletian ascended the throne cannot be here attempted. Only a few outstanding features can be delineated. The political importance of sound currency has never been more conspicuously, shown than in the century which followed on the death of Commodus (180 AD)...

Although the imperial coins underwent a certain amount of depreciation between the time of Augustus and that of the Severi, it was not such as to throw out of gear the taxation and the commerce of the Empire. But with Caracalla a rapid decline set in, and by the time of Aurelian the disorganization had gone so far that practically gold and silver were demonetized, and copper became the standard medium of exchange. The principal coin that professed to be silver had come to contain no more than five per cent of that metal, and this proportion sank afterwards to two per cent. What a government gains by making its payments in corrupted coin is always far more than lost in the revenue which it receives. The debasement of the coinage means a lightening of taxation, and it is never possible to enhance the nominal amount receivable by the exchequer so as to keep pace with the depreciation. - The Cambridge Medieval History Series, Volume I, pp. 39-40

Plus ca change... The series has been rewritten and reissued periodically, but my highly used copy is about one hundred years old, which is to say that it was written before the ascendancy of Keynesianism. Hence the historian recognizes, very clearly, that debasement does not work. This holds true whether the coins are being reforged with higher percentages of cheaper metal, or if the central bank issues more fiat currency: inflation is ruinous to economies.

No doubt Krugman would have had Diocletian debase his currency even more in order to stimulate the Roman economy and avoid a liquidity trap.

The lesson repeats through history. At some point, the government incurs various expenditures which cannot be funded through taxation, so it debases the currency to makes ends meet. Rather than impose austerity measures upon itself, it debases the currency further; if it persists, the currency becomes effectively worthless. Hence Diocletian began to accept taxes in the form of agricultural products, thereby unintentionally instituting the serf system.

There is no way of knowing if the Federal Reserve will proceed until hyperinflation sets in. I have very little faith in Bernanke's restraint, but the banksters who run our country will be reluctant to allow him to destroy the currency completely, so while inflation is a good bet in the near and medium term, unlike the decline of empires who follow late Roman monetary policy, hyperinflation is by no means inevitable.

The debt ceiling

2011-07-13T21:58:00.003-04:00

Whatever one may think of our form of government, it is by all accounts amusing. The house Republicans, fresh off an electoral shellacking of the other faction of the ruling party, is holding the line on tax increases. This is unusual insofar as the right never holds a hardline on anything, but it is charming, albeit transient. On the other side, President Obama and the Democrats lament that the mean old Republicans refuse to consider tax cuts. The narrative, as always, is that the Democrats are concerned with the poor and the middle class while Republicans only care about millionaires and billionaires. This might pass muster if the President's party hadn't spent the last two years giving trillions of dollars to the likes of Goldman Sachs and J.P. Morgan.

There is some concern that the debt ceiling will not be raised. Coincidentally, this is in accordance with the wishes of the American people. Dutifully, then, the two wings of our ruling party shall come together yet again to raise a symbolic middle finger to the citizenry, whereupon both conservatives and liberals shall blame the mysterious other for the capitulation of their own champions. They will raise the debt ceiling because they always raise the debt ceiling. Kicking the can is the one task the legislative branch seems capable of performing.

Perhaps one should not ignore the chance that the President's egomania and the incompetence of the Congress prevent the ruling class from conspiring against the people. Yet this chance is remote, a point which should not be forgotten as the commentary--and the markets--shall become much more skittish as we approach the twelfth hour, whereupon--miracle of miracles!--a deal will be reached.

It is imperative, we are told, that the government raise the debt ceiling, as to do otherwise would force the U.S. to default--this being deemed irresponsible. The real lack of responsibility is better demonstrated by a government that wages endless wars and runs pyramid schemes, but at this late stage of our republic, rank hypocrisy is scarcely worthy of commentary.

The argument in favor of raising the debt ceiling is patently absurd for at least two reasons. First, since the government has enough money to continue to pay the interest on its debt, default would not occur. Certainly this would require the Congress to re-prioritize so as to avoid stiffing our creditors. Given the character of the Congress, this is a near impossibility; but it could be done, and would be done easily were we not governed by those who possess the restraint of children.

Second, a default becomes more likely, not less, as the U.S. takes on more debt. Given the extent of our unfunded liabilities, $114 trillion at last count, default is inevitable. In that sense, the debate over the debt ceiling is utterly irrelevant, but insofar as the American republic is salvageable, the argument is totally opposed to that made by our representatives in Washington. This only seems strange if, drunk on Keynesian macro-economic theory, we forget that the laws of economics also apply to nations. To put the matter differently, if running up ever higher levels of debt is propitious for a nation, it ought to work similarly for an individual. Here the absurdity becomes manifest: if I have six maxed out credit cards, my situation is not improved by applying for another card. When Congress raises the debt ceiling, they bestow upon themselves another credit card, and make it more likely, not less, that the U.S. will default.

Once they have been given an extended line of credit, Congress will begin to spend more money. To some extent, this will be obligatory, since federal pension funds have already been raided as an accounting trick to allow the government to stumble along until August. The problem, for the Congress--and for us--is that as the U.S. heads towards default, foreigners are becoming disinclined to purchase U.S. treasuries. This will require the Federal Reserve to step in and purchase government debt, though it remains to be seen whether they will do this as part of another round of quantitative easing or whether the Fed will simply debase the currency on the sly. Since Bernanke and his magical printing press are increasingly in the spotlight, it will be difficult for him to hide, but it is nonetheless bad news for anyone who holds U.S. dollars, which is to say, the lot of us.

Since there was no economic recovery, there was no double-dip recession, but I suspect that we will hear the latter term bandied about more frequently as it becomes clear, even to the clueless commentariat, that if the unemployment numbers are ever increasing, we are not in the midst of a recovery.

Hypothetical prolific bloggers

2011-06-29T22:13:00.003-04:00

I am a terribly lazy blogger. It is not that I have nothing that I would like to say so much as that it is both easier and more enjoyable to sit on my couch and read history books than to sit down at my computer and explain, yet again, why we are doomed, doomed, doomed.

Recently, I have been reading Paul Johnson's A History of the Jews. Johnson is exceedingly well read, and brings his wealth of knowledge to which ever topic he chooses to tackle. If I could overcome my sloth for a few years, I think I could eventually write a book, but to churn out books at the rate Johnson does--and such books--is hard for me to fathom. I have long been fascinated by prolific writers. Johnson is by no means the most prolific of writers, but his powers certainly tax my ability to comprehend.

Had Johnson been born a bit later, he may have ended up as a blogger--and no doubt a very good one. Two questions spring to mind. First, given the full extent of writers, who would have been the most prolific blogger? I don't have an answer, but St. Augustine springs readily to mind; he would have lorded over the heretics of the blogosphere. Second, would this have been a good thing for humanity? I spend a good deal of time on blogs, but I am also rather fond of books; and the latter tend to be more valuable.

And now, back to my books--and my laziness.

The pragmatic President and the cowardly Congress

2011-06-26T10:04:00.002-04:00

The vitriol directed at President Obama is well known. I do not think it is fair to chalk this up to racism. Nonetheless, much of the criticism of Obama is misplaced. Far from being a far-left radical--a "socialist" in the bankrupt lexicon of contemporary American politics--Obama is essentially a pragmatist. His essential characteristic is not a deep-seated hatred of all that is quintessentially American: it is his almost total lack of principles. When given a choice between two contradictory courses of action, the man seeks out a middle course based on political instinct. This is of dubious utility to our doomed republic, but it is far more interesting.

Obama provided us with a good example during the speech on Afghanistan he made last week:

Already this decade of war has caused many to question the nature of America's engagement around the world. Some would have America retreat from our responsibility as an anchor of global security, and embrace an isolation that ignores the very real threats that we face. Others would have America over-extend ourselves, confronting every evil that can be found abroad.

We must chart a more centered course.

Faced with the neo-cons, who wish to make the endless wars of Orwell into reality, and the handful of doves in his own party, Obama decides we shall draw down some of our troops so as to maintain a via media. Whatever the political virtues of such a move, clearly this is not a coherent policy. It is only an attempt to refrain from making a tough decision, which, though it must be made eventually, can be postponed until after the next election. And so the wars continue, forever and always, until the day when economic reality compels us to admit that bankrupt nations have no business pretending to be Empires.

On a related note, the House of Representatives voted against the authorization of war with Libya--a war that goes on with or without the permission of Congress, the body which, according to the dead letter that is our Constitution, must go through the dreary business of actually declaring war. That same chamber proceeded to vote in favor of providing funding for that the same war.

The problem with our representatives is not that they possess convictions, which, if acted on, would bring about the ruination of the republic. The problem is that, if they possess any convictions, cowardice ensures that they may as well have none at all. Like the president, the chief objective of our representatives is to spurn commitment to anything which might lessen one's chances of reelection.

Mark Krikorian aptly quotes Edward Gibbon:

The senate of Rome, losing all connection with the Imperial court and the actual constitution, was left a venerable but useless monument of antiquity on the Capitoline hill.

Tocqueville - Democracy in America - Unlimited Power of the Majority in the United States, and Its Consequences (Part II)

2011-06-22T00:08:00.004-04:00

Resuming where we left off, Tocqueville draws a distinction between tyranny and arbitrary power. America tends towards a system of arbitrary power, for the details of public officers "and the privileges that they are to enjoy are rarely defined beforehand." Moreover, "In general, the American functionaries are far more independent within the sphere that is prescribed to them than the French civil officers."

This is truer now than when he wrote this, as the Federal bureaucracy has expanded immeasurably after the Civil War. To give a concrete example, the "Dodd–Frank Wall Street Reform and Consumer Protection Act" contains numerous instances in which such-and-such a committee may decide how regulation is to proceed. The specifics are worked out after the majority has passed the bill.

Tocqueville was rightfully concerned about the possibility of liberty being infringed based on the omnipotence of majorities.

Any group of people is bound to possess conflicting opinions on matters related to the way in which they are to be governed. However, in the American Republic, once a majority has decided something, it becomes difficult, not merely to alter the legislation, but to have alternative opinions heard. To offer a position in dissension with that of the majority is to risk one's respectability.

Hence: "I know of no country in which there is so little independence of mind and real freedom of discussion as in America." Once the majority has decided, there is no power to which an American may appeal by way of disagreement. Thus "the majority raises formidable barriers around the liberty of opinion; within these barriers an author may write what he pleases, but woe to him if he goes beyond them." To an extent, the Internet may have seemed to altered this, but only superficially. Barriers of respectability remain firmly in place. This is problematic because it makes it unlikely that the government shall consider changing course--let alone actually altering it--when once it has gone astray.

Tocqueville offers us an amusing quip: "If America has not as yet had any great writers, the reason is given in these facts; there can be no literary genius without freedom of opinion, and freedom of opinion does not exist in America." No doubt this shocked the Americans who read his book, who concluded, en masses, that on this point at least, the Frenchman was dead wrong.

The tyranny of the majority can be blamed for the paucity of great men: "I attribute the small number of distinguished men in political life to the ever increasing despotism of the majority in the United States." This is a change from the early days of the Republic, in which many great men were to be found. After the founding, in the event that someone were to offer distinguishable views, he would be marginalized as a radical. Voting incessantly with one's party--or with the whole of Congress--provides no sure way to distinguish oneself. Indeed, it is worth noting that recent American presidents--not counting Obama, who served one term in the Senate--have emerged from State politics, this being, evidently, the only area in which potential presidents may--attempt to--differentiate themselves from the herd.

Finally, rather than expecting that the Republic would expire from weakness, Tocqueville expected the opposite to occur: "[I]t is almost always by the abuse of its force and the misemployment of its resources that it becomes a failure. Anarchy is almost always produced by its tyranny or its mistakes, but not by its want of strength." This is a very interesting observation. The "conservative" line has long been that the Constitution guarantees a limited government, by virtue of the restrictions it places on government. Yet Tocqueville correctly points out that, regardless of what the piece of paper says, the system has no sure guard against tyranny by way of the majority.

Tocqueville - Democracy in America - Unlimited Power of the Majority in the United States, and Its Consequences (Part I)

2011-06-10T17:57:00.004-04:00

Tocqueville offers some observations regarding American political institutions:

"The Americans determined that the members of the legislature should be elected by the people directly, and for a very brief term, in order to subject them, not only to the general convictions, but even to the daily passions, of their constituents." Still, it should be noted that until fairly recently, Senators were elected by the legislature of their respective states as a nod to state sovereignty.

A bit later, he writes: "It is to a legislature thus constituted that almost all the authority of the government has been entrusted."

One cannot help comparing the America of which Tocqueville wrote with that we observe today. The near-constancy of the election cycle would not have surprised him. On the other hand, the legislature has managed to shirk many of the responsibilities which were given them by the founders. For instance, Congress no longer declares war, the president now being elevated to a Caesar of sorts, electable not quite by popular vote.

Tocqueville notes that candidates from the legislature were beholden to the voters to pass certain bills--or prevent them from being passed--ensuring that the masses did, in fact, rule. Probably it was so, but, for a variety of reasons, a more striking feature of contemporary American politics is the ease with which candidates break promises, seldom to their detriment.

The majority triumphs in a democracy, not merely because of its votes, but for an altogether different reason: "The moral authority of the majority is partly based upon the notion that there is more intelligence and wisdom in a number of men united than in a single individual, and that the number of the legislators is more important than their quality. The theory of equality is thus applied to the intellects of men; and human pride is thus assailed in its last retreat by a doctrine which the minority hesitate to admit, and to which they will but slowly assent."

In a democracy, then, those who hold the minority position are not simply out of step, they are wrong, and possibly anti-social. Hence the appeal to an opinion poll is a legitimate means of arguing in our society.

Despite being supreme, majorities will probably not be able to strip the rights of minorities: "If there existed in America a class of citizens whom the legislating majority sought to deprive of exclusive privileges which they had possessed for ages and to bring down from an elevated station to the level of the multitude, it is probable that the minority would be less ready to submit to its laws. But as the United States was colonized by men holding equal rank, there is as yet no natural or permanent disagreement between the interests of its different inhabitants."

Tocqueville examines the possibility of "the tyranny of the majority." It is possible for a majority to create a law which is unjust, say, that all those who write with their left hands must be killed. While the majority is sovereign, this sovereignty cannot be absolute, lest the majority seek to tyrannize the minority. Hence, "When I refuse to obey an unjust law, I do not contest the right of the majority to command, but I simply appeal from the sovereignty of the people to the sovereignty of mankind." Of course, mankind may still go wrong as well, but the general point is clear: their is a law which exists above the laws made by nations; if the latter contradict the former, they are not valid.

Although democracy was fully consistent with the zeitgeist, Tocqueville new it was wary of sentiment that democracy would cure all ills. "If it be admitted that a man possessing absolute power may misuse that power by wronging his adversaries, why should not a majority be liable to the same reproach?"

Nor can the evils of democracy be balanced by mixing the government with that of another type. Contrary to Aristotle, Tocqueville believed that mixed governments were chimerical: "in all communities some one principle of action may be discovered which preponderates over the others." In fact, "When a community actually has a mixed government--that is to say, when it is equally divided between adverse principles--it must either experience a revolution or fall into anarchy."

Tocqueville is more concerned with the limits on power, rather than the particular form of government: "Unlimited power is in itself a bad and dangerous thing. Human beings are not competent to exercise it with discretion. God alone can be omnipotent, because his wisdom and his justice are always equal to his power."

Far from being amazed at the weakness of the American government, Tocqueville was most alarmed at the lack of security against it being exercised to the fullest. There is nothing to which a man may appeal as against the will of the majority.

"I do not say that there is a frequent use of tyranny in America at the present day; but I maintain that there is no sure barrier against it, and that the causes which mitigate the government there are to be found in the circumstances and the manners of the country more than in its laws."

Democratic Social Condition of the Anglo-Americans

2011-06-03T22:16:00.002-04:00

The next section from our excerpts expands upon the social conditions in the United States. The northern colonists arrived in equal standing and more or less so remained. Although the southern colonies had an aristocracy of sorts, plantation owners were never formally accorded any special privileges. More to the point, it became impossible for them to demand such advantages in the political climate following the Revolution, which was carried out in the name of democratic independence (407). The Constitution, in fact, explicitly forbids the establishment of a nobility.

Tocqueville singles out inheritance law as the crucial institutional barrier to the emergence of such a class. European aristocracies perpetuate themselves by the law of primogeniture. A lord's income is generated by his estate, and keeping that estate intact from one generation to the next preserves the aristocracy. Families are equated with their estates in name and in the popular imagination. In consequence of this, Tocqueville writes, "family feeling is to a certain degree incorporated with the estate[,...] whose names, together with its origin, its glory, its power, and its virtues, is thus perpetuated in an imperishable memorial of the past and a sure pledge of the future" (408).

A law that divides the estate among multiple inheritors also dissolves the mythologized idea of family upon which the aristocracy depends. Self-interest usurps the collectivist ideal, and individuals rise or fall according to the value they generate in economic markets and in civil society.

This democratic individualism has implications for the educational system in the United States. General education, at the time Tocqueville was writing, ended at 15 years of age, at which point one entered a more specific vocational training. He seems to think well of this development, in which a democratically accessible "human knowledge" supplants the elite "intellectual pleasures" of the aristocracy. Knowledge is valued not so much for its own sake as for its utility. The market becomes the final arbiter of what's worth knowing.

Democracy in America - Alexis de Tocqueville

2011-05-16T22:51:00.004-04:00

This post will contain all of the posts PJ and I put up in our discussion of Alexis de Tocqueville's Democracy in America.

Introductory Chapter
Democratic Social Condition of the Anglo-Americans
Unlimited Power of the Majority in the United States, and Its Consequences (Part I)
Unlimited Power of the Majority in the United States, and Its Consequences (Part II)

Tocqueville - Democracy in America - Author's Introduction

2011-05-16T22:06:00.003-04:00

As part of our ongoing series of discussions, PJ and I will be covering selections from Alexis de Tocqueville's Democracy in America. The first of these comes courtesy of Princeton Readings in Political Thought. We hope to add further selections from the text at a later date.

Tocqueville was a French aristocrat, who journeyed to the United States to study its penal system. Enthralled with the young nation, he jettisoned his topic to pen his masterwork.

In his introduction, Tocqueville describes this enchantment: "Among the novel objects that attracted my attention during my stay in the United States, nothing struck me more forcibly than the general equality of condition among the people." No doubt this would have been surprising to someone from a country such as France, where, while the people were becoming daily more democratic, the political institutions lagged behind.

This equality was the key to understanding the American people: "The more I advanced in the study of American society, the more I perceived that this equality of condition is the fundamental fact from which all others seem to be derived and the central point at which all my observations constantly terminated."

That America would be an interesting topic for a book seems obvious, yet it was far from evident that this country, so very new to the old lands of Europe, could have much, if anything, to teach France. Tocqueville argues that "a great democratic revolution is going on among us"; later he will add that, whether it is desirable or not, it is "irresistible." The virtue of studying the American republic and her people is that it demonstrates "the most peaceful and the most complete" democratic development. France can thus be instructed, not only in ways in which such a transformation can be affected, but also in the advantages and disadvantages of such a transformation.

To this end, Tocqueville sketches a brief history of the decay of aristocracy. The essential points being that, first, it is upon us, whether we like it or not: "The noble has gone down the social ladder, and the commoner has gone up; the one descends as the other rises. Every half-century brings them nearer to each other, and they will soon meet." Even those who resist democracy's march ensure its success.

Second, the rise of democracy brings with it some tradeoffs as against aristocracy: "If there were less splendor than in an aristocracy, misery would also be less prevalent; the pleasures of enjoyment might be less excessive, but those of comfort would be more general; the sciences might be less perfectly cultivated, but ignorance would be less common; the ardor of the feelings would be constrained, and the habits of the nation softened; there would be more vices and fewer crimes."

This last point is important. Our country is still very fond of democracy, but we often mean by it, not the cultural forms which Tocqueville discusses, but the singular American system of government--or something akin to it. Yet Tocqueville teaches us that democracy, too, has its drawbacks. So we see that while most Americans can watch football on HDTV's, our culture is incapable of producing Molière.

It is important to realize that there are advantages and disadvantages to democracy, but not necessarily because we can seek to change our culture. Whereas Burke, gazing upon the demise of an English aristocracy, lamenting that which he is powerless to stop, Tocqueville frankly examines what he knows is upon him. As a fellow champion of seemingly lost causes, I have considerable sympathy with Burke; but one can admire Tocqueville's realism, which, for what it's worth, seems to possess more by way of practical value.

Keynes - The General Theory - Chapter XXI

2011-05-16T19:16:00.003-04:00

Section I: Keynes proposes to give us his theory of prices. He points out the problem with economists who divorce their theory of money from the rest of their teachings, noting, quite correctly, that a theory must be able to make sense of money, an integral aspect of the modern economy. For "as soon as we pass to the problem of what determines output and employment as a whole, we require the complete theory of a Monetary Economy."

Moreover, this problem cannot be avoided: "We cannot get rid of money even by abolishing gold and silver and legal tender instruments. So long as there exists any durable asset, it is capable of possessing monetary attributes and, therefore, of giving rise to the characteristic problems of a monetary economy." This is well said.

In this section, he also notes, and in italics: "For the importance of money essentially flows from its being a link between the present and the future." Actually, the essential importance of money is that it serves as a medium of exchange. True, people expect money to be valued in the future, but this is true of a variety of other things, whereas non-monetary goods are seldom used as a medium of exchange.

Section II: This is comprised of a single paragraph, with little value.

Sections III-IV: Keynes wishes us to grant him two assumptions for him to illustrate what will happen to employment if the money supply is increased. To wit: "(1) that all unemployed resources are homogeneous and interchangeable in their efficiency to produce what is wanted, and (2) that the factors of production entering into marginal cost are content with the same money-wage so long as there is a surplus of them unemployed."

The first assumption is preposterous. Workers cannot be treated homogeneously so long as they differ drastically--in training, ability, physical or metal prowess, etc. As written, the second is tautological, though if what he means is that workers do not demand raises while others are unemployed, he is making an erroneous assumption.

Nevertheless: "So long as there is unemployment, employment will change in the same proportion as the quantity of money; and when there is full employment, prices will change in the same proportion as the quantity of money." (Italics his.)

At the moment, the first half of this supposition is faring rather badly. Inflation, even according to the deliberately under-stated government criteria, is far outpacing employment, which is stagnant. The second half of his statement is not correct, either, though it is less obviously flawed. As we have discusses previously, inflated money does not enter the economy all at once, but through those who have access to the money first. So when Bernanke gives money to his pals at Goldman-Sachs, they can spend that money on fine cigars; the cigar store owner and the manufacturer of the cigar then spend this money, which is in turn spent, and so on. Overall, prices do increase, but they increase more for some goods than for others.

Keynes then mentions five possible complications. He enumerates them here, and then offers a defense of his earlier supposition in the following section of this chapter. I shall list each reason, followed by brief commentary.

(1) Effective demand will not change in exact proportion to the quantity of money.

We have discussed this above. Inflation redistributes wealth, taking from the poor and giving to richer, more well-connected people. But also, and more fundamentally, it distorts the price structure.

(2) Since resources are not homogeneous, there will be diminishing, and not constant, returns as employment gradually increases.

An excellent point. Actually, entrepreneurs are well aware of this fact. The unemployed are those who cannot be expected to produce enough to make hiring them worthwhile; they can only be hired at a lower rate Of course, judgments of entrepreneurs are not infallible; nonetheless, this holds for every good in the economy.

(3) Since resources are not interchangeable, some commodities will reach a condition of inelastic supply whilst there are still unemployed resources available for the production of other commodities.

Again, well said Keynes. During a bust, employment decreases, but it does so unevenly. Realtors are probably still hurting, but other professions are doing comparatively better. Similarly, just because housing prices in Miami, FL continue to fall, does not mean International Falls, MN experienced much of a housing bubble.

(4) The wage-unit will tend to rise, before full employment has been reached.

This strikes me as plausible. When unemployment begins to fall--and I mean substantially, more so than the insignificant changes we've experienced during the last few years--people who were happy enough to be employed, may start to look for better jobs elsewhere. Employers are not required to hire only those who are unemployed; just because a person changes jobs does not mean that an unemployed person will necessarily be able to fill the vacated position.

(5) The remunerations of the factors entering into marginal cost will not all change in the same proportion.

This is true, and I have said as much above.

Keynes also introduces the term "cost-unit," which he calls "the essential standard of value." I am not terribly sure what he means by this.

Section V: With all the increases in the supply of money, we come to inflation: "When a further increase in the quantity of effective demand produces no further increase in output and entirely spends itself on an increase in the cost-unit fully proportionate to the increase in effective demand, we have reached a condition which might be appropriately designated as one of true inflation."

This is a curious way of putting it. Keynes speaks as if the money which is used to increase employment is somehow exhausted. Yet the whole point of printing money was to increase employment, thereby increasing the propensity to consume, which would redound to the benefit of everyone in the economy.

Inflation is a monetary phenomenon. When the supply of money is increased, more dollars--or whatever the unit of currency may be--are available to compete with the same supply of goods. The effect of this is to drive up prices. Generally rising prices, then, are an effect of inflation; but prices may rise for other reasons--an increase in demand or a decrease in the supply of a particular good. The effects of inflation may be obscured by improvements in the productive process; so while computers are still falling in price, they are falling less than they would be if helicopter Ben had kept his fingers off the printing press.

Sensible thinking about inflation would have led Keynes to be more cautious about the supposedly salutary connection between an increase in the money supply and unemployment.

Section VI: Again, we have some more algebra which does not merit our time. Lest the reader think I glance over a subject which I do not possess the training to understand, I merely note that, as an engineer, and one who took courses in mathematics as electives, I am sufficiently qualified to simplify equations.

Section VII: Our economist notes that in "the very long-run course of prices has almost always been upward. For when money is relatively abundant, the wage-unit rises; and when money is relatively scarce, some means is found to increase the effective quantity of money."

Yet this is only true because the authorities are so often trying to debase the currency. Absent that, prices tend to fall, as we see, not only in certain sectors, such as the aforementioned computer industry, but more ubiquitously in those infrequent periods of history in which the money supply was kept stable, such as after the American Civil War. Keynes would have been better served trying to determine why governments are so intent on impoverishing the citizenry through debasement of the currency rather than rationalizing that such theft is actually good for those being robbed.

Despite his assurance that his theory is a general one, Keynes finds himself commenting on particular problems that plagued those of his time: "The acuteness and the peculiarity of our contemporary problem arises, therefore, out of the possibility that the average rate of interest which will allow a reasonable average level of employment is one so unacceptable to wealth-owners that it cannot be readily established merely by manipulating the quantity of money."

Hence the authorities will have to step in and massage the rate of interest. Yet the rate of interest, like everything else, is determined by market forces; it is coordinated between borrowers and lenders. I can see no reason to offer judgment as to whatever agreements are reached between said groups.

Keynes - The General Theory - Chapter XX

2011-05-16T19:00:00.003-04:00

Note: Chapter XIX includes an Appendix, which concerns Professor Pigou’s "Theory of Unemployment." Since I'm unfamiliar with Pigou's work, and since the material adds little to what Keynes has stated in the chapter, we shall avoid discussing it.

Section I: Keynes seeks to define an employment function. This chapter, and this section in particular, thus becomes a confused collection of variables and algebraic simplifications. Keynes tells us that: "Those who (rightly) dislike algebra will lose little by omitting the first section of this chapter."

Although we would do well to take him at his word, at least in this instance, there is one point I wish to make regarding his "function." The term has a precise definition: "an ordered triple of sets, which may be written as (X, Y, F). X is the domain of the function, Y is the codomain, and F is a set of ordered pairs. In each of these ordered pairs (a, b), the first element a is from the domain, the second element b is from the codomain, and every element in the domain is the first element in exactly one ordered pair."

Thus, for the employment function, the domain would be wage-units, or whatever other variable Keynes believes he can track to give us: employment, the codomain, measured in men--or man hours, perhaps. If the employment function exists, a change in wage-units would necessitate a change in employment; moreover, we could determine beforehand what this change will be. That this is plainly not so should be obvious; no matter how sophisticated the functional models of the econometricians, they come no nearer to being able to predict the future. Empirical reality diverges wildly from what their algebra would suggest.

Now, this is not to say that there is no relationship between, say, wage rates and employment. It is only to say that the relationship is not a precise mathematical one. By using mathematical terminology, Keynes leads us to believe that a relationship possesses a precision which it can not have. I believe I have made this point earlier, but it bears repeating as the pseudo-precision is hitting us rather hard at this point in the book.

The remaining sections held little that caught my eye, so I'll pass them over to summarize the next chapter.

Reflections on Osama

2011-05-09T23:10:00.003-04:00

In and of itself, the announcement of the death of Osama is far less interesting than the media's reaction to it. The conspiracy set is convinced, not unreasonably, that the terrorist leader has probably been dead for years. It is likelier that the Obama administration, not exactly renowned for its competence, blithely assumed that everyone would be so jubilant over the demise of the figurehead that no one would be concerned about the missing body or the lack of photos.

One problem with constantly lying to the citizenry--say, over the spurious reasons for invading countries or the insistence that the economy is recovering--is that the citizenry begins to doubt every pronouncement of the government. This is a sound impulse, even when it is ultimately incorrect.

Returning to the matter of spin, this afternoon I listened to Hannity on my way home from work. Today, he was interviewing Peter King, a Republican Congressman from New York. King was explaining the importance of torturing terrorists, though he used the Orwellian term "enhanced interrogation techniques" in alluding to water-boarding. For, you see, we are being told that torture was used to extract the information which was then utilized to hunt down Bin Laden.

Now, no one denies that torture can be propitious. The problem--from a practical point of view, and setting aside the moral trepidation we should feel toward the procedure--is that there is no way to distinguish between good and bad information when it is extracted via torture. Certainly, we can attempt to verify the information, but we are told that water-boarding might be necessary for a "ticking time bomb" scenario, in which we will not have time to validate the truth contained in a confession. The choice is not between letting innocent people be blown to smithereens by a terrorist and extracting information via torture. If torture is used, the government may very well give the order to kill a group of innocents. This rather dims the supposed stark contrast between good guy Americans and the evil terrorists. But as blowing up civilians is routine for our military, the line is rather blurred already.

Had we not lapsed into using torture, it is true that Osama may never have been caught. Yet, being mortal, he would have died; his Maker would have judged him. In the almost ten years since Osama bin Laden wandered into the American consciousness, we have poured trillions of dollars into two losing, and, evidently unending, wars; we have seen thousands of our own soldiers return in coffins--though this pales in comparison to the larger number of dead they have left scattered behind them. We have not taken the eminently sensible approach of policing our border so as to provide a modicum of national security. Instead, we must be groped by brown shirts each time we wish to board a plane.

Osama bin Laden is almost certainly dead, but his spirit lives on. The fundamental transformation of our system of government is troubling, but less so than the fact that their is no political will to rollback the horrid changes. For the conservatives, the supposed defenders of limited constitutional government, are not demanding an end to our futile war on terror and the TSA's harassment of citizens. They are occupied with the far more important matter of ensuring that we do not cease to torture terrorists.

It is hard to escape the conclusion that Osama bin Laden has won.

Keynes - The General Theory - Chapter XIX

2011-05-03T21:45:00.002-04:00

Section I: Keynes undertakes to examine the relationship between money wages and employment. The relationship between the two ought to be very obvious, but as is his wont, Keynes denies the validity of what he calls the Classical Theory: "The argument simply is that a reduction in money-wages will cet. par. stimulate demand by diminishing the price of the finished product, and will therefore increase output and employment..."

In other words, if unemployment is too high at present wage rates, wages must fall until the marginally unemployed become employable. This is economics 101: if the price of a good is too high to meet demand, the price must fall or the good will remain unsold. It matters not at all whether we are discussing labor or apples, the principle holds.

Naturally, Keynes denies this: "For, whilst no one would wish to deny the proposition that a reduction in money-wages accompanied by the same aggregate effective demand as before will be associated with an increase in employment, the precise question at issue is whether the reduction in money-wages will or will not be accompanied by the same aggregate effective demand as before measured in money, or, at any rate, by an aggregate effective demand which is not reduced in full proportion to the reduction in money-wages (i.e. which is somewhat greater measured in wage-units)."

But aggregate demand has nothing to do with whether or not a man can be employed. True, if the industry in which he is hired begins to slump, he may have to find alternative employment. This frictional employment, though not unimportant, is not germane to this discussion.

Section II: Keynes begins this next section by asking two questions:
(1) Does a reduction in money-wages have a direct tendency, cet. par., to increase employment, “cet. par.” being taken to mean that the propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest are the same as before for the community as a whole? And (2) does a reduction in money-wages have a certain or probable tendency to affect employment in a particular direction through its certain or probable repercussions on these three factors?

It might appear at first glance that a reduction in wages will reduce the propensity to consume, thereby endangering the economy. But this analysis only makes sense if we also assume that the prices of things a man is trying to buy aren't falling at a similar rate. Yet it is exceedingly probable that the reason the man's wages were reduced was due to a decrease in the price of the goods he was making. A fall in the price of widgets necessitates a cut to the wages of the widget maker--not the other way around.

Keynes devotes some of this section to incorrect expectations of entrepreneurs. This has nothing to do with the systemic unemployment which transpires during a recession. Those employees of failed entrepreneurs can find work with successful bosses.

He goes on to list seven of the most important repercussions due to a reduction of money-wages, most of which he deems bad for employment. Most of his reasoning is specious, relying on some of his assumptions from earlier. Basically if wages fall, than consumption falls, which decimates the economy.

He continues: "We can, therefore, theoretically at least, produce precisely the same effects on the rate of interest by reducing wages, whilst leaving the quantity of money unchanged, that we can produce by increasing the quantity of money whilst leaving the level of wages unchanged."

Here the central planners smile. Finally, something is found for Paul Krugman to do.

Yet the attempt to solve unemployment through debasement of the currency is curious, for at least two reasons. First, inflation enriches those who have first access to the new money, that is, the bankers. My copy of The General Theory features a quote from Time calling the author a "workingman's revolutionary." Yet these policies would enrich the bankers at the expense of the workingman.

Second, unemployment is seldom evident across all industries. Our real estate bubble allocated too much labor into industries connected to real estate. This labor needed to be reallocated throughout the economy. But while inflation could conceivably prop up housing prices, thereby offsetting unemployment in that sector, we need recall that other sectors needed no such readjustment. Rather than allowing prices to fall so as to clear the supply--of workers and unsold houses--the solution is to inflate until those prices are realistic. And when the inflation causes another bubble in a different industry, we need only inflate once again.

Strikingly, Keynes recognizes this: "There is, therefore, no ground for the belief that a flexible wage policy is capable of maintaining a state of continuous full employment; — any more than for the belief than an open-market monetary policy is capable, unaided, of achieving this result. The economic system cannot be made self-adjusting along these lines."

The key word here is "unaided". But it's still a pretty telling admission by Keynes. Someone ought to tell Bernanke.

Still, on the whole, Keynes sides with the bankers: "Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable."

Of course, allowing wages to fall is trivially easy. It takes no intervention from central planners and happens, by mutual consent, between the employer and the employee. The alternative, as we see clearly, is not an economic boost due to the benevolent bankers, but unemployment due to wage rigidity.

Again, Keynes puts things backwards, in assuming that wage flexibility creates debt, whereas increasing the money supply does not. On the contrary, an inflationary system punishes savers and rewards debtors, thereby encouraging the latter. Hence it is no surprise that the Western world, enthrall to inflationary policies, is drowning in a sea of debt.

Section III: We come across more nonsense: "The chief result of [a] policy [of flexible wage rates] would be to cause a great instability of prices, so violent perhaps as to make business calculations futile in an economic society functioning after the manner of that in which we live."

Here, as so often, Keynes paints a dark picture when, by simple recourse to economic history, he would see things in a better light. Wages were kept rigid during the Great Depression, yet unemployment persisted; prior to Hoover's intervention, wages were allowed to fall, and, instead of the violence Keynes postulates, we saw short recessions, followed by a return to normalcy.

And we have a bold-faced lie: "It is only in a highly authoritarian society, where sudden, substantial, all-round changes could be decreed that a flexible wage-policy could function with success." Again, recourse to economic history would have served Keynes well. The comparatively freer America of the post-Civil War years demonstrated wage flexibility. True, the changes were not "sudden, substantial, all-round", but only Keynes is silly enough to think they need to be.

"In the long period, on the other hand, we are still left with the choice between a policy of allowing prices to fall slowly with the progress of technique and equipment whilst keeping wages stable, or of allowing wages to rise slowly whilst keeping prices stable."

The first alternative sounds fine to me, but the choice is a false one as Keynes can only keep prices stable by becoming a dictator of a closed economy. In any event, it's telling that he thinks it would be terrible if one's cost of living is falling with respect to one's wages. This strikes me as sound economic policy.

Keynes - The General Theory - Chapter XVIII

2011-05-02T14:09:00.003-04:00

It is at this point that Keynes is ready to re-state his general theory, bringing together the many different topics he has touched on throughout the book.

Section I: Keynes describes the different variables that make up his economic model. Elements such as, "the existing skill and quantity of available labour, the existing quality and quantity of available equipment, the existing technique, the degree of competition, the tastes and habits of the consumer" are all taken as given and unchanging. The variables that are affected by these givens as well as other uncomputable factors are, "he propensity to consume, the schedule of the marginal efficiency of capital and the rate of interest" which Keynes dubs the independent variables. This leaves employment and national income as the dependent variables, or what he is trying to affect.

One might be led to ask why some factors are assumed as given while others are not, Keynes reasons:

The division of the determinants of the economic system into the two groups of given factors and independent variables is, of course, quite arbitrary from any absolute standpoint. The division must be made entirely on the basis of experience, so as to correspond on the one hand to the factors in which the changes seem to be so slow or so little relevant as to have only a small and comparatively negligible short-term influence on our quaesitum; and on the other hand to those factors in which the changes are found in practice to exercise a dominant influence on our quaesitum.

Thus, Keynes reveals his motive for establishing his general theory: determining the aspects of the economy which can be most easily manipulated by the government to increase employment and/or national income (GDP). As Keynes himself writes, "Our final task might be to select those variables which can be deliberately controlled or managed by central authority in the kind of system in which we actually live."

Section II: Here Keynes attempts to summarize the arguments made in the preceding chapters. Essentially he deduces from changes in one factor changes in subsequent factors until employment is affected. The numerous problems with some of his logic have already been noted, so I will move on.

Section III: Here Keynes notes that our economic system is relatively stable, rarely at full employment or high unemployment, but somewhere in the middle. From this observation, he describes his conditions of stability:

(i) When output increases because employment is increasing, the multiplier between them is slightly greater than one.

According to Keynes this is due to marginal propensity to consume, when employment expands consumption increases, but by less than the increase in income. This is not true when you introduce debt into the discussion, and the neglect of debt remains a large criticism of Keynes' theory.

(ii) "moderate changes in the prospective yield of capital or in the rate of interest will not be associated with very great changes in the rate of investment."

Keynes notes that this is not the case if their is a large surplus of capital-assets, but I think we can neglect this case as an outlier. Given that capital and the factors of production are scarce resources, small changes in the interest rate will result in small changes in investment. This is not a game changer, so we will continue on.

(iii) Changes in employment and money-wages tend to be in the same direction.

Keynes correctly notes that, "as employment increases, [the struggle for higher wages is] to be intensified in each individual case both because the bargaining position of the worker is improved and because the diminished marginal utility of his wage and his improved financial margin make him readier to run risks." Keynes continues that this leads to a stable price-level.

(iv) His last condition of stability is that when investment increases (or decreases) for a prolonged period of time, it has a tendency to reverse direction.

Keynes explains that if investment is declining for some period of time, it is likely that capital -assets will wear out over time. This will force an increase in investment. Furthermore, if investment rises too high, it will be forced in the opposite direction through a recession. This is only partially true; the recession only happens if the increased investment is not accompanied by increased savings. Conversely, but less likely, an economy can increase its time preference and decrease investment. The problem is not in whether or not investment is moving in one direction for an extended period of time, but when that change in investment is not accompanied by a change in savings.

Burke: "Reflections on the Revolution in France"

2011-04-29T23:27:00.001-04:00

Guest-blogger PJ here. Summer is approaching, and Eric has once again opened his blog for discussion of selected texts in the history of political thought. We begin with a short excerpt from Edmund Burke's _Reflections on the Revolution in France_. All quotations are from the Cohen and Fermon Princeton anthology.

Burke, writing about a year after the French revolutionaries stormed the Bastille, is sharply critical of the principles of their revolution. No small part of the posthumous reputation of his book lies in the extent to which his criticisms were apparently vindicated by the subsequent descent of the Revolution into the bloody Terror a mere three years later. Interestingly, however, Burke was not anti-revolutionary in principle: he championed the American cause after initial efforts to effect a compromise failed to yield the desired resolution. Indeed, he is at pains to remind his reader (in amusingly dated parlance) of his wholehearted devotion to political freedom: "I flatter myself that I love a manly, moral, regulated liberty as well as any gentleman" (349). What then are his objections to the republican ideals of the French? And why do they not apply to America?

The French Revolution was founded upon a declaration of the universal rights of man. The first article of the 1789 "Declaration of the Rights of Man and Citizen" states, "Men are born and remain free and equal in rights" (347). These rights are "liberty, property, security, and resistance to oppression" (ibid). The revolutionaries go on, in article 6, to ground their conception of right in Rousseau's doctrine of the general will, according to which sovereignty consists only in the "common interest" shared by all citizens, i.e., that which they cannot help but to will in abstraction from any particular interests they might have as particular individuals ("On the Social Contract" esp. p.284; cf. our discussion on this blog from last summer through the sidebar). This sovereignty, Rousseau insists, cannot be alienated: "the moment there is a master, there is no longer a sovereign" (283). Claims to authority have legitimacy if and only if they express the general will. The revolutionary implications of this radically democratic republicanism are obvious: I have the right to resist any political claim that I do not recognize as the rationally self-imposed product of my own will.

Burke's objection is to the artificial abstractness of this ideal. True liberty, he claims, cannot be severed from its social and political "circumstances," which "give in reality to every political principle its distinguishing color and discriminating effect" (349). These "circumstances" are primarily historical. Burke views society as an intergenerational contract, such as the ideals and principles binding for a people are those handed down to them by their fathers and which they too are so bound to pass along to their children (353). European civilization, as he sees it, is dependent upon two principles: the spirit of a gentleman and the spirit of religion (352). It is the institutions of chivalry and church that preserve, sustain, and disseminate the various mores constitutive of European civilization. They are all that stand between culture and barbarism, the only means we have of keeping ourselves morally decent, so to speak. Furthermore, they are not subject to abstract proof or deduction. Such principles prove themselves only through history, and it is a dangerous conceit to ask for anything more.

The mistake of the French revolutionaries, then, was their effort to abolish history, starting from scratch on the basis of a metaphysical principle. They went so far as to institute a new calendar at year zero! The problem is that pure reason is incapable of providing concrete direction to the will. Burke is quotable on this throughout. For instance: "The effect of liberty to individuals is, that they may do what they please: we ought to see what it will please them to do, before we risk congratulations, which may soon be turned into complaints" (350). The liberty of a gentleman or a Christian, by contrast, has a definite content in the sense that it offers a specific prescription as to the appropriate mode conduct for a given situation. It seems to me, in other words, that Burke is introducing a distinction between negative ("freedom from") and positive ("freedom to") liberty. All the French manage to assert is a negative liberty, the right to always say "no," a state of perpetual rebellion. It's a short path from here to Robispierre, for, as Burke puts it, "Kings will be tyrants from policy, when subjects are rebels from principle" (352).

The consistency of Burke's support for the American cause should then be clear. The American colonists could ground their declaration of independence and subsequent revolution upon historical achievement of the Glorious Revolution, laid down in the 1689 English Bill of Rights, which guarantees citizens parliamentary representation that the colonists were repeatedly denied.

That's all for now. Looking forward to your thoughts--

Cheers,
PJ

Keynes - The General Theory - Chapter XVII

2011-04-26T21:58:00.002-04:00

In this chapter, Keynes examines some of "the essential properties of interest and money."

Section I: Continuing from the last chapter, Keynes postulates that: "the rate of interest on money plays a peculiar part in setting a limit to the level of employment." We must ascertain why this is the case.

In order to do so, in addition to the rate of interest for money, he introduces a rate of interest for every asset in the economy: "for every durable commodity we have a rate of interest in terms of itself, — a wheat-rate of interest, a copper-rate of interest, a house-rate of interest, even a steel-plant-rate of interest." He "proves" this by using an example; if the rate of interest is x and wheat pays x + a during the same time period, the wheat rate of interest is a.

It's puzzling as to why anyone could have maintained this theory. Part of the confusion, no doubt, stems from Keynes's failure to give the reason why the rate of interest exists. It emerges because of human time preference: we all prefer the same amount of a good sooner rather than later; in order to compel someone to give up usage of a good, he must be offered something in exchange. So if I want to borrow 100 dollars, I must promise to pay 105 dollars one year hence--if five dollars per year is the rate of interest. But the rate of interest, though paid in money, is not a characteristic of money; it is a direct result of time preference. Interest is commonly paid in money for the same reason wages are paid in money.

Now, in the futures market, like any other market, deals are made based on expected future prices. The so-called wheat rate of interest, then, is simply an anticipation of a rise or decline in wheat prices. It is not a rate of interest at all.

Section II: Building on this nonsense, Keynes seeks to use one rate of interest to calculate other rates of interest in the economy. This turns out to be easy: "To determine the relationships between the expected returns on different types of assets which are consistent with equilibrium, we must also know what the changes in relative values during the year are expected to be."

Did I say easy? I meant impossible, seeing that future prices cannot be calculated with any certainty. It is characteristic of Keynes that, instead of confronting the epistemological conundrum, he utilizes algebra to give mock precision to the unfathomable. This is either perniciousness or idiocy. I pass over regardless.

Section III: We have here some more fallacies about rates of interest. I'm afraid this chapter adds little to our understanding, not only of economics--for this is a reoccurring theme--but even with the Keynesian flavor. For instance, Keynes seems to think that the reason that the money rate of interest is significant--there is really only one rate of interest--is because money "cannot be readily produced." On the contrary, argues Ben Bernanke of the magical printing press.

Section IV: Keynes discusses the stickiness of wages in terms of money--as opposed to other commodities. This is a bit of a misnomer. Wages may be relatively sticky if the money supply remains constant, but a change in the supply of money will alter the stickiness of wages--barring legislation which enforces it. In short, the laws of supply and demand apply to all goods in the economy, money included. And, of course, there is nothing to prevent contracts from being drawn up for payment in any commodity--say, beer. People tend to use money because it is easier to exchange than beer. But we may yet see a return to exchanges in precious metals.

Section V: I find only one observation worthy of comment:

"That the world after several millennia of steady individual saving, is so poor as it is in accumulated capital-assets, is to be explained, in my opinion, neither by the improvident propensities of mankind, nor even by the destruction of war, but by the high liquidity-premiums formerly attaching to the ownership of land and now attaching to money."

That Keynes could really believe that the world had gotten poorer, and that this was somehow due to saving, testifies to the feebleness of his mind.

Section VI: He abandons his previous conception of a natural rate of interest, which, because it can comprise merely to the particular level of employment--in equilibrium, of course--offers us no edification. In its stead, he postulates a neutral or optimum rate of interest, which is that at which full employment is attained. Keynes does not tell us what the wage rates of the various employees will be, a telling omission, as we could surely create full employment quite easily if wages were allowed to fall far enough.

The persistence of the "birthers"

2011-04-23T09:11:00.004-04:00

A quick search through the archives ensures me that I've never written about the president's birth certificate. This is not to say that I haven't been following the story with a modicum of interest. The release of Jerome Corsi's new book, Where's the Birth Certificate, which, thanks to a link from Drudge, quickly jumped to number one on Amazon, seems as good a time as any to offer a few thoughts on the matter.

First, contrary to the protestations of the media--notice I do not say "mainstream" media: with the exception of WorldNetDaily, even the usual case of right-wingers has dismissed this issue--Obama has not released his birth certificate to the public. This is not unusual in and of itself--I can't think of a single public figure who has done so--but it does put the lie to those who, aside from a few key figures from the state of Hawaii, insist that they have seen the document. The debate really concerns those who trust the President and those who have vetted him, while the contrarians remain suspicious. It certainly wouldn't be the first the government has lied to its citizens; nor that an individual has trampled on the law in his pursuit of power.

I have no intention of reading Corsi's book, but I think it's instructive that such a book exists at all. There are evidently enough oddities and discrepancies surrounding the matter that one can write a good deal about it. The explanation that the tea-party is so incensed at Obama that they would cling zealously to an obvious myth doesn't really explain anything, since the myth, if it is one, is so profoundly easy to disprove. If one were seeking to discredit the president, it would be prudent to concoct a story which could not be decimated by the release of a single document. Obama's reluctance to release his birth certificate does not prove that he was born elsewhere; it does suggest that he is more concerned with maintaining secrecy even at the expense of further political controversy. This is especially bizarre since the release of the document would do grave damage to some of his political opponents.

It is probably asking too much of Americans to insist that partisanship be set aside to view the story dispassionately; I maintain that this is the weirdest political event of my short lifetime, and that, as such, it deserves some attention, and more than most Americans seem inclined to give it.

The story reveals something else: we still know very little about the man we elected president. I don't say this because I think Obama is a secret socialist or a closet Muslim, but because it is true, and therefore of interest. The historical blank slate that is Obama's past--with the exception, of course, of the narrative he constructed for himself in his two books--is his most distinguishable characteristic since it allowed his supporters to project upon him their hopes and dreams. For those of us who view American politics as akin to sport at this stage of our republic, Obama's failure to disclose certain information about his past is the most fascinating aspect of his presidency. I find it disappointing,though explicable for the usual reasons of dull partisanship, that so many seem genuinely uninterested in this angle,

I think it likely that the birth certificate issue will play a role in deciding the next presidential election; I can see no reason why this story will die down until the President's birth certificate is released. Eventually, the truth will be unveiled by future biographers. I don't think it's asking too much to insist that the people be given the information before it becomes a mere curiosity upon the conclusion of the Obama presidency.

Keynes - The General Theory - Chapter XVI

2011-04-10T14:48:00.002-04:00

This chapter is chock-full of fallacies; I shall do my best to unpack them all.

Section I: Keynes levels another attack at his least favorite activity, saving:

An act of individual saving means — so to speak — a decision not to have dinner to-day. But it does not necessitate a decision to have dinner or to buy a pair of boots a week hence or a year hence or to consume any specified thing at any specified date. Thus it depresses the business of preparing to-day’s dinner without stimulating the business of making ready for some future act of consumption.

We've had cause to mention Keynes's refusal to use terms in a consistent manner. Earlier in his book, he insists that savings and investment must be equal; here he laments that savings may not be invested; instead, they may be hoarded indefinitely.

The fact of the matter is that people do not often choose to forgo dinner so as to hoard money. However, people will often refrain from ordering the most lavish dinner possible, saving some money for future dinners. And Scrooge McDuck aside, most people will leave money in the bank, where it is lent out--that is, invested. So we see that usually an act of saving leads to future consumption.

Keynes points out that: "the owner of wealth [does not desire] a capital-asset as such... what he really desires is its prospective yield." In other words, we do not value a house for its house-ness as such, but because it provides us with value, to wit, by giving us shelter. This is true enough, but hardly worth pointing out.

There is also a bit in this section about "forced savings", but I confess that this concept makes no sense to me, so I'll refrain from offering comment.

Section II: In place of fallacy, Keynes offers us platitudes:

For the only reason why an asset offers a prospect of yielding during its life services having an aggregate value greater than its initial supply price is because it is scarce; and it is kept scarce because of the competition of the rate of interest on money. If capital becomes less scarce, the excess yield will diminish, without its having become less productive — at least in the physical sense.

In short, things have value because they are scarce. Only Keynes could think that such a trite truism was somehow profound.

He goes on to discuss the "roundaboutness" of the productive process. If I pick an apple out of a tree, this is a short process. If I sharpen a stick so as to spear a fish, this is a slightly longer process, and requires the accumulation of capital--the stick. If I build a factory so as to produce automobiles, this is a longer process still, and requires a good deal of capital accumulation. Now, a process may be lengthy and still be inefficient; if I cannot produce a car for a price which the market will pay, my business will fail. Yet, in general, capital accumulation allows for the lengthening of the productive process, giving us higher order goods. Most of the amenities which we take for granted, require a good deal of investment in order to produce. This is plain.

Keynes will have none of this. His hatred of savings leads him to believe that he can shorten the productive process and still come out ahead.

In some phases of society it may be that we could get physically better dinners by dining later than we do; but it is equally conceivable in other phases that we could get better dinners by dining earlier.

This is tantamount to suggesting that if it takes three months to turn out a car, granting four months will do nothing to either improve the quality of the car or cheapen the cost of it. This conclusion is clearly illogical. The alternative, I suppose, is that in some circumstances producers should refrain from making cars, at least for a time. While true, this has little to do with the analysis of capital as such, the ostensible theme of this chapter.

Section III: He cavalierly supposes that laissez-faire leads to conditions "in which employment is low enough and the standard of life sufficiently miserable to bring savings to zero." It is true that these conditions do apply in primitive societies--though these also possess full employment, whatever good it may do them. But these conditions do not apply in capitalist societies; Keynes is simply making an emotional appeal, unchecked by reason or theory.

He then offers worse:

The only alternative position of equilibrium would be given by a situation in which a stock of capital sufficiently great to have a marginal efficiency of zero also represents an amount of wealth sufficiently great to satiate to the full the aggregate desire on the part of the public to make provision for the future, even with full employment, in circumstances where no bonus is obtainable in the form of interest.

Economics is concerned with scarcity. Keynes blithely assumes it away; capital is magically sufficient enough that it has no value, i.e. it is no longer scarce. We need not concern ourselves with such visions of utopia.

This section offers one last absurdity:

“To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services. It is not reasonable, however, that a sensible community should be content to remain dependent on such fortuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.

Since holes dug in the ground provide no value, workers must be paid by the only entity foolish enough to employ persons so pointlessly: the government. This payment will either be paid through taxes or inflation--borrowing being a temporary form of payment which must eventually be financed through taxes or inflation. To pursue the reductio ad absurdum, if the government paid everyone to dig holes, we would be the richest nation on the planet. And yet, despite the money we might have, there would be fewer goods produced, so that it would take a good deal of money to afford anything. Digging holes in the ground is as stupid as it sounds.

Section IV: Our economist laments that the rich collect money by charging rent on their property. But when scarcity fades, so too will those who live thus: "Though the rentier would disappear, there would still be room, nevertheless, for enterprise and skill in the estimation of prospective yields about which opinions could differ."

Yet this is true of all prospective yields. It was not long ago that many assured us that housing prices do not fall; but fall they did. Economic goods have subjective value, imputed by consumers. Therefore, there is room for considerable disagreement over any and all economic goods. Hence the entrepreneur will always provide a valuable service in a free economy.

Keynes - The General Theory - Chapter XV

2011-04-06T20:53:00.004-04:00

My apologies for the lack of posting lately, school has been getting the better of me.

Keynes' focus in chapter XV deals with the incentives behind individuals choice for liquidity. The chapter is reminiscent of chapter's XIII and IX, which dealt with the factors which influence an individual's propensity to consume. As we will see, Keynes' logical flaws are the same here as they were on that topic. Keynes divides the incentives to liquidity into four categories:

(i) The income-motive: This motive is the need for cash to bridge the time between, "the receipt of income and its disbursement." This motive is dependent on the amount of income as well the "normal length of the interval" between receipt and disbursement. I'm not entirely sure how we can determine a normal length of time, but essentially this motive is the fact that when we receive cash in a transaction, we can't invest it in stock or deposit it in the bank immediately. This action takes time, and the amount of time is influenced by the amount of money trading hands.

(ii) The business-motive: This motive is the need for cash to bridge the time between, "incurring business costs and that of the receipt of the sale proceeds." The strength of this demand is dependent on the value of current output and the number of hands the product passes through. Keynes is not revealing anything new here, businesses need to acquire savings in order to pay for the factors of production needed to produce their good, which they will sell at a later date. This motive is a requirement 0f all businesses - without savings their can be no production - it is not necessarily a motive of liquidity.

(iii) The precautionary-motive: This motive is the need for money in your wallet, to serve the need for "sudden expenditures" or opportunities of "advantageous purchases." This makes sense, everyone needs to have money in order to pay for things like parking or a few beers at the bar. No one has all of their income tied up in savings or investments, their is a need for money to pay for short term demands.

(iv) The speculative-motive: Keynes devotes more time to this motive than the previous three because, "the demand for money to satisfy the former motives is generally irresponsive to any influence except the actual occurrence of a change in the general economic activity and the level of incomes." He continues explaining that the speculative-motive usually follows a continuous response to changes in the interest rate. If this were not true, open market operations would not be feasible, because, "in normal circumstances the banking system is in fact always able to purchase (or sell) bonds in exchange for cash by bidding the price of bonds up (or down) in the market by a modest amount; and the larger the quantity of cash which they seek to create (or cancel) by purchasing (or selling) bonds and debts, the greater must be the fall (or rise) in the rate of interest."

I have no quarrel with Keynes on this point being factually correct, but rather that it is economically irresponsible. We have seen the government's ability to change the interest rate through their open market operations (i.e. QE1 and QE2) but what has that done to help the economy recover? Keynes' inability to see that simply driving interest rates to 0% will not magically make people start investing. It was the manipulation of the interest rates of the fed which caused the malinvestment that led to the ongoing recession. Entrepreneurs are not going to start investing in capital because the fed floods the market with fresh $100, as the saying goes, "fool me once shame on you, fool me twice shame on you."

Keynes then begins to analyze liquidity preference mathematically. The expression he comes up is as follows: M = M₁ + M₂ = L₁(Y) + L₂(r), where M₁is the cash needed to satisfy motives i-iii, M₂is the cash needed to satisfy motive iv, Y is the level of income, r the interest rate, and L₁ and L₂ are the corrosponding liquidity functions for their respective cash levels (M₁ and M₂). Based on this equation, Keynes argues their are three factors which require his investigation, "(i) the relation of changes in M to Y and r, (ii) what determines the shape of L₁, (iii) what determines the shape of L₂." We will look at these matters individually as he does.

(i) Suppose the government decides to print money, increasing M. This would cause Y to increase and conversely increase M₁. He then makes the claim that this increase in Y is not large enough for the increase in M to be adequately absorbed by the increase in M₁. It follows that M₂ must then increase as well. This comes about by a fall in r. Keynes does not explain why M₂ must also increase, but there is a bigger concern here. Why must M = M₁ + M₂? Could the total money supply not equal 7 different subsets instead of 2? By viewing economics as a mathematical science rather than a praxeological one, Keynes is able to deduce any equation that serves his purpose.

(ii) Keynes claims the shape of L₁is determined by the income velocity of money. This is essentially the frequency at which money changes hands during a time period. If there is $1 million dollars in an economy, and $4 million worth of transactions take place in a year, then the income velocity of money is $4/yr. Neglecting the fact that I am highly skeptical this figure can be calculated with a great deal of accuracy, Keynes argues that this figure can be assumed as constant for the short run. This is Keynes' "proof" that both M₁ and M₂ must change with a change in M. His equation for L1, L₁(Y) = Y/V = M₁ means that no matter how much Y increases with an increase in M, M₁can only increase by a factor dependent on V (income velocity of money.

(iii) Keynes then stretches his reasoning far beyond what I would expect. He writes there is no quantifiable relationship between changes in M2 and r, but that in this case that doesn't matter. What matters is, "the degree of its divergence from what is considered a fairly safe level of r." If Keynes is going to argue his case for liquidity from a quantitative perspective, I would at least expect him to stick to it throughout the course of his argument. What is a safe interest rate, and who gets to decide it?

Lastly, Keynes points out a few limitations to a monetary authorities ability to establish the rate of interest. One particular limitation is worth a comment, "here is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest. But whilst this limiting case might become practically important in future, I know of no example of it hitherto."

This is one of the major problems with Keynes reasoning, simply because something has not happened to date does not mean it should be dismissed. The reckless policies of the Fed for nearly a century is leading up to a point when debt issued by the government will be seen as worthless. Even now, I would not buy a US Treasury security for the simple fact that I do not see the possibility of it being paid off. Once more and more people realize this, they will demand extremely high rates of return based on the risk of default. This will damage and possibly destroy the monetary authorities ability to manipulate the market at will.

Keynes' writings continue to get more and more confusing, both because he is a dismal writer and because his arguments contradict both what we are observing and what conventional wisdom leads one to believe.

NOR letter and reponse

2011-03-08T22:55:00.002-05:00

For the last several years, I have read the New Oxford Review, a very good Catholic periodical. A book review therein was how I was made aware of Christopher Ferrara's book, The Church and the Libertarian, which I in turn reviewed.

Before I had read the book, I sent out a letter to the NOR, which they were kind enough to publish in the last issue. The author of the review responded to my letter. Both can be read here.

I have nothing to offer by way of response at this time. Although I am indebted to the Austrians and still consider myself a libertarian, I ought to put together a post clarifying my position regarding some shortcomings of the ideology. I hesitate to do so only because, while I can manage a critique, it will be much harder to sketch a suitable alternative.

Child-men and the women who shun them

2011-03-02T23:26:00.003-05:00

Manning Up is the latest addition to the seemingly endless stream of books which examines the inadequacy of men. What sets it apart from the typical feminist screed is a tone that is neither triumphalist nor bitter. It's not at all surprising that Hymowitz is married and has children; even when criticizing man for his childish ways, she's cognizant of the precarious position in which he finds himself. That her book fails to convince is a point against it but it contains enough truth to be mined by the attentive reader. In a future effort, the author herself may buttress her inadequate solution by offering advice for women, who have created their own misfortune.

Hymowitz provides a good sketch of how we have arrived at the present predicament. In her writings on the successes of feminism, she deserves special credit for singling out the role played by "nineteenth- and twentieth-century market capitalism" in building "foundations of the New Girl Order." She notes that, increasingly, women are succeeding in the "knowledge economy", while men are falling behind—opting out as they either lack the skills or the ambition to compete. Such women are not inclined to notice—let alone date—those men who prefer bumming around in basements. These trends are disconcerting because of female preferences: women tend to date men of higher status. Success, then, seems to reduce the pool of available men. But—and this is important—this occurs only because women are reluctant to alter their preferences to date a less desirable man.

Although Hymowitz focuses on the alienation men have experienced, and rightly notes that the trend goes back more than a century, she doesn't seem to recognize its fundamental importance. If a boy is reasonably smart, he soon realizes that school is dull—college, too. His job may be no better, but at least it provides him with a paycheck. If he is married, he will work hard to provide for his wife and kids. Since he is not married, he takes to video games. The reason for his situation is important: the women his age are excitedly embarking on their own careers which provide "glamor, passion, and a life fully lived" and have no interest in settling down just yet.

Men have trouble relating to this passion for one's career. It's not that men cannot succeed; it's that he can see little reason to do so. The highly structured world women have created is, to put it mildly, frustrating for men. Contrary to Hymowitz's assertions, there is little room for genuine creativity, only the contrived and useless kind that allows one to decide which colors to use in a PowerPoint layout. If Hymowitz is disappointed that child-men are opting out, men are flabbergasted that anyone would consider something so transient as a "career" to be fulfilling. As Lester Freamon puts it, "The job will not save you."

In this vein, it remains unclear why the way of woman is superior to the way of men. Granted that drinking beer and reading Maxim is not the summum bonum, is it any worse than lighting scented candles and reading chick lit? It's one thing to set aside marriage prospects to work as a doctor in the third world, another entirely to work as a "diversity administrator" or a "compensation consultant" so that one can acquire another pair of shoes. That men do not need to work themselves ragged to achieve their goals might merely demonstrate resourcefulness and contentedness.

Hymowitz wants the child-men to man up so that women don't have to become spinsters or "choice mothers" at the expense of their careers. Might women alter their own behavior? "[T]he economic and cultural changes are too embedded, and, for women especially, too beneficial to reverse." So the answer is no. Although it is women who are becoming disenchanted with the way things are, and although it is women who have created this situation, it is men who ought to change.

And they are to change precisely when women are ready. Supposing men, many of whom are more or less invisible to women, set aside any resentment and dutifully marry the first woman who deigns to notice him in accordance with the ticking of her biological clock, would manning up thus set society to rights? Or would it merely reinforce the behavior of women? It's possible that the growing population of cat ladies will serve as a reminder to their younger sisters that beauty fades, and that it is often foolish to string along good men in the hopes of attaining a better one. Absent the spinsters, women will continue to behave irrationally, confident that men will save them from their duplicity. It's hard to fault the man who does not wish to play the fool.

Keynes - The General Theory - Chapter XIV

2011-02-19T11:10:00.004-05:00

Section I: After expounding his own theory, in this next chapter, as well as in the Appendix that follows it, Keynes criticizes what he calls the classical theory of interest. This theory he has trouble stately precisely, for lack of "an explicit account of it in the leading treatises of the modern classical school." Not the adjective "modern": Keynes is referring mainly to Marshall and Pigou, whose works I have not read.

Still, Keynes manages a summary:

It is fairly clear, however, that this tradition has regarded the rate of interest as the factor which brings the demand for investment and the willingness to save into equilibrium with one another. Investment represents the demand for investable resources and saving represents the supply, whilst the rate of interest is the “price” of investable resources at which the two are equated. Just as the price of a commodity is necessarily fixed at that point where the demand for it is equal to the supply, so the rate of interest necessarily comes to rest under the play of market forces at the point where the amount of investment at that rate of interest is equal to the amount of saving at that rate.

He notes that "the ordinary man", who was "brought up on the traditional theory" believes: "that whenever an individual performs an act of saving he has done something which automatically brings down the rate of interest, that this automatically stimulates the output of capital." He also believes that this "takes place without the necessity for any special intervention or grandmotherly care on the part of the monetary authority." Yet: "the analysis of the previous chapters will have made it plain that this account of the matter must be erroneous."

Let's try to unpack this paragraph a bit. First, it's characteristic of Keynes to criticize a common sense approach to economics. Clearly common sense is not infallible, but it is curious how often Keynes's thought tends toward paradoxes. In this case, the man in the street is correct: an increase in savings will have the tendency to lower the rate of interest, thereby increasing investment, which assists in the output of capital. As savings increases, lenders have a larger pool from which to borrow; this competition among savers drives down the rate of interest. In addition, this competition occurs--or would occur--on the open market. The grandmotherly care of the central bank, on the other hand, distorts the rate of interest by increasing the money supply. This lowers the rate of interest, true, but it does so without demanding an increase in savings; hence it leads to malinvestment in certain sectors of the economy.

Returning to Keynes: "The independent variables of the classical theory of the rate of interest are the demand curve for capital and the influence of the rate of interest on the amount saved out of a given income; and when (e.g.) the demand curve for capital shifts, the new rate of interest, according to this theory, is given by the point of intersection between the new demand curve for capital and the curve relating the rate of interest to the amounts which will be saved out of the given income." We are told that this is nonsense. For a shift in either curve will necessarily cause income to change. He then walks us through an example to demonstrate that the classical theory must be corrected to account for changes in income. The chart he uses can be seen here.

The general idea is that the rate of interest is determined by the income: "The traditional analysis has been aware that saving depends on income but it has overlooked the fact that income depends on investment, in such fashion that, when investment changes, income must necessarily change in just that degree which is necessary to make the change in saving equal to the change in investment." Even having read this far along in his book, I confess confusion as to this aspect of his theory.

Granted that a change in income could alter the rate of savings, and therefore alter the interest rate, it does not follow that, if I increase my savings out of my unchanged stream of income, I will somehow see my salary reduce--or vice versa. If the investment proves propitious, and allows business to produce more goods at a lower cost, I can purchase these; this redounds to my benefit, but it has no effect on my income. And, in fact, the increased purchasing power is not a short-term benefit.

I have glanced over a matter of some importance. When faced with the notion that the money supply ought to remain constant, so that lending and borrowing can be properly coordinated by the market, Keynes notes: "The wild duck has dived down to the bottom — as deep as she can get — and bitten fast hold of the weed and tangle and all the rubbish that is down there, and it would need an extraordinarily clever dog to dive after and fish her up again.” Unfortunately, this is hardly an argument. It would have been more interesting for him to analyze what would happen if the money supply was kept constant.

The conclusion of this section--the only one in this chapter--is very important, so I will quote it at some length:

For the economic principle, on which the practical advice of economists has been almost invariably based, has assumed, in effect, that, cet. par., a decrease in spending will tend to lower the rate of interest and an increase in investment to raise it. But if what these two quantities determine is, not the rate of interest, but the aggregate volume of employment, then our outlook on the mechanism of the economic system will be profoundly changed. A decreased readiness to spend will be looked on in quite a different light if, instead of being regarded as a factor which will, cet. par., increase investment, it is seen as a factor which will, cet. par., diminish employment.

Here we have Keynesianism in a nutshell. Consumption is the engine which drives the economy. Reducing one's consumption leads to diminishing employment. As George W. Bush explained after 9/11, Americans ought to go to malls to spend money so as to stimulate the economy. Denigrated is the role played by the saver, who allocates funds for capital investment so as to extend the productive process, which provides the things we then consume.

Appendix: Since most of this section deals with extended quotations from Marshall, Pigou and Ricardo--as well as commentary from Keynes--I will refrain from commenting on this section. I did notice, however, that our author was familiar with the theory of interest of Ludwig von Mises as well as F. A. Hayek, who was a good friend of Keynes.

We've made far too many digressions into the realm of Austrian theory to pardon another one, but interested parties can discover the time-preference theory of interest in Mises's Theory of Money and Credit, which was restated in his magnum opus, Human Action, particularly in Chapter XIX.

Timorous Tyrants

2011-02-15T00:29:00.003-05:00

The Gitche Gummee Gamut is shutting down. I had sent in one additional column to my editor, so I'll post it here. It's unfortunate that the website didn't last very long. Selfishly, I appreciated the wider audience; and as an exceptionally lazy writer, a weekly deadline proved useful to my productivity.

But there's another reason the event is unfortunate. All politics is and ought to be local. We like to obsess over whichever bozo will take over the executive branch, but aside from ruining everything, a president is mostly useless. On the other hand the local school board can influence the education of the children who reside in the district--at least in theory. Anyone can write editorials about national politics--I know, because I do it. But to cover the minutiae requires diligence and a drive I can only vaguely fathom.

To a large extent, newspapers have abdicated their responsibility to the local communities; their inevitable destruction is well merited. Still, we'll miss something when the newspapers have gone away; it remains far from clear whether or not the Internet can and will fill this void--though my pessimistic prognostication is that it will fail to do so.

Anyway, here's a rosy column to warm your hearts:

"There are three basic ways to win obedience: by force, by buying consent with wealth, and by persuasion. Each of these three leads us to another level (military, economic, or intellectual) outside the political level." - Carroll Quigley, Tragedy and Hope

It should always be remembered, both by the rulers as well as the ruled, that all government depends on the consent of the governed. As our philosophers tell it, this does not require the threat of force, but in the real world, the implicit danger of violence is ever lurking, cajoling the citizenry into handing over consent. If this be doubted, try avoiding paying one's taxes. Unless one is politically well-connected, the government will force the taxpayer to consent to pay every last penny.

Good government tries to rule by persuasion. In the long-run, any other foundation is unstable. This is especially so when it comes to government by force. Maintaining a semblance of order requires drastic action without regard to ethical sensibilities. Thus Robespierre guillotined his fellow countrymen with impunity, and Stalin imprisoned millions of unfortunate "wreckers". Buying consent with wealth may seem a better option, but this too has its drawbacks. The main problem with this approach is that the government has no wealth of its own; anything it attains must be appropriated from the citizenry. Therefore, only a small portion thereof—what Angelo Codevilla dubbed the ruling class—can benefit from the pilfering. Consent bought can only come at the expense of content stolen from someone else. A witty saying of Frederic Bastiat's is relevant here: "The state is that great fiction by which everyone tries to live at the expense of everyone else."

For a good, which is to say, limited, government, persuasion is not terribly difficult. But if government intends to grow, it must depend on the people remaining ignorant of the harm being done to them. Thus trusting souls may have believed that the bailout of the bankers was for the good of the republic. But while the executives of Goldman-Sachs will no doubt consent to legislation from which they benefit so handsomely, it takes only a little bit of skepticism for the commoner to see that he is no better off than he was before--rather the opposite, probably. From the prospective of those in power, it would have made more sense to have paid off everyone's mortgage. It would also have been cheaper. But the complexities of our fraudulent banking system prevented those who wished to maintain the charade from taking this step. In return for the postponement of a greater recession, the elites gave up an opportunity to reinforce the always shaky consent of the governed.

While we should not discount the prospect of a demagogue rising to give hope to the masses—or, I should say, an effective one, since Obama lacks the gravitas to be a competent demagogue—I want to examine a less obvious route. So long as the people remain insensible to the harm caused to them by their own government, the elites may continue to rule, however tenuously. Hence the need for propaganda, to ensure that the truth must compete against the noble lies of the government. Previously in this space we've examined how the metrics used by the government to gauge the health of the economy have been willfully distorted over time to understate inflation and unemployment and to boost GDP. This is an excellent example of the sort of propaganda which benefits the government.

This approach works well, but for one thing. The Internet has leveled the playing field, reducing the influence of propaganda. These distortions of which I speak have been thoroughly documented on the web. Not for nothing, then, was there talk of an Internet kill switch, recently put into practice, with some success, by the Egyptian authorities during their recent revolution. Hence legislation is again being introduced into the U.S. Senate to inhibit the free exchange of ideas over the web. The supporters of the legislation will no doubt insist that they would only shut down the Internet for reasons of national security. At this point, terrorism is invoked to justify the fondling of children, the torturing of prisoners, the invasion of foreign countries, the indefinite detainment of suspects, as well as other violations of our Constitution, so I'd suggest taking the reasoning with a sizable grain of salt.

As Gary North has pointed out, shutting off the Internet will severely cripple economic productivity. This will cause even more unrest in the masses, so if the Internet is shut off, it will only happen temporarily. Moreover, once the Internet is restored, the threat, such that it is, will reemerge. From the perspective of the rulers, it would be more helpful if the government could simply whisk away a few of the leaders of any potential revolts—PATRIOT ACT them, so to speak, indefinitely. But, as we saw when the government went after Julian Assange of Wikileaks, even this does nothing to obstruct the dissemination of information; that of his organization become readily available on mirror sites all across the world.

I remain very much the pessimist about the future of our country. Conventional wisdom insists that, since the truth is more readily available on the Internet, it will help restore the lost liberty of the people. Yet there is no evidence that people care much for liberty—or truth. There is more than enough information available now to demonstrate the wretchedness of our government. Still, the people remain insensible.

However, in a sense, the revival of the legislation to shut down the Internet is a good sign for libertarians. This is true, not simply because, cut off from a steady supply of pornography and celebrity gossip, the rabble may become roused from its stupor. It is also because the leaders are revealing the extent of their fear of the people. While this may not restrain them from acting against us, it may cause them to overreach. The prospect of a third American revolution is not altogether dim.

Keynes - The General Theory - Chapter XIII

2011-02-14T16:02:00.004-05:00

Using some of the conclusions he made in the previous chapters, Keynes attempts to explain his interest theory.

Section I: Keynes begins by stating that the rate of interest depends on the schedule of the marginal efficiency of capital and the psychological propensity to save. He continues that it is wrong to conclude that, "the rate of interest is the balancing factor which brings the demand for saving in the shape of new investment forthcoming at a given rate of interest into equality with the supply of saving which results at that rate of interest from the community’s psychological propensity to save." Essentially, there is some other factor - that has been glossed over by other economists - that properly explains interest theory.

Section II: Here Keynes introduces us to this other factor, liquidity-preference. Keynes argues that when an individual decides how much of his income to consume now rather than later we are dealing with the propensity to consume. After this decision, an individual must decide what to do with this income for future consumption. Liquidity-preference is the schedule that shows how much of that income should be held as money, and what should be invested. Keynes continues that the rate of interest is not the "price" which brings into equilibrium the "demand for resources to invest with the readiness to abstain from present consumption." Rather, it is the reward for parting with liquidity.

Here Keynes makes the mistake of assuming that humans are incapable of thinking in terms of three margins. Why must a person decide between consumption and saving, and then after determine what to do with the savings? It is much more likely that people decide to consume, invest, and hoard at the same time. Thus, liquidity-preference has no real value in economic analysis. We once again conclude that interest rates are determined by individual time preferences, no more, no less.

Liquidity-preference does have its uses to Keynes, because from his conclusion Keynes deduces that the other factor affecting the interest rate must be the money supply. For if the rate of interest is lowered significantly, the amount of cash the public wishes to hold would exceed the available supply of money. To prove this point, Keynes turns to his trusted mathematical equations. Keynes writes, "Liquidity-preference fixes the quantity of money which the public will hold when the rate of interest is given; so that if r is the rate of interest, M the quantity of money and L the function of liquidity-preference, we have M = L(r)."

Here again, Keynes' analysis fails a thorough examination. As any student of Austrian Economics - or even someone familiar with their theories - knows, Economics is an a priori science. Disregarding this fact, Keynes uses mutual determination to deduce the influence of the money supply on interest rates. When originally discussing liquidity-preference Keynes wrote that the mistake of accepted interest theories lies in their attempts to deduce the rate of interest while neglecting liquidity-preference. Then, as I quoted above, he writes how changes in the interest rate change a person's desire to hold cash, or simply change their liquidity preference. The interest rate can not both be determining and determined by liquidity preference. That completely contradicts the idea that Economics follows cause-and-effect relationships.

Keynes end this section with a gem worth quoting. "Best of all that we should know the future. But if not, then, if we are to control the activity of the economic system by changing the quantity of money, it is important that opinions should differ." Interpreted: Ideally, we should be able to predict the future, but since we cannot we should control the money supply to drive the economy. If that fails, blame everyone for having the same opinions.

Section III: This section is essentially the fine print for his interest theory. For example, Keynes writes, "an increase in the quantity of money may be expected, cet. par., to reduce the rate of interest, this will not happen if the liquidity-preferences of the public are increasing more than the quantity of money." He then follows this same formula for several different scenarios.

Section IV: A simple disclaimer that liquidity-preference as mentioned in this text is not the same thing as the "state of bearishness" in his Treatise on Money. Since I have not read that text, nor do I have any interest in reading it, I will withhold comment.

Section V: Keynes finishes this chapter by introducing us to hoarding. He does not say much on the subject for now, with his main point being the rate of interest is not the reward for not-spending, but not-hoarding. The fallacy of this conclusion has already been demonstrated above.

Weekly Column - 01/26/2011

2011-01-26T20:09:00.001-05:00

This week's column comes early:

"Like any cash-strapped family, we will work within a budget to invest in what we need and sacrifice what we don’t." – President Barack Obama

Attempts to draw parallels can sometimes be more instructive when the comparison is inapt. For while cash-strapped families must reduce expenditures to make a budget, the government merely has to raise the debt ceiling and have the chairmen of the Federal Reserve fire up his printing press. The federal government is not constrained by budgets, and will never be, so long as it has recourse to an endless supply of cash.

It’s true that the government, like the American family, must borrow at interest to meet its budget. It’s also true that these interest rates will climb as the American government goes deeper and deeper into debt. But the comparison ends there. An American who falls into debt may declare bankruptcy—though certain debts, such as students loans, can never be escaped. He thereupon incurs all that bankruptcy entails. To avoid this, he must pay back all that he owes. Congress, meanwhile has no intention of ever paying off its debt; its members know that they will not be held responsible for the decisions of previous Congresses. And the bankruptcy of the nation is certainly of no concern to the congresscritters. So the orgy of spending continues.

The Power of Narrative

2011-01-26T19:37:00.002-05:00

The advantage of having a regular column is that I actually bother to do some writing, as opposed to sitting on my couch reading books. The disadvantage is that in the unlikely event that I write about something timely, it's not always relevant by the time my column is published. So it is with this one, which seems to have gotten lost, but which, having already been written, will be posted here.

"With many similar parables Jesus spoke the word to them, as much as they could understand." Mark 4:33

Just as Jesus taught the crowds using parables, so modern American political discourse involves narratives. The parables were constructed to illustrate a truth which was hidden behind tangled reality. The people were better able to see how one ought to love one's neighbor after hearing of the good Samaritan. Political narratives operate differently: they serve to reinforce an ideology, by ensuring that any facts which may occur can be carefully woven into the narrative. In this way, no event can possibly upset the faithful; any conceivable action only serves to demonstrate the infallibility of the unquestioned ideology.

In the real world, politics is comprised of fallen human beings seeking to enact policies which reflect ideals; in this they often fail because other people possess opposing ideals which reflect apposite ends. The desire to allow the middle class family to retain most of its wealth is inconsistent with the desire to redistribute wealth among impoverished members of the same society. Hence politics is—and must necessarily be—something of a messy affair.

The narrative allows the populace to pretend that things are neat and tidy. On the one side are the forces of good, on the other, the forces of evil; think of Bush channeling his supposed Savior in insisting that anyone is either for or against America. Since this country—and, indeed, any country—is divided against itself, the dichotomy is false. It is easy to pick on Bush, but the left possesses a similar narrative, likewise neat and tidy, and similarly incompatible with the vicissitudes of reality.

To take a recent example: no sooner had the story of the Arizona shooter broke than the journalists insinuated that the act must have been the work of right-wing extremists. The theory was not without plausibility: after all, one of the woman shot was Representative Gabrielle Giffords, a Democrat. Ergo it must have been a crazy Republican, probably one of those Tea Partiers, the craziest of the bunch. That the criminal could fail to possess political motivation, or that a single incident could be insufficient to reinforce the superiority of the leftist position, was utterly beyond consideration.

Alas, the real story is that Loughner is a lunatic. In a piece by Nick Baumann in Mother Jones, a friend recounts that Loughner was angry that Giffords had failed to answer satisfactorily a question which he had posed to her during a 2007 campaign event. The question: "What is government if words have no meaning?" It proved impossible to intelligibly extract political implications from such palpable nonsense. This was unfortunate because the fabricated story fit perfectly into the narrative—compiled in advance for consumption by denizens of the left.

Yet, as is so often the case, the narrative is more important than the facts. The former, which is a creation of man, and therefore mutable, cannot be allowed to change; whereas the latter, having been settled in history, can be misrepresented to conform to the narrative. In short, things are precisely backwards. In this case, both sides—left and right—were compelled to contort themselves, trying to explain how this nut belonged to the other political camp. From the liberal point of view, that this particular incident had no connection whatsoever to the Tea Party did not imply that a specter of right-wing radicalism wasn't haunting America. Paradoxically, it proved it. The lack of Tea Party connection only meant that the next incident would surely evince the piece of missing evidence. Everyone knows that the Tea Party means to kill all the democrats. Why, Sarah Palin, even had targets over the heads of democratic members of Congress. Quod erat demonstratum.

The reality is that members of both the far right and the far left—whatever we mean by these terms—are capable of acts of violence. Of considerably greater importance, despite the vehemence of the rhetoric emanating from all points along the political spectrum, the American people are seldom motivated to commit acts of violence for political reasons. This is unfortunate for the fearmongers in television news, but the facts speak for themselves. We are constantly told that we are more divided than ever, and that the extremists will surely erupt in violence against those who have the temerity to disagree with them. Yet these eruptions remain extraordinary.

When the Lougher story blows over, we will return to our status quo of mutual distrust and paranoia. Eventually, another act of violence will occur, one which may even have political motivation. But while an isolated act will no doubt fuel the fires of antagonism which drives what passes for political discourse, it's hard to see what a single act is capable of proving. If a tea partier shoots up a Democrat's campaign office tomorrow, or someone who listens to NPR does the same, nothing will change, except for the unfortunate few who were personally involved in the hypothetical incident. Liberals recoil at the comparison, but it should be noted that tea partiers have utilized their ideology to attempt the same number of crimes as those who listen to public radio. Any inclination to be concerned over one group more than the other is a result of prejudice in favor of one's narrative. Neither adequately reflects reality.

And yet this is the test of a narrative. When Jesus crafted his parables, he was concerning himself with something true in the human condition. The whole purpose of the story was to make clear this truth. A testament to his success is that these stories are still read today. According to this metric, the political narratives fail. They do not aid us in our attempts to better interpret reality. Instead, they obfuscate facts, which are the only things upon which all parties should be able to agree. Intellectually honest individuals of all political persuasions should be wary of those who wield the narrative as a cover to avoid meaningful thought.

Weekly Column - 01/25/11

2011-01-25T12:45:00.002-05:00

This week's column:

"Knowledge is capable of being its own end." – John Henry Cardinal Newman, The Idea of a University

This was intended to be an essay examining the pros and cons of pursuing a college education. Our political leaders continue to insist that it is imperative that every American obtain a college degree, just as they insisted that every American become a homeowner. This parallel is chosen deliberately, both because it is distinctly possible that the ever-rising cost of a college education is indicative of another bubble—one never knows until it pops—but also because it demonstrates the superficiality of our policy recommendations. Politicians had heard that those who owned homes were more likely to be good members of their respective communities. What better way to improve the livelihood of all and sundry than ensuring that everyone could own his own home? Alas, as it turns out, the importance of home ownership is in the habits instilled during the process; the same characteristics of those who prove capable of working hard so as to save to buy a home redound to the benefit of the community. There is no shortcut to virtue. Attempting to circumvent the mean by which virtue was instilled was exceedingly foolish, even by the standards of American politicians.

So it is with the attempt to bestow college degrees upon everyone. As President Obama notes: "We expect all our children not only to graduate from high school but to graduate from college and get a good-paying job." The reasons for this are clear. Using old data, Obama insists: "On average during your lifetime you will earn a million dollars more if you get a bachelor’s degree." If Helicopter Ben causes the currency to hyperinflate, this may well be true. Yet the purpose of a college is not to churn our graduates who can make more money.

Keynes - The General Theory - Chapter XII

2011-01-24T21:09:00.003-05:00

Since this chapter, The State of Long-Term Expectation, has little to do with economics, Keynes's writing is clearer than usual. Unfortunately, this clarity is devoted to little more than an ad hominem attack on the free market.

Section I: Keynes notes that the entrepreneur must concern himself with "future events which can only be forecasted with more or less confidence." Long-term expectation is then defined as "the state of psychological expectation which covers" these future events.

Section II: After noting that future events are uncertain, he explains that the state of confidence is very important in bringing these about. "But economists have not analysed it carefully and have been content, as a rule, to discuss it in general terms." This is attempt at profundity is typical of Keynes; the reason economists deal with it so little is not that is if of no importance, but that it cannot be measured. Indeed, while the American "state of confidence" is probably very weak presently, this hasn't hurt the sale of gold--or iPads. Keynes is once again guilty of aggregating disparate things.

He also points out: "There are not two separate factors affecting the rate of investment, namely, the schedule of the marginal efficiency of capital and the state of confidence. The state of confidence is relevant because it is one of the major factors determining the former, which is the same thing as the investment demand-schedule."

Section III: Keynes rhetoric is very revealing. For instance, he categorizes successful entrepreneurship as a lottery. Certainly luck plays a role, but an entrepreneur anticipates and responds to consumer demand. It is uncharitable to pretend that his only role is to be blessed by fortune.

Section IV: This can be skipped over without loss.

Section V: Keynes, looking back at The Great Depression, lampoons the role of "speculators" on the stock market. He gives five reasons why the stock market is especially precarious.

He devotes most of his space to the fourth reason. The speculators have ruined things for everyone: "It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise."

This focus on short-term expectation is somehow believed to foil long-term expectations. The former lack, apparently, a basis in reality, to which the latter are preferable. Yet the greater the liquidity, the less likely that the market will over value a particular stock--though, especially in the case of overt fraud, this will still happen from time to time. Keynes insisted that his was a general theory, but his concerns about speculation were devoted purely to the realm of the most recent bubble, namely, the stock market.

Section VI: Keynes writes: "If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise." Again, notice the rhetoric. Certain trading is bad, while other trading is good; we are not given a reason for this.

Most illuminating is Keynes insistence that the people, who obviously have no idea what they are doing, be prevented from using their money as they see fit: "The only radical cure for the crises of confidence which afflict the economic life of the modern world would be to allow the individual no choice between consuming his income and ordering the production of the specific capital-asset which, even though it be on precarious evidence, impresses him as the most promising investment available to him."

Earlier, Keynes had written: "That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive." So the problem is not merely with speculators so much as it is with, well, poor people. Keynes has much less of a problem with allowing the rich to invest their money.

Section VII: Here we come to Keynes's famous "animal spirits":

"Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as a result of animal spirits — of a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. Enterprise only pretends to itself to be mainly actuated by the statements in its own prospectus, however candid and sincere. Only a little more than an expedition to the South Pole, is it based on an exact calculation of benefits to come. Thus if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die; — though fears of loss may have a basis no more reasonable than hopes of profit had before.

This comes in a chapter diametrically opposed to any notion of rationality in the markets. Since it is all a game, it is important that the confidence of man be stimulated so as to keep the charade going. Obscured is an economic reality, which can be recognized by man.

Moreover, an irrational optimism is more dangerous than pessimism. If people are overly optimistic, they will, for instance, build houses where none are needed; this wastes scarce resources. On the other hand, if the government refrains from distorting the market, a fall in prices will eventually bring forth investment. Since man must consume in order to live, the animal spirits must eventually revive.

Section VIII: Having demonstrated his lack of faith in the ability of people to handle their own economic affairs, Keynes turns to omnipotent government to save us from ourselves:

"I expect to see the State, which is in a position to calculate the marginal efficiency of capital-goods on long views and on the basis of the general social advantage, taking an ever greater responsibility for directly organising investment; since it seems likely that the fluctuations in the market estimation of the marginal efficiency of different types of capital, calculated on the principles I have described above, will be too great to be offset by any practicable changes in the rate of interest." Coming at the end of this chapter, I can only call this implicit approval.

Surely the government, investing other people's money, will only do so with the most perfect of intentions. Even bridges to nowhere are evidence of the brilliance of our masters, who would never focus on the next election at the expense of the long-term. Keynesianism is often seen as a moderate path between capitalism and socialism, but we see here that it was far closer to the latter.

UPDATE: One of the recent Planet Money podcasts dealt with one of the examples from this section of the book. Interested parties ought to check it out.

Keynes - The General Theory - Chapter XI

2011-01-17T20:53:00.000-05:00

Chapter XI is the first in a series of chapters on the subject of investment, and this section is the longest in the General Theory. Hopefully Keynes will wrap up some of his loose ends and present his theory in an understandable fashion.

Section I: Keynes begins Chapter XI by attempting to define the marginal efficiency of capital as, "being equal to that rate of discount which would make the present value of the series of annuities given by the returns expected from the capital-asset during its life just equal to its supply price." He then continues with a simple deduction from the principle of supply and demand that when investment increases in a certain type of capital the marginal efficiency will decrease. This will continue until the marginal efficiency of capital is equal to the market rate of interest.

This seems like a fairly trivial concept, but allow me to delve deeper. We can think of the supply price as what a firm would buy the capital goods for, and the expected returns as what it receives for selling either the finished good to the consumers or a higher order capital good to another firm. Thus, the marginal efficiency of capital is the rate of price spreads in the stages of production. From Austrian economic theory, we know that this is precisely equal to the rate of interest. Thus, Keynes misses a crucial aspect of interest theory - that his marginal efficiency is the rate of interest.

Section II: Keynes continues by outlining three ambiguities surrounding the marginal efficiency of capital. None of these ambiguities are of critical importance to his discussion of the marginal efficiency of capital so I will leave them be. If I missed anything of importance in this section please feel free to comment.

Section III: Keynes notes the distinction between the current yield and the prospective yield of a given capital stock is routinely overlooked, which results in confusion surrounding the marginal efficiency of capital. I have not read enough of the literature that was available at the time to know if this is true, but I agree that using current yield in the place of prospective yield will often result in erroneous conclusions. One of the main purposes of an entrepreneur is to foresee future changes, which are accounted for in the prospective yield.

Keynes continues by noting that changes in the value of money will affect the marginal efficiency of capital. He spends a decent amount of time outlining the different situations that will arise when the change in value of money is foreseen or unforeseen. The important point, which Keynes fails to note, is that changes in the value of money are usually foreseen when money is derived from a commodity - say silver or gold. A fiat money system with a controlling central bank is far more likely to affect the value of money, and coincidental the marginal efficiency of capital. One would think that limiting any unforeseen changes in the value of money would be beneficial for the economy as entrepreneurs would be less likely to make errors in forecasting. Keynes neglects to note this point.

Section IV: Here Keynes describes the risks associated with investment. The first being the risk taken by a man when he invests his money in capital. If he incorrectly forecasts the prospective yield of his investment, he will lose money (unless he assumes he will make less money than what actually transpires, in which case he would earn a profit). The second being the risk taken by person A when he lends money to person B or firm C to invest as the individual or firm seems fit. Keynes claims that because both the lender and the borrower are incurring a risk in this case, it is added twice to the pure rate of interest, making investments more costly. I believe Keynes is misguided in that he assumes the borrowing and investment to be one transaction.

For example, if I borrow a friend $100 for a year and charge 5% interest, I expect to receive $105 a year from now. If my friend in turn takes the $100 to buy a lawnmower to start a lawn mowing service, that is a separate transaction. The risk he incurs by investing in the capital to start his business is separate from the risk I take borrowing money to my friend. Thus, the duplication of the risk is not true as two transactions are taking place.

Keynes claims that this doubling of risk is important for understanding trade cycle (business cycle) theory so we will have to wait until he reaches that point in his analysis to see how this so called doubling of risk affects his views of the business cycle.

Section V: Keynes concludes this chapter by arguing that the marginal efficiency of capital is of significant importance because it accounts for future changes, as we have seen through its reliance on prospective yields. He then makes an egregious error by claiming the rate of interest is, "virtually, a current phenomenon." I am not entirely sure on what reasoning he bases this claim, but considering the rate of interest in determined on the time market it must be based on both present and future considerations. Thus, Keynes ends this chapter in a similar manner to how it began, by making crucial mistakes regarding the connection between the marginal efficiency of capital and the interest rate.

Weekly Column - 01/10/11

2011-01-10T13:56:00.001-05:00

This week's column:

"Upon the mount that highest o’er the wave / Rises was I, in life or pure or sinful,
From the first hour to that which is the second, / As the sun changes quadrant, to the sixth." – Dante, Paradiso: Canto XXVI

As Dante makes his way through heaven, he meets Adam, the first man, who thus recounts that he remained in the earthly paradise until his sin caused him to be expelled forever. Thereafter, man was cursed to labor by the sweat of his brow, woman, to bring forth children in pain; humanity cursed Adam and Eve for the frailty they evinced and which we all share.

The frailty was on display on Wednesday, when the new Congress, including triumphant tea party candidates, took the house floor. As Karl Denniger points out, just as, in Dante’s telling, it took Adam from dawn to noon to commit his first sin, so the tea party capitulated in precisely six hours. This is nothing more than a coincidence, of course, but it is an amusing one. As Adam’s fall provides the archetype for human frailty, the great tea party betrayal demonstrates the untrustworthiness of politicians.

Ethical Chaos

2011-01-04T21:45:00.002-05:00

This was intended to be a column, but was unpublished for some reason, so I'll post it here.

“Deprive the taboo rules of their original context and they at once are apt to appear as a set of arbitrary prohibitions, as indeed they characteristically do appear when the initial context is lost, when those background beliefs in the light of which the taboo rules had originally been understood have not only been abandoned but forgotten.” - Alasdair MacIntyre, After Virtue

The slippery slope is a well known logical fallacy. Utilizing it anyway, opponents of gay “marriage” insist that this is a step toward bestiality. Proponents claim that this is ridiculous; the extension of the institution of marriage to homosexuals can be undertaken in isolation. Logically, this seems correct, but it misfires for two reasons. First, while it is true that homosexual relationships had a positive connotation in many western societies—most obviously in ancient Greece—the western conception of marriage confines the covenant to one man and one woman. Gay marriage thus requires a radical reinterpretation of the institution. The second point follows from the first. The moral edifice which made gay marriage unthinkable has crumbled; in MacIntyre's terminology, the initial context has been lost—though not completely—and homosexual relations remain, if anything, a taboo. The implications of this deserve our careful consideration.

Economic issues continue to dominate our politics, so it might seem unusual to devote any time to the issue of gay marriage. Yet there is value in trying to calmly examine an issue before the talking heads have spun it to suit their political biases. Moreover, a high profile incest case has offered us an insight into what may occur when taboos prove insufficient. Columbia University professor and Huffington Post blogger David Epstein has been caught having sex with his daughter. The charge is one felony incest account; if convicted, he will spend four years in prison. Since his daughter was not a minor while the incidents occurred, there is speculation as to whether the charge will stick. As Tracy Clark-Flory points out in a Salon column: “It isn't a clear-cut case of child abuse, and there are no allegations that the three-year-long relationship carried on without the daughter's consent.”

A commenter at the Huffington Post, channeling the Zeitgeist, writes: “I don’t understand how it is a crime.” That it is possible to not understand why communities would wish to prohibit incestuous relations, consensual or otherwise, reveals that, for many in our culture, incest remains merely taboo. The reasons society condemned this behavior cannot be conceived. This is astounding.

Briefly, I think it incumbent on me to explain the libertarian position: consensual relations—sexual or otherwise—between adults should be legal. There are times when the implications of libertarianism can be quite shocking, and this is certainly one of those times. Yet even if incest were not prohibited by law, there would be a very simple way for the community to restrain this type of activity without resorting to government force. To wit, those who have committed incest could be restricted from taking part in the community: shopkeepers could ban them from their stores, neighbors could refuse to associate with them, employers could refuse to hire them, and so on and so forth. That this would be deemed discriminatory reveals the inconsistency of our application of libertarian principles. Deviancy becomes acceptable since the law prohibits intolerance.

If the community were sufficiently sickened by the behavior in question, shunning would produce the intended effects. Like Cain, Epstein would be condemned to be wander restlessly. That this will assuredly not happen does not invalidate the point; it is precisely to build up voluntary associations that the libertarian insists that the State should be rolled back, even in areas, such as this, where it is difficult to see downsides to prohibition.
The Epstein case will be fascinating to follow because it will allow corroboration of my suspicions that the Judeo-Christian ethical edifice has crumbled, leaving us to reap the whirlwind. In the meantime, it's worthwhile to point out, for our lost contemporaries, why the prohibition against incest exists.

In the Summa Theologica (II-II, Q. 154, A. 9), Thomas Aquinas gives four reasons why incest is contrary to reason. First, “because man naturally owes a certain respect to his parents and therefore to his other blood relations”; this respect can no longer exist once the relationship becomes incestuous. Second, since blood relations “live in close touch with one another... opportunities of venereal intercourse would be very frequent and thus men's minds would be enervated by lust.” Third, by marrying someone to whom one is not related, one thereby gains friendships with one's wife's kin; this would be frustrated if one did not marry outside one's family. And fourth, courtesy of Aristotle, a man will have a liking for his kinswoman; it is not good for this affection to become too ardent, which would occur if he had sexual relations with her. It is worth pointing out that, for Thomas, prohibiting incest does not require biblical quotation.

The family is the fundamental social unit upon which all civilization is based. The bonds it inculcates are unlike any others formed in society. Moreover the bond between a husband and wife is substantially different from that formed between mother and son or father and daughter. Incest irrevocably distorts this bond, to the detriment of the family, and, by extension, society. Recall that Oedipus is horrified when he finds out that he has committed incest, even though he had no awareness that he was doing wrong. We've come a long way when one of the most important western texts is becoming incomprehensible to those of us living today. Unless we find and restore the Judeo-Christian context, the taboos will fail. If we have not yet reached it, at this point, we shall find ourselves confronted by complete chaos in sexual relations.

Weekly Column - 11/04/2011

2011-01-04T21:20:00.002-05:00

This week's column:

"The criterion of the scientific status of a theory is its falsifiability, or refutability, or testability." – Karl Popper

Concern over global warming seems confined to worrisome progressives. It requires a bit of sophistication, which its proponents insist its detractors lack; a more important qualification is affluence. Inhabitants of the third world are too busy trying to survive to be terribly bothered about the prospects for planet health many years hence. Even those who live in countries of the industrialized world may find more prescient matters with which to worry themselves. This may be undesirable, but it is also difficult to deny. President Obama found it necessary to adjust his presidential priorities for this very reason: those who are without a job find it hard to concern themselves with something that may possibly occur in the future. Should the economy pick up next year, global warming may again prove an important political issue. But if unemployment remains rampant, politicians will continue to do all in their power to address the short-term problem first.

Nonetheless, it may be a good time to examine the case for man-made global warming. The weather of late has not been conducive to alter the position of those who think Al Gore’s cause célèbre is bunk. Yet while inclement weather is not sufficient to disprove Gore’s case, the cause he champions is nonetheless fatally flawed. It is not so much that I don’t think that the scientists have proven their argument case as that they cannot do so. It is entirely possible that man-made global warming is occurring, but we cannot know that this is so.

Those danged Austrian economists

2011-01-03T22:27:00.005-05:00

When one reflects on the history of Austrian economics, one can't help but think of the story of the early Church. The unorthodox school was started in the late nineteenth century Austria—though its adherents claim that some of its insights were appreciated long before by the Spanish scholastics. Carl Menger and Eugen von Böhm-Bawerk provided the material for the later synthesis by Ludwig von Mises; Nobel laureate Friedrich Hayek was also a member of the school. During this first wave, the Austrians were taken quite seriously, but their popularity waned as defense of the free market fell out of favor. Mises, who was Jewish, was compelled to leave, first Austria, then Switzerland, making his way to the United States. There he reworked his opus, publishing Human Action to little fanfare in 1949.

It would be a misnomer to insist that things looked grim for the Austrian school, because there was no school at this time: it was just Mises. But the last knight of liberalism managed to secure a job teaching at NYU through the Volker fund. The disciples he gathered there were able to ensure that his system would not be regulated to the dustbin of history. Today, the Ludwig von Mises Institute provides articles, books and courses furthering the cause of the Austrian school of economics. Thanks to the advocacy of congressman Ron Paul, the teachings of this school are reaching a large audience.

Enter Christopher Ferrara with his book, The Church and the Libertarian, in which he seeks to combat the errors of the Austrians, be they economic or ethical. He also provides a defense of Church teaching, utilizing various encyclicals from Rerum Novarum through Caritas in Veritate. This Ferrara does exceedingly well. His attempts to correct the errors of the Austrians, however, are less successful—though here, too, he makes some valid points.

To understand Ferrara's criticism, we have to know a bit more about the Austrians and their system of economics. They insist that economics is an a priori science, deducible from some basic axioms about man, most importantly that humans act to satisfy wants with scarce means. An entire corpus of thought has emerged from the careful deduction of Mises and his disciples. However, because the science is a priori, it cannot be disproved by empirical evidence; the Austrians insist that any criticisms must be leveled at the theoretical edifice they have erected.

One of the staples of Misesian thought is that, in economics, value is subjective. When I exchange my money for a beer, I do so, not because the beer's value is equal to the money I hand over, but because I value the beer more than the money; contrariwise, the bar values my money more than the beer. It follows that any non-coercive exchange is mutually beneficial; despite their supposed value neutrality, there is a clear preference for allowing such exchanges to take place by Austrian adherents. One of Ferrara's better criticisms is that, since man must work in order to live, he may be compelled to work for a pittance, even if the wage is far from just. In other words, compulsion might not always come from the State.

Mises most famous—or infamous—disciple, was Murray Rothbard, who took the Misesian approach further than the master himself, waxing eloquently in defense of anarcho-capitalism. Rothbard makes use of the natural law tradition, and thus has a certain appeal for Catholics—or, at least, Thomists. However, he reinterprets the right to property, conditional for St. Thomas (Summa Theologica II-II, Q66, A7) as an absolute right. Rothbard was no doubt concerned that a conditional right to property would allow statism to sneak in the back door. Yet he forgets that the right to property stems from the right to life, without which it is bereft of meaning. Moreover, as Ferrara points out, Rothbard's conception of rights fails to consider the duties incumbent upon us in the exercise of these rights: "Gone are the first precept of the natural law—to do good and to avoid evil—along with the Ten Commandments." Rothbard's curious interpretation leads him to some equally curious conclusions, as that a pregnant woman has no obligation to her child, born or unborn. Such teachings should be intolerable to Christians everywhere.

If Ferrara is sound in his criticisms of Austrian ethics—he similarly disposes of Mises's utilitarianism—he seems to have failed to grok some essential components of Austrian economics. It does not follow that, because the school has made errors, none of its teachings can be of use to the Church. Yet that is the impression one gets in reading some of the strange, and incorrect, categorizations of Austrian tenants.

For instance, the Austrians teach that preferences can be ranked on ordinal scales. As such, any statements we make about preferences will be qualitative, not quantitative. Presently, I prefer writing this review to, say, reading Chesterton. This does not mean that my preference for writing as against reading Chesterton has some sort of mathematical ratio, only that the former exceeds the latter. Attempting to comment on this, Ferrara writes: "The attempt to create a ordinal rankings in such cases produces complex set operations expressed in mathematical symbols, charts ranking all possible combinations of goods and the needs they satisfy in order of preference, and Venn diagrams expressing the "set difference" between subsets of wants." One wonders whether Ferrara managed to read any Austrian economics at all. Perhaps the definitive characteristics of Human Action is the total absence of either equations or graphs in a nine-hundred page economic treatise. Criticizing the Austrians for bringing mathematics into the matter would be like chiding Keynes for too much clarity in his General Theory. In fact, it is precisely because of the inability to extract equalities from subjective scales of utility that Mises argued that economic calculation in a socialist commonwealth would be fundamentally impossible.

Ferrara similarly stumbles in his critique of Austrian business cycle theory. For those inclined, the best explanation comes from Rothbard's America's Great Depression, available at the Mises website. Briefly, the combination of an inflationary central bank and the system of fractional reserve banking allows money to flow into the economy. Entrepreneurs mistake this for an increase in real wealth, and a cluster of business errors manifests itself in a particular sector of the economy—thus we had a housing boom, especially in cities such as Las Vegas. When the central bank tightens the money spigot, the entrepreneurs realize that they have made mistakes; resources have been misallocated, and the economy must rebalance itself—housing prices must fall and those employed building houses must find other jobs. Ferrara insists that greed alone was sufficient to cause the housing bubble, forgetting that the money needed to originate somewhere in order to drive prices up to bubble levels.

Undoubtedly there was much greed in certain sector of the economy; but there was greed in other non-bubble sectors, too, so greed alone cannot be sufficient cause. Moreover, not everyone who bought a house at bubble prices was greedy; the pernicious effects of Federal Reserve policy wrought destruction even on honest entrepreneurs and consumers. It's difficult to insist that Austrian teaching was not thoroughly vindicated by the latest crisis. Moreover, since the entire system of fractional reserve banking is inherently fraudulent, and therefore immoral, one would think an orthodox Catholic would see the Austrians as allies, at least on this point.

One last caveat: at times, Ferrara's categorization of the Austrians borders on caricature. He writes: "Nowhere, however, does one find an Austrian recognition of the intrinsic affinities of Big Business, Big Government and Big Finance." Yet, as the man he denigrates as Pope Murray I writes in For a New Liberty: "Big business support for the Corporate Welfare-Warfare State is so blatant and so far-ranging, on all levels from the local to the federal, that even many conservatives have had to acknowledge it, at least to some extent." The Austrian emphasizes reducing the scope of Big Government not necessarily because he is insensible to the abuses of Big Business, but because he believes that removing Big Government support would render those abuses negligible.

Ferrara's righteous indignation prevents him from seeing that which is good in the teaching that so upsets him. The Austrians are quite sound on money, and there is nothing in business cycle theory that necessitates condemnation by the Magisterium. This mars the quality of his book. Yet there is undeniably much good that remains. His demolition of Rothbard's system of ethics is total, and he offers a thorough defense of Catholic social teaching, as well as some non-political steps toward reform. His book is a must for anyone, Catholic or otherwise, who has fallen under the influence of Mises and his followers.

On Jane Austen and modern marriage

2010-12-15T21:02:00.004-05:00

It is probably not in the interest of maintaining a reputation for manliest to admit that one is a Jane Austen fan. Then again, one would first need a reputation to diminish.

The criticisms are well-known: she writes about the same subject--marriage--and the same group of people, traveling within the same narrow social circle. These strike me as uncharitable. There is only one Shakespeare, whose imagination could transcend the narrow range of circumstances with which he was familiar. Austen was well aware of her limitations; she wrote beautifully based on what she knew. We cannot be sure she would have written so well had she attempted something outside of her purview.

Like any good novelist, Austen tells the truth. Certain of her characters may lose sense in looking at love and marriage, yet the writer never does. We might expect an unmarried woman--for Austen never married--to be bitter about the institution; alternatively, she might be disdainful over something which she considered beneath her. We find neither. She heartily defends marriage, not through exhaustive asides, but through the characters in her stories.

In The Age of Napoleon Will and Ariel Durant observe, "She perceives that the basic aspect of life is the conscription of the individual into the service of the race; that the crises of government, the conflicts of power, even the cries for social justice are not as fundamental as the repeated, unconscious effort of youth to mature and be used and consumed." (p. 412)

If we use this quote to examine how well our current culture is faring when it comes to the basic aspect of life, we can only conclude that we are doing very badly. This has been a near constant theme of this blog, but I wish to set aside the usual pronouncements of demographic doom to look closer at marriage with the assistance of Miss Austen.

Austen's ideal is clearly love and a good marriage. The former we are to understand as more than a fleeting passion, while the latter comprises a good home and a considerable income so that the wife would not be forced to work. This antipathy toward labor did not stem from laziness or decadence; on the contrary, Austen was Aristotelian in her ethical conception: a certain amount of financial security was required to provide the leisure which made a life of virtue possible. It is true that Austen's characters tend to be fond of balls. But these are irregular and therefore important; they are in full accordance of her conception of the virtuous life.

Unless we are extraordinarily wealthy, this idea is totally foreign to us. For all I know it may be foreign even to them, but it is at least possible for the very rich to live the virtuous life as Austen sees it. The poor can obviously take no part in this vision. Stranger, perhaps, is that the middle class is similarly ill disposed to live thus. Or rather, it would take a radical transformation of habit and behavior to make this a possibility.

While there are some exceptions, for the vast majority of middle class women, the primary objective is not to marry well, but rather to go off to college to obtain a degree so as to obtain a career. At some later point, marriage becomes the desired goal. Yet even if women wished to pursue Austen's route of virtue, it would be virtually impossible to do this, first, because these women still want their careers; and second, because, for all that has changed in the last two hundred years, it's still much more difficult for an aging woman to land a man who possesses the requisite wealth and status. He'd just as soon marry her younger sister.

Austen understood this. While the goal of her female characters is to maintain an ideal marriage, the sensible ones express awareness that the ideal may not come to pass. Since she's sees life as comedic, we don't see her characters end unhappily--this is true of the novels I've read; it may not be true for all of them--but that this possibility exists there can be no doubt.

The idea that men will marry younger women is so well grounded that only a rabid feminist could dispute it. But there is something undeniably cold about facts expressed bluntly. Like any modern heresy, feminism denied the existence of scarcity, and hence, opportunity cost. It preached that one could go to school, have a career, and marry the man of one's dreams--who just happens to be rich. There is no special program to follow; simply follow one's heart and all will work out in the end. This is nonsense, of course. Setting aside years of one's life to attend school and start a career has a real cost; during that time, one cannot be finding a husband. True, one can have a career and a husband, but even this will necessitate some sacrifice, for one or the other goals. Frequently, it seems that the husband finding is put off until later, an excellent illustration of the concept of opportunity cost.

It's true that the cost exists for men, too, but it runs in the other direction. Eight years ago I was a nerd who fiddled with a computer and read too many books. Now I'm a software engineer who still reads too many books but drives a nicer car. The investment in a college education was, for me, a good one--both economically and otherwise. If marriage is not in my near future, my prospects haven't been lowered due to the experience.

It would be false if I insisted that I am viewing this issue dispassionately. While it's true that the sorry state of marriage presents a large problem for society at large, this particular issue effects me at a personal level. Like Austen, I am a defender of marriage as an institution. Unlike Austen, I live at a time when the benefits of marriage are becoming much less clear, at least as far as the man is considered.

For the novelist, it was clear that marriage has the potential to bring the woman a great deal of good. Unhappy marriages were distinctly possible, but divorce was unthinkable, for a variety of reasons, one of which was that even the least propitious of unions still brought the woman some good. (We set aside instances of outright violence; no one credibly claims that the fifty percent divorce rate is due to an epidemic of spousal abuse. )There was also the fact that the woman gave her assent, and therefore bound herself--a notion increasingly alien in our culture of no fault divorce.

The benefits for men were similarly clear. But in this respect we've seen tumultuous changes since Austen's time. Setting aside the comparative qualities of the modern American female, the institution itself has been altered. The marriage is more likely to end in divorce, most initiations of which begin with the woman. The man is thence taken to be raked over the coals, courtesy of the family courts. He is to continue to slave away for his children, without being able to see them when he wishes.

Of course, this isn't the fate of all men. But it does happen, and has been happening at a disconcerting rate; wounded men have begun cropped up on the Internet, counseling younger men to avoid marriage. There are a large number of blogs devoted to the topic of guiding men through the pitfalls of marriage, chiefly through game and avoidance. This phenomenon is too large to be ignored. If the solutions offered fail to satisfy, they nonetheless reveal a deep problem with relations between the sexes.

As a proponent of marriage, I find this trend alarming. If men refuse to marry, society is well nigh doomed. But it is preposterous to simply blame men for not wanting to commit. Until the institution itself is reformed, it is perfectly rational to be suspicious of the raw deal modern marriage offers. As a traditional Catholic, the risk is lowered--traditional Catholics don't believe in divorce. So long as I marry within the fold, so to speak, marriage remains an option; but it is a concern even for me.

It is far from clear if Austen would still wield her pen as a defender of marriage were she alive and writing today. I have my doubts.

Weekly Column - 12/14/2010

2010-12-14T15:51:00.003-05:00

This week's column was deemed publishable:

"In a society where truth becomes treason, we are in big trouble." – Congressman Ron Paul

It is a common misconception that there is little difference between the conservative and the libertarian. While the former is critical of some aspects of government, only the latter is consistent in wishing the State to be severely limited. Conservatives are on solid ground when they criticize the government for its inefficiencies and its propensity to violate the rights of the citizenry. But when it comes to the military, for some reason, these principles—if we can stretch the term to include something which is abandoned so readily—are renounced in favor of a fervent defense of all things Empire.

The latest incident involves Julian Assange, editor of WikiLeaks. Assange has released about 900 formerly secret cables—the 250,000 number which is being reported is false as the rest of the cables are encrypted, and therefore unreadable—which paint a sordid picture of the inner-workings of the American government. Many of the cables are still encrypted, and the sheer enormity of the material has made it difficult to cull the documents for details—though Antiwar.com and Glenn Greenwald, have been doing good work on this front. Nonetheless, conservatives are up in arms over the revelations, which allegedly hurts the mission of "the troops", the sacrosanct symbol of modern conservatism.

Keynes - The General Theory - Chapter X

2010-12-11T20:07:00.003-05:00

I'm going to say right off the bat that this chapter was pretty confusing. As such, I'd be indebted to anyone who can point out anything I've missed or just plain gotten wrong. Here goes.

Keynes introduces us to his multiplier: "For in given circumstances a definite ratio, to be called the Multiplier, can be established between income and investment and, subject to certain simplifications, between the total employment and the employment directly employed on investment (which we shall call the primary employment)." We'll see shortly that his idea of investment is not what we might suspect by the term, but more on that in a moment.

Section I: Another term is introduced, the marginal propensity to consume, which is defined as: dC_w/dY_w.C_wis the consumption in terms of wage-units and Y_w is income in term of wage units. As usual, Keynes is doing his best to confuse us. All he's saying here is that man spends some percentage of his income; if I make 50 grand a year and I spend 45 grand, then my marginal propensity to consume is 9/10. Actually, as Keynes defines this in terms of wage unit, we cannot even say this much, but Keynes forgets his own definition and treats this propensity as if it were defined in monetary terms, so we can be forgiven the mistake.

From calculus, we know that the d is supposed to represent a rate of change; this is curious because Keynes tells us that "This quantity [the marginal propensity to consume] is of considerable importance, because it tells us how the next increment of output will have to be divided between consumption and investment." Obviously there is no such law. I can increase my propensity to consume by spending my next paycheck at the casino; I could also decrease it.

Using some math, Keynes tells us that: "we can write ΔY_w = kΔI_w, where 1 - (1/k) is equal to the marginal propensity to consume." He then proceeds: "Let us call k the investment multiplier. It tells us that, when there is an increment of aggregate investment, income will increase by an amount which is k times the increment of investment."

It's not immediately clear what he's done here. As I_wstands for investment, he's simply written the same equation a bit differently. In my previous example, we noted that my marginal propensity to consume is 9/10; using this, as well as the amount of wage units I spend on consumption, we can arrive at my income. Keynes is doing something similar with his multiplier by using the amount of money I invest--5 grand--and, using the multiplier, arriving at my income. The precise importance of the multiplier escapes me. Keynes can do math, but he's a lousy economist.

Not only is the multiplier worthless, it's also essentially arbitrary. Hazlitt points this out in The Failure of the New Economics, but we could make any division we wish and then create a multiplier based on this division. Let us say that I spend 50 a year on socks. The sock multiplier is then 1000. We can now use this fact to stimulate the economy through "investment" in socks by the government.

If the marginal propensity to consume is 1, then the multiplier becomes infinite. If the people in an economy never save at all, it will only be necessary for the government to invest the smallest amount and full employment shall reign. Here again we see Keynes's preposterous hatred of the saver rear its ugly head.

Just what happens when the savings rate becomes negative is anyone's guess. I suppose the multiplier becomes negative and any "investment" undertaken by the government hurts the employment rolls. At last, truth can be extracted from something Keynes has said.

Section III: The multiplier is an idea Keynes took from someone named Kahn. But his multiplier is different as it deals with employment. No matter. Keynes can make the necessary assumption to ensure that these will actually be the same. Whether or not these assumptions are well founded is irrelevant, since the idea of the multiplier is patently absurd.

Keynes writes: "It follows, therefore, that, if the consumption psychology of the community is such that they will choose to consume, e.g., nine-tenths of an increment of income, then the multiplier k is 10; and the total employment caused by (e.g.) increased public works will be ten times the primary employment provided by the public works themselves, assuming no reduction of investment in other directions." Since the marginal propensity to consume can be measured, we need only use it to find the "multiplier", after which the government knows how much to "invest" to bring the economy to full employment. If our multiplier is 10, and there are 10 million works unemployed, if the government employs the first million, the private sector will pick up the slack for the other nine.

A few points here. First, it's important that Keynes offers no conditions as to what sort of investment need occur. Presumably, full employment can be restored whether the unemployed are set to work digging holes in the ground--and filling them up again--or helping build roads. Only an ignoramus would be concerned with what is being produced; the important thing is to get people up and consuming.

Second, Keynes doesn't tell us whence this investment will come. If the money comes from taxes, this may cause a reduction in the propensity to consume, thereby decreasing the multiplier--according to Keynes. If the money comes from the printing pressed of the central bank, we would expect inflation, although he tells us that: "When full employment is reached, any attempt to increase investment still further will set up a tendency in money-prices to rise without limit, irrespective of the marginal propensity to consume; i.e. we shall have reached a state of true inflation." We'll deal with his definition of inflation later; for now, we note that it can only apply if full employment has been reached; and then it occurs suddenly all at once.

Third, we should be able to verify whether or not this works. And we see that Keynes does try to do this a bit later.

Section III: Keynes clarifies that the multiplier may not always take full effect: "If, therefore, we wish to apply the above without qualification to the effect of (eg.) increased public works, we have to assume that there is no offset through decreased investment in other directions,-and also, of course, no associated change in the propensity of the community to consume." He then goes on the sketch out some of the reasons, but as an implementation of Keynesian policies never seems to produce anything akin to the multiplier effect, I think it clear that government investment causes so many disparate changes in the economy as a whole that we can't possibly list them all. Keynes's theory assumes that government may act in a vacuum, but we know that every economic action undertaken produces innumerable effects on the other economic actors.

Section IV: I don't find anything worthy of especial comment in this section.

Section V: Using the little data available, Keynes can attempt to verify his theory. "Taken in conjunction with estimates of national income these [numbers] suggest, for what they are worth, both a lower figure and a more stable figure for the investment multiplier than I should have expected. If single years are taken in isolation, the results look rather wild. But if they are grouped in pairs, the multiplier seems to have been less than 3 and probably fairly stable in the neighbourhood of 2.5. This suggests a marginal propensity to consume not exceeding 6o to 70 per cent. — a figure quite plausible for the boom, but surprisingly, and, in my judgment, improbably low for the slump." In other words, the marginal propensity to consume has absolutely no relation to employment numbers. Don't think that the inability of the data to confirm his theory would slow Keynes down for a bit. Not in the least.

Section VI: Here we have a rhetorical aside, and a reminder that Keynes can be a clear an engaging writer when he takes the time to do so. Unfortunately, the subject of this section is an attack on gold. Since gold is and has been a valuable commodity for the purposes of economic exchange, I have little doubt that it will continue to be useful to humans for quite awhile, certainly longer than our fiat currency. It shall outlast the influence of Keynes himself.

Keynes - The General Theory - Chapter IX

2010-12-11T12:24:00.002-05:00

Section I: Having dispensed with the "objective" factors, Keynes moves onto the subjective factors which determine the propensity to consume. He lists eight objects "which lead individuals to refrain from spending out of their incomes":

(i) To build up a reserve against unforeseen contingencies;

(ii) To provide for an anticipated future relation between the income and the needs of the individual or his family different from that which exists in the present, as, for example, in relation to old age, family education, or the maintenance of dependents;

(iii) To enjoy interest and appreciation, i.e. because a larger real consumption at a later date is preferred to a smaller immediate consumption;

(iv) To enjoy a gradually increasing expenditure, since it gratifies a common instinct to look forward to a gradually improving standard of life rather than the contrary, even though the capacity for enjoyment may be diminishing;

(v) To enjoy a sense of independence and the power to do things, though without a clear idea or definite intention of specific action;

(vi) To secure a masse de manoeuvre to carry out speculative or business projects;

(vii) To bequeath a fortune;

(viii) To satisfy pure miserliness, i.e. unreasonable but insistent inhibitions against acts of expenditure as such.

There are two things to note here. First, the list is essentially arbitrary. We could very easily come up with other reasons a man may not spend his money, or we could combine some of the reasons Keynes gives to reduce his list from eight to a more manageable number. Second, Keynes leaves off an important reason, namely that the currency is deflating; by refraining from spending, the consumer hopes to get a better deal in the near future. It's very clear that Keynes frowns upon this sort of behavior, but there are a variety of reasons a man may refrain from spending, many of them quite rational.

He also offers some reasons industry accumulates savings, but I don't see how this this list is of much importance, so I'll skip over it.

However, a bit further down we find this tidbit:

Corresponding to these motives which favour the withholding of a part of income from consumption, there are also operative at times motives which lead to an excess of consumption over income. Several of the motives towards positive saving catalogued above as affecting individuals have their intended counterpart in negative saving at a later date, as, for example, with saving to provide for family needs or old age. Unemployment relief financed by borrowing is best regarded as negative saving.

We can see here an adumbration of Keynes's solution to the unemployment problem. But it's worth noting that while consumption can be greater than income, it can only do so at the cost of savings. When the government cuts checks for the unemployed, if the money came via taxation, the taxpayers are financing this consumption; if the money came via printing by the central bank, anyone who uses the currency finances this consumption through the degradation of the currency brought about by inflation.

In a credit based economy, it may seem as if we can increase consumption beyond income, but this is only apparent. We'll cover this in further detail when we discuss the "multiplier", but the key point is that consumption requires production. It does not matter how much money is doled out for the purposes of consumption, if there have been no goods produced for the consumers to purchase. But more on this later.

Section II: Keynes has not yet given us his definition or theory of interest. This will be covered later in the book. But he does offer us this explanation:

The influence of changes in the rate of interest on the amount actually saved is of paramount importance, but is in the opposite direction to that usually supposed. For even if the attraction of the larger future income to be earned from a higher rate of interest has the effect of diminishing the propensity to consume, nevertheless we can be certain that a rise in the rate of interest will have the effect of reducing the amount actually saved. For aggregate saving is governed by aggregate investment; a rise in the rate of interest (unless it is offset by a corresponding change in the demand-schedule for investment) will diminish investment; hence a rise in the rate of interest must have the effect of reducing incomes to a level at which saving is decreased in the same measure as investment. Since incomes will decrease by a greater absolute amount than investment, it is, indeed, true that, when the rate of interest rises, the rate of consumption will decrease. But this does not mean that there will be a wider margin for saving. On the contrary, saving and spending will both decrease.

Based on this theory, a reduction in the rate of interest would increase both saving and spending, much to the benefit of the economy as a whole. There is a good deal of empirical evidence which suggests that this is absurd, but let us take a theoretical view of interest to determine if Keynes is wrong.

In a free market, the interest rate is determined through borrowers and lenders. The former wish for this rate to be low, while the latter desire that this rate be high. If an economy has many savers, the borrower will have little trouble attaining a low interest rate, as the lenders will compete amongst themselves to secure an interest payment. Contrariwise, if the economy has many borrowers, the savers will be able to attain a higher rate of interest, as the borrowers will have to compete amongst themselves to secure a loan. Thus an increase in savings tends to lower the interest rate, while a decrease in savings tends to raise it, precisely the opposite of what Keynes claims.

Of course, a low interest rate is a signal that now would be a good time to secure a loan; this has the tendency to create borrowers, thereby increasing the interest rate. While the interest rate will naturally fluctuate through the coordination of borrowers and lenders, this doesn't discount the manner in which incentives direct the interest rate.

Since this chapter was short, I will try to put up a post on the next chapter later this weekend.

Keynes - The General Theory - Chapter VIII

2010-12-07T15:45:00.000-05:00

Chapter VIII is the first of three relating to the propensity to consume. In this chapter Keynes discusses the objective factors which affect the propensity to consume. These factors are as follows:

(I) A change in the wage-unit - Keynes argues that consumption is more a function of real income than of money-income, and because of this changes in the wage unit lead to changes in consumption. He continues that, "we have already allowed for changes in the wage-unit by defining the propensity to consume in terms of income measured in terms of wage-units." Thus, any effect a change in wages has on the propensity to consume has already been imputed in the definition.

(II) A change in the difference between income and net income - It is important to recall Keynes' distinction between income and net income for this section. If we look back to chapter VI, we see that Keynes defines income as the "excess of the value of his finished output sold during the period over his prime cost." Net income - according to Keynes - is the portion of income available for consumption, or income adjusted for the factors outlined in the discussion of chapter VI (i.e. windfall loss and supplementary cost). Given these definitions, Keynes continues that there exists a stable relationship between the two, so any change in income usually corresponds to a change in net income based on this relationship. However, if net income increases and is not reflected in a change in income, this will affect the propensity to consume. This seems to make sense, if a normally reckless spender sees a decrease in his net income he may become more frugal. Practically, this is rarely seen as the obscene amount of debt in our society shows profligate people will spend money whether or not they possess the means to do so.

(III) Windfall changes in capital-values not allowed for in calculating net income - Keynes believes this factor to be much more important in modifying the propensity to consume than the previous one, because it is not related to income by some stable function. Keynes writes, "the consumption of the wealth-owning class may be extremely susceptible to unforeseen changes in the money-value of its wealth." Keynes is arguing that when the wealthy - he is not specific on what it means to be a part of the wealth-owning class - reap an unforeseen increase in money, they will strongly alter the propensity to consume in the short run. This also is susceptible to a practical criticism, as Eric has pointed out previously our Father would be highly unlikely to increase his spending if he won the lottery.

(IV) Changes in the rate of time-discounting, i.e. in the ratio of exchange between present goods and future goods - In fewer words, Keynes is discussing the effect of the interest rate on the propensity to consume. Keynes argues that in the short term any change in the interest rate will be highly unlikely to change the propensity to consume, but any long term change in the interest rate is capable of altering societal habits and ultimately affecting the propensity to consume. Since the interest rate affects investment decisions, it seems to follow that when people increase investment current consumption will fall. There will always be people who will consume almost all of their income no matter what the interest rate, and others who will favor saving and investment no matter how low the interest rate. Thus, individual have their own time preference which is reflected in the interest rate, but to say that this leads to a connection between the interest rate and society's propensity to consume - a term that has very little meaning - is a stretch.

(V) Changes in fiscal policy - This is a fairly simple point. When the government intervenes in the economy and people's lives through taxation, it is going to affect the amount of income individuals can devote to consumption. If a portion of your income is seized by the government every year, you are obviously not going to be able to buy an PS3 with that money. Keynes reveals his fondness for government intervention when he states, "If fiscal policy is used as a deliberate instrument for the more equal distribution of incomes, its effect in increasing the propensity to consume is, of course, all the greater." Just take money from the productive and give it to the poor to spend on consumer goods and the economy will grow forever.

(VI) Changes in expectations of the relation between the present and future level of income - Keynes, briefly states that although this factor may affect individual propensities to consume, it will most likely average out for the community as a whole.

After discussing these six objective factors, Keynes argues that the propensity to consume is a fairly stable function. Given that changes in the wage-unit are already imputed in the calculation of the propensity to consume, the factors exerting the most influence are windfall changes in capital values, long term and significant changes in the interest rate, and fiscal policy.

In the next section, Keynes looks past the factors which affect the propensity to consume in order to determine the shape and behavior of the function as a whole. His first conclusion is that as income increases, the gap between consumption and income widens. This is an observable fact, as a certain portion of one's income must be spent on the essentials, food, shelter, clothing, etc. If these comprise 95% of one's income their is little room for saving, especially if they buy the new big screen tv. Conversely, if these essentials comprise 10% of a man's income he will have room to consume luxuries as well as save a large portion of his income.

In the last section, Keynes steps away from the propensity to consume in order to look at investment because net income is equal to consumption plus net investment. Changes in investment patterns can cause a change in consumption, thus relating back to the propensity to consume in the end. Keynes goes into an empirical analysis of investment in the United States from 1925-1933 and Great Britain from 1928-1931. In the U.S. net capital formation falls from $23,021 to $1,237 in 1932. Until 1929, net capital investment remained at or above $23,000. According to Keynes, the problem is that "the deduction for entrepreneur's repairs, maintenance, depreciation and depletion remained at a high figure even at the bottom of the slump." This leads to a heavy drag on the propensity to consume even under conditions when the public is ready to consume a large portion of its income. Keynes is blatantly wrong in his analysis of the Great Depression, neglecting the fact that the majority of the capital invested during the 1920s was not real savings and thus created the bubble that led to the bust. I will refrain from a discussion of business cycle theory for the time being, but it is interesting to note Keynes' analysis of the time.

Keynes goes on to postulate that "financial prudence" - saving money for future use - lowers aggregate demand and harms employment. He continues with the claim that there must be "sufficient unemployment to keep us so poor that our consumption falls short of our income by no more than the equivalent of the physical provision for future consumption which it pays to produce today." I fail to see the logic in the popularity of an economist who believes the only way to avoid economic problems is to keep everyone poor. Keynes believes that if we get too rich, we will increase savings and investment until we have built all "the houses and roads and town halls and electric grids" that will ever be needed. What then are we to do? I think Keynes problem is that he does not begin his analysis from the point of view of the individual, as Mises demonstrated is essential to economic analysis. If we build all the roads, the consumers will demand better roads. Consumers will always look to better themselves, and entrepreneurs will always exist to satisfy those demands.

Try 'Em and Hang 'Em

2010-12-05T16:24:00.003-05:00

This week's column was deemed too extreme for the paper. I understand that there are downsides to publishing radical commentary, and respect my editor's wishes. But since I've already written it, I'll post it here:

"It is terrible to contemplate how few politicians are hanged." - G.K. Chesterton

I run the risk of being thought sensational for starting a column with such an egregious quote. Good citizens are to know that the death of any public official, however mundane, is to be regarded as a tragedy. No matter the mistakes our leaders may have made—for it is to be understood that these morally superior beings could never commit crimes—we are to weep dutifully should they let slip this mortal coil. To argue for hanging outright is a far graver offense—probably treasonous.

The whole of the argument against punishing politicians depends on never applying the law to those who enforce it. Whether it's policemen who go free after shooting innocent people, or corrupt Congressmen who refuse to pay the taxes which fund their pet programs, authority is seldom held to the same standard imposed on the rest of us. This is very telling, for it demonstrates very clearly that, while the powers that be expect the peasantry to adhere to every jot and tittle of the law, they view themselves as above it.

If the object of the rulers was to instill virtue in the citizenry through the vehicle of law, it would be incumbent upon them to demonstrate respect by following the law themselves. Indeed, a case can be made that our leaders should be held to an even higher standard. For while the disinclination of the citizenry to follow a particular law can be altered through stricter penalties, once let the politicians ignore a law and it will become acceptable for it to be ignored in perpetuity.

In hanging politicians it can be difficult to know where to start. But then the reverse problem emerges: so many politicians are guilty of heinous crimes that we'll need more rope. Let us begin with the former Commander-in-Chief, that evil man, George W. Bush. It is to the eternal shame of the American people that we elected him, not once, but twice. In his recent book, which is selling like Mein Kampf, but which really ought to be compared to the non-existent memoirs of Commodus, he discusses his handling of the war in Iraq. This disastrous foreign policy misadventure has been written about incessantly over the last several years; there is no need to rehash the arguments against the war, or the paucity of the evidence which led us to undertake it.

But it is worth dwelling on the fact that no senior official has suffered appreciably for this nightmare foisted upon the American and Iraqi people. Oh, it's possible a few of them have consciences, and therefore lose sleep over the lives they've helped destroy; but no external punishment has been exacted, save to a few peons at Guantanamo. If starting a war under false pretenses isn't grounds for hanging, I'm not sure what is. Surely someone should be held responsible for the death and destruction. If a private citizen committed vigilante justice against a sex offender, he would still be tried, and it would require a sympathetic jury to acquit him for a righteous act. But start a war in which trillions of dollars are spent fruitlessly and thousands upon thousands die, and you get a nice little book tour.

Likewise with the current president. Republican rhetoric about Obama is so overwrought as to almost cause one to pity the man. The crucial thing to remember about Barry is that, like Bush, he's out of his depth. Bush was able to hide his shallowness through a team of Machiavellian advisors. Not so Barry, who is a clown surrounded by lesser clowns. Nowhere is this more evident than in the continuation of the wars in Afghanistan and Iraq. There is no rationale offered by the administration for the further shedding of blood. The wars continue because ending them might be politically disastrous; such is the banality of evil of which Hannah Arendt wrote. People die because hope-and-change lacks the courage to alter the State's policy of warfare. The failure to try Bush and his administration means that Obama will never be tried for his complicity in the crimes against the Afghani and Iraqi people.

Hanging a president would be an excellent precedent and a notable step towards the day when it becomes possible that an honorable man is elected to that position. But there are other criminals besides presidents. There is, for instance, Congress, who has been complicit in the Bush/Obama wars. There is also John Pistole, the head of the TSA, whose goons molest children to protect us from the terrorists. His TSA flunkies, who participate in this blatant violation of our rights as citizens, should be tried as well. Nuremberg made it clear that following orders is not an excuse for committing crime. Fondling children is criminal, and TSA agents should be punished accordingly.

No doubt my argument will be seen as a radical one. Yet it's worth pondering how radical it truly is. Why should it be seen as extreme that politicians are held responsible for their actions? Why is it that they are only to be punished by the ballot box—that is, with a nice book deal and a job as a lobbyist, in other words, never punished at all? Why do we tolerate behavior from state officials which would be deemed unconscionable if done by ordinary citizens?

These questions have powerful ramifications, because they illustrate how far a once free people has been willing to acquiesce in government misrule. It has become quite obvious that the politicians have no fear of ever being held accountable by the citizenry. Until they are made to realize that the law does in fact apply to them, they will act as if it does not. A trial would go along way toward reminding them of this fact. And a nice hanging would reinforce the lesson to the most obdurate of rulers.

Banking Experiment

2010-11-30T23:22:00.002-05:00

I've written before about the insolvency of banks. As such, it makes little sense to leave all of one's money in the bank; certainly one should have at least enough cash on hand to provide for basic necessities should we face a bank holiday--which would be the predictable reaction by the government to defend their banking buddies in the event of a run on the banks.

As such, I've started extracting some of my money from one of the banks. It will be interesting to see how many days of consecutive withdrawals from the ATM before I am contacted by one of the banking heads. Updates to follow.

Weekly Column - 11/27/2010

2010-11-27T10:48:00.001-05:00

Here's this week's column:

"The will of man is not shattered, but softened, bent, and guided; men are seldom forced by it to act, but they are constantly restrained from acting. Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till each nation is reduced to nothing better than a flock of timid and industrious animals, of which the government is the shepherd." – Alexis de Tocqueville, Democracy in America

Perhaps nowhere was the Frenchman so prescient as in his chapter titled "What Sort Of Despotism Democratic Nations Have To Fear." He did not expect a single tyrannical overlord, whose reach was violent but limited. Rather, he envisaged an overarching bureaucracy which would instill docility into the people by severely restricting the range of acceptable actions.

The sterling example of the soft despotism facing Americans is the policy of the TSA. With the advent of the new porno-scanners, documentation of abuse by government thugs began to trickle out over the Internet. At first, it was just libertarian sites; my inclination to write about the matter was suppressed out of a belief that the procedures would be tolerated, albeit begrudgingly, by a formerly free people. But when the stories began to appear on the Drudge Report, it became clear that I was wrong: this story had legs. The TSA had over-reached and now faced the prospect of revolt.

Weekly Column - 11/23/2010

2010-11-23T20:30:00.003-05:00

Here's this week's column:

"The expectation of a general progressive upward movement of all prices does not bring about intensified production and improvement in well-being. It results in the "flight to real values," in the crack-up boom and the complete breakdown of the monetary system." – Ludwig von Mises, Human Action

As a principled non-voter, I watched with amusement as liberals writhed in agony while conservatives rejoiced during another "historic" election. The following day, Ben Bernanke revealed to all how little Congress—and, by extension, if only in theory, the people—has to do with the goings on in Washington. Helicopter Ben felt that inflation was too low; we thus risked deflation, which he believes is the worst thing that could ever happen to an economy. He was insisting on another round of quantitative easing, which is not something one does after consuming too much Taco Bell, but is a fancy of way of saying that he was going to print some money. Since the two trillion he quantitatively eased two years ago was so effective at leaving the country mired in recession, he figured another six hundred billion should do the trick.

The Federal Reserve operates in near total secrecy—ostensibly to prevent the politicization of monetary policy—but we know that in the latest round, William C. Dudley, president of the Federal Reserve Bank of New York, bought treasury bonds from Goldman Sachs, which charges a higher rate than the Fed would receive if it bought the treasury bonds from the treasury. The confusion is cleared up when one realizes that Dudley worked for Goldman Sachs from 1986 to 2007. Just think of Dudley as the banking equivalent of Dick Cheney, granting fat contracts to his pals at Haliburton.

Weekly Column - 11/13/2010

2010-11-14T11:50:00.001-05:00

This week's column:

"Now civilizations, I believe, come to birth and proceed to grow by successfully responding to successive challenges. They break down and go to pieces if and when a challenge confronts them which they fail to meet." – Arnold J. Toynbee, Civilization on Trial

Thus speaks the master historian. The challenge which now faces the west is neither political nor economic: it is spiritual. This is not to say that there are no political or economic problems. But these are secondary; they are also inexorably tied to the west’s existential crisis. To put the matter bluntly, the West has lost faith in itself. Like the noble pagans Dante meets in limbo, "without hope we live on in desire."

Historians like Toynbee have read widely, seeking to find, if not laws, at least general principles by which civilization must abide if it wishes to preserve itself. But we need not be historians to realize that the bare minimum a people must do in order to survive is to birth another generation of children and raise them to adulthood. Whether or not these in turn will prove capable of whatever challenges that civilization faces is a matter of speculation. We need only concern ourselves with the fact that another generation is brought into existence. In this most essential mission, the nations of the west are failing spectacularly, as each nation in Europe, as well as Canada and the United States, has a birth rate below replacement level. The west is dying.

Weekly Column - 11/08/2010

2010-11-08T08:32:00.001-05:00

Here's this week's column:

"The Pledge [to America] puts forth a clear plan to end the current uncertainty, starting with stopping all looming tax hikes so that small businesses can get back to creating jobs. This is followed by a blueprint for fiscal sanity that begins with cutting spending to pre-"stimulus," pre-bailout levels, a move that will save taxpayers $100 billion in the first year alone." – John Boehner, Why You Should Vote For Republicans

Thus wrote the new republican majority leader on the eve of the election which propelled him and his party out of the political wilderness and back into some semblance of power. It would have been better to have written nothing at all. When it comes to fiscal responsibility, the republicans are no different from the democrats, as these statements prove. Boehner’s party is as serious about reducing government as Pelosi’s was sincere about ending the wars.

Tuesday’s election was about one man: Barack Obama. Voters were unimpressed with the first two years of his term—during which the economy tanked, deficits grew boundlessly, and billions were meted out to those with political connections, without appreciably reducing unemployment—and they sought to take it out on his party. Whether or not this is fair is beside the point. Whatever further legislative plans are up his sleeve, the president must now contend with a house dominated by republicans.

Keynes - The General Theory - Chapter VII

2010-11-07T18:10:00.000-05:00

Section I: Keynes defines savings for us: "So far as I know, everyone agrees in meaning by Saving the excess of income over what is spent on consumption."

Fair enough. He then explains how, although savings and investment are equal--he states that they are identical, though in not so many words, in the previous chapter--an apparent inequality may come about: "Thus the differences of usage arise either out of the definition of Investment or out of that of Income."

Section II: He then defines investment for us: "In popular usage it is common to mean by this the purchase of an asset, old or new, by an individual or a corporation. Occasionally, the term might be restricted to the purchase of an asset on the Stock Exchange. But we speak just as readily of investing, for example, in a house, or in a machine, or in a stock of finished or unfinished goods..." Disinvestment is thus the opposite, namely, the selling of an investment.

Although Keynes seems to be aware of this, the distinction between goods to be consumed and those to be resold--investments--is very blurry. I don't see that it changes his definitions.

On a graver note, it is obvious that, according to these definitions, savings does not equal investment. I have some cash in my wallet, and I have money in a checking account. Neither of those could be construed as investments, according to Keynes's definition, though both are assuredly savings.

Continuing, he writes: "Investment, thus defined, includes, therefore, the increment of capital equipment, whether it consists of fixed capital, working capital or liquid capital; and the significant differences of definition (apart from the distinction between investment and net investment) are due to the exclusion from investment of one or more of these categories."

Unless I missed something, Keynes does not include liquid capital in his definition of investment. So by his own standard, the equality fails. Or, I should say, by one of his standards, it fails. There is still much confusion in trying to understand what Keynes means by his terms.

In this section, Keynes mentions the Austrian school, with which he was probably familiar from his time spent with his friend F. A. Hayek. But if he was aware of the school's existence, he demonstrates that he did not appreciate the importance its adherents laid on the role savings plays in the accumulation of capital: "The statement, for example, that capital formation occurs when there is a lengthening of the period of production does not much advance matters."

Section III: Keynes introduces us to the term "normal profit", which I do not see defined. He claims that this accounts for the discrepancy between income and savings which he postulated in one of his previous books. But the problem is far bigger than that.

We've constantly referred to the confusing nature of Keynes's prose. Here's a prime example: "As I now think, the volume of employment (and consequently of output and real income) is fixed by the entrepreneur under the motive of seeking to maximise its present and prospective profits (the allowance for user cost being determined by his view as to the use of equipment which will maximise his return from it over its whole life); whilst the volume of employment which will maximise his profit depends on the aggregate demand function given by his expectations of the sum of the proceeds resulting from consumption and investment respectively on various hypotheses."

If anyone can explain what that may mean, I would be indebted to you. I am wholly unable to extract value from this section, so I move onward.

Section IV: We come to the concept of "forced savings." The general idea here is clear: something alters the purchasing power of the wage-unit, thereby increasing savings. Keynes, of course, connects it, with the help of his confusing terminology, to the coordinated efforts of entrepreneurs to maximize employment, but this need not concern us.

While it is true, in a certain sense, that if the purchasing power of the currency were to rise due to a general reduction in prices, this would be "forced savings", this is misleading. For one, there is no compulsion: the consumer may divest himself of these forced savings by purchasing items. For another, if a consumer can suddenly get the things he desires for a cheaper price, this is a glorious thing. It need not be given a negative connotation.

On the other hand, if the purchasing power of the currency is falling, due to inflationary policies of a central bank, the consumer finds his savings reduced. This is truly compulsory, and cannot be easily avoided. It's telling that Keynes doesn't focus on that which is truly forced--what Ron Paul calls the inflation tax.

Keynes is rightly critical of the concept of forced savings--which evidently stems from Bentham: "Thus “forced saving” has no meaning until we have specified some standard rate of saving." We may chuckle to ourselves, since this rejoinder occurs shortly after Keynes uses "normal profit" without defining it. For some reason, too, he thinks that "forced savings" only pertain to an economy in full employment. Since it is essentially a monetary phenomenon--at least insofar as inflation is concerned--I am not sure why this is the case.

Section V: Keynes struggles to understand the purpose of a bank: "It is supposed that a depositor and his bank can somehow contrive between them to perform an operation by which savings can disappear into the banking system so that they are lost to investment, or, contrariwise, that the banking system can make it possible for investment to occur, to which no saving corresponds."

This is basically true of our current system, but there is no reason a bank must loan the money depositors leave in their checking accounts. In fact, as I pointed out in a recent column, the demand deposits which comprise checking accounts must not be invested or else the bank will not be able to make good on withdrawal demands.

Keynes offers a reasonable statement, which is nonetheless false: "It follows that the aggregate saving of the first individual and of others taken together must necessarily be equal to the amount of current new investment." Since we have a fractional reserve banking system, every dollar which is deposited in a bank is lent out--ten times or more--to borrowers. This is the "money multiplier" effect. It explains why the banks are so hosed whenever a bubble bursts. It is, in fact, the cause of the bubble in first place--though an inflationary central bank is a necessary prerequisite. Even if you reject the Austrian explanation for the business cycle, it must be admitted that Keynes is wrong here.

He examines the consequences of credit expansion by the banks. "It is also true that the grant of the bank-credit will set up three tendencies (1) for output to increase, (2) for the marginal product to rise in value in terms of the wage-unit (which in conditions of decreasing return must necessarily accompany an increase of output), and (3) for the wage-unit to rise in terms of money (since this is a frequent concomitant of better employment)..."

Let us take these one at a time. The first is generally true; the expanded credit will fuel investment, especially in a particular sector. In other words, there would be a boom, say, in housing. But while output may rise in one sector, it will not necessarily rise uniformly; some sectors may even see a reduction in output.

This tendency to think only in aggregates harms Keynes's second point. During the housing bubble, the marginal product of homes was rising in terms of the wage unit; but this did not hold true of every good in the economy. Computers were falling in prices, both absolutely as well as relative to the wage-unit.

The third is not completely false, but it is mostly so. Certainly, some people saw an increase of income in real terms during the housing boom--real estate agents, for instance. However, since the creation of credit was not backed by savings, these increases were offset by decreases in other sectors. Moreover, much of this production was malinvestment; we did not need so many houses in Vegas. This impoverishes people and leads to a reduction in wages. Keynes is right to an extent, but only ephemerally, and in the short term. In the long run, bubbles pop.

Keynes asserts that "the reactions of the amount of [the individual's] consumption on the incomes of others makes it impossible for all individuals simultaneously to save any given sums. Every such attempt to save more by reducing consumption will so affect incomes that the attempt necessarily defeats itself." We shall see if he proves this at a later point, and leave off for now.

Weekly Column - 10/30/2010

2010-10-31T10:39:00.001-04:00

This week's column:

"Don’t tell me what delusion he entertains regarding God, or what mountebank he follows in politics, or what he springs from, or what he submits to from his wife. Simply tell me how he makes his living. It is the safest and surest of all known tests. A man who gets his board and lodging on this ball in an ignominious way is inevitably an ignominious man." – H. L. Mencken, "The Slave"

It is a plain fact that those who work for a living feel contempt for those who do not. Attempts to replace the Gospel with progressive propaganda have led us to believe that this is somehow unchristian. Yet the Bible is clear that those who do not work ought not to eat. There were exceptions to this rule—most notably widows and orphans—but St. Paul is clear that able-bodied men were to earn their keep.

Alas, in America of today, the number of workers is dwindling. Evidently unaware that the recession is over, Bloomberg reports: "The number of Americans receiving food stamps rose to a record 41.8 million in July." If forty million of one’s citizens cannot work to feed themselves without the State pilfering from those who can, one’s nation is neither free, nor healthy.

Keynes - The General Theory - Chapter VI

2010-10-29T11:00:00.003-04:00

In Chapter VI Keynes attempts to define income, saving and investment in order to further develop his general theory. Keynes' discussion of income involves the different costs which affect income, so I will break up my analysis of his writings according to each different cost.

User cost: Keynes defines user cost as the "sacrifice of value involved in the production of A" (finished output sold to consumers). This cost is made up of the value foregone by choosing to produce and sell A, as well as any output purchased from other entrepreneurs. He does not specify whether this "finished output" is higher order goods which the entrepreneur will use to produce lower order goods, or if these are consumption purchases by the entrepreneur. I do not see why Keynes includes a discussion of user cost, for it has little use to economic analysis. Whatever higher order goods an entrepreneur purchases he will combine with his labor and capital to create a lower order good. Also, the value forgone when producing output only matters to each individual entrepreneur when making a decision on what and how much to produce. Economists can say little if anything more on the matter.

Factor cost: Keynes defines the factor cost of A as "the amount paid out by the entrepreneur to the other factors of production in return for their services." These other factors of service not being specified, but assumed to be the owners of land and labor. Keynes goes on to say the difference between output and factor costs is equal to aggregate income. Keynes calls this difference the entrepreneur's profit, but he neglects to adjust for interest and the entrepreneur's own wage. Profits and losses are the markets way of informing people which businesses are best satisfying consumer desires, but only if profits are properly define. Keynes prefers to equate profit to income, when profits are really an excess over what the entrepreneur makes due to a wage and interest. Only under this Austrian definition of profits can they be useful in guiding firms to swiftly satisfy consumer desires.

Supplementary cost: Keynes writes that a change in market values, wastage due to time, or destruction due to a catastrophe are supplementary costs. I do not see the significance of these costs, changes in market values and wastage due to time should be anticipated by entrepreneurs, that is part of what makes them entrepreneurs. Catastrophes are insurable risks, and as such should not affect output - and employment because that is Keynes' focus - because the cost is covered by insurance.

Windfall loss: Keynes defines windfall loss as supplementary costs which are unforeseen. For example, a particularly exceptional catastrophe would be considered a windfall loss. The main point Keynes makes is that "although the windfall loss (or gain) enters into his decisions, it does enter into them on the same scale - a given windfall loss does not have the same effect as an equal supplementary cost." I found myself wondering why Keynes believed these similar costs affected someone differently, but he never explained it further. I do not think that this fact could be empirically or theoretically proven, but I may be wrong.

Keynes ends his discussion on income by stating this definition of income is different that his definition in his Treatise on Money. He then goes on to take a quick look at saving and investment, concluding that saving is equal to investment. From that he makes the argument that the propensity to consume is essentially the inverse of the propensity to save, and he will use the former in all further discussions. Since we already discussed propensity to consume, and its inherent flaws, I will end the discussion here.

This chapter was by far the most confusing yet, and it appears he is simply defining income, saving and investment in a manner that best fits his general theory. As opposed to Rothbard's Man, Economy, and State which starts from a simple axiom and proceeds to develop theory from there, it almost seems as if Keynes has his theory already in mind and uses these chapters to make it viable.

Weekly Column - 10/23/2010

2010-10-25T00:58:00.002-04:00

This week's column:

"No, but you…you… you’re thinking of this place all wrong. As if I had the money back in a safe. The, the money’s not here. Well, your money’s in Joe’s house… that’s right next to yours. And in the Kennedy House, and Mrs. Macklin’s house, and, and a hundred others." – George Bailey, It’s A Wonderful Life

I do not wish to speak ill of one of my favorite films. But an appreciation for the fraudulent nature of fractional reserve banking has altered my perception of at least this one scene. In striving to stave off a bank run, George Bailey was forthright with his customers, but he mislead them nonetheless. For his customers did not run on the banks to retrieve their savings—or time deposits—but their demand deposits, what we call checking. George falsely assumed that these two disparate functions were one and the same.

To understand the proper role of banking, we have to set aside anything we think we might know about it. The first function of a bank is to securely store money; rather than lug it around at all times, a customer would pay a small storage fee to relieve himself of this burden. His money would sit idly in a vault; it would thus not collect interest, but it would be available to him on demand. This runs counter to our ideas of banking, but it makes practical sense: if I deposit money in a bank, I wish to be able to withdraw this money at any time. This can only be ensured if the money is actually in the bank, rather than being lent out to someone else.

Weekly Column - 10/16/2010

2010-10-18T11:20:00.001-04:00

This week's column:

“For most people, anarchy is a disturbing word, suggesting chaos, violence, antinomianism — things they hope the state can control or prevent.” – Joe Sobran, The Reluctant Anarchist

The late Joe Sobran was correct about the shortcomings of using a misunderstood word. Hans-Hermann Hoppe, whom Sobran credits with finishing his conversion, prefers the term natural order, but this also requires a lengthy explanation. For now, it seems that anarchists will have to firmly elucidate their opposition to aggressive force.

This is important, because it is this opposition which constitutes the real difference between violent anarchists and those who wish to replace the State with a system of voluntary association. The anarchists of yesteryear were assassins, eliminating the heads of state under the naïve belief that the State itself would fade away without its figurehead. Modern anarchists, at least those influenced by Sobran and Hoppe, know full well that the State cannot be replaced so easily. Moreover, the State is force; to meet it on its own terms is to grant legitimacy to its coercive nature, something anarchists would never do. The State will fall, not in a paroxysm of violence, but by the withdrawal of citizens who refuse to accept the coercive apparatus and return to cooperative means to meet human needs.

Keynes - The General Theory - Chapter V

2010-10-14T08:35:00.000-04:00

Section I: In this chapter, Keynes deals with the role expectation plays for the entrepreneur. He offers some sensible advice, but also puts things in such a way that they are liable to be misunderstood. He also introduces distinctions and terminology without necessity.

For instance:

“The first type [of expectation] is concerned with the price which a manufacturer can expect to get for his “finished” output at the time when he commits himself to starting the process which will produce it; output being “finished” (from the point of view of the manufacturer) when it is ready to be used or to be sold to a second party. The second type is concerned with what the entrepreneur can hope to earn in the shape of future returns if he purchases (or, perhaps, manufactures) “finished” output as an addition to his capital equipment. We may call the former short-term expectation and the latter long-term expectation.”

The concept is clear enough: a manufacturer expects to sell a certain good; he expects the addition of capital—for instance, a new machine for his shop—to increase production. The reason why these expectations merit distinctions as short-term or long-term escapes me.

Keynes writes: “The actually realised results of the production and sale of output will only be relevant to employment in so far as they cause a modification of subsequent expectations.” This is correct, but he gives too little attention to “actually realized results”. True, expectations are ever-changing, but what really alters employment are not fluctuations in expectation—which are far smaller than Keynes implies; it's not as if a manufacturer changes the goods he produces on a daily basis—but the disparity between expectations and reality. In other words, small changes in plans of production will alter employment little compared to the realization that produced goods cannot be sold profitably on the market. In his exuberance to emphasize expectation, he under-emphasizes the importance of actual results.

Section II: Little is added in this section, so I leave it without comment.

Weekly Column - 10/09/2010

2010-10-09T17:48:00.001-04:00

This week's column:

"We will fix the number of citizens at 5040, to which the number of houses and portions of land shall correspond." – Plato, Laws

We hear much of the benefits of democracy, but the most striking aspect of the representative system of the American republic may be its sheer size. One searches in vain through the annals of political philosophy for a recommendation of running a representative system with a large number of people—let alone with near universal suffrage. Indeed, until Thomas Hobbes’s decidedly anti-democratic Leviathan was published in 1651, the consensus was that the State should be, if not limited in power, at least restricted to lord it over a small number of citizens.

Thus Plato keeps his Republic small, while in the Laws, he sets an explicit limit to the number of citizens. Aristotle neither recommends democracy nor the totalitarianism of Plato; but while he deigns to give an exact number of citizens, the state is to be kept contained, so that the citizens will know each other, and that, should there be a democratic aspect to the state, those with suffrage may be gathered in a single place to deliberate its functions. Even Rousseau, who advocated government by the general will, probably had Geneva—a small state with limited suffrage—firmly in mind while writing his book On the Social Contract.