Category: free market

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economics free market

A great explanation

I just read Bastiat’s explanation for inflation, and it’s a good one. Most people do not get the relationship of the amount of money and prices. Think of it this way…

Remember, wealth is measured not by little pieces of green paper, but in the goods, services, and experiences that are available to us. If the government doubles the amount of money in circulation tomorrow, what would happen? Most people would say that we would be able to buy twice as much. But there’s a problem, the amount of things we can get for that money has not doubled! In other words, it is the same stuff being sold but with twice as much money around… The result is that everything will cost twice as much. That is the same as inflation which is the same as currency devaluation…

It’s even sneakier than that. There will always be people that figure this out sooner than others. Typically, the people that deal with money (bankers, investors, etc.) will recognize this first, and everyone else catches on later. Inflation almost always results in a widening gap between the rich and the poor because the people in the know can take advantage of the extra money before everyone else realizes it isn’t worth as much. Inflation is something to watch out for, we should yell as loud as possible to prevent the government from “printing money” in order to “pay” for something. It can’t work in the long term…

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economics free market freedom

Isaac, why is it always about the money?

There is, among some of my friends, the belief that I am all about money. I do talk about it quite a bit on this blog and most of my economics posts seem to center around money. I guess I only have myself to blame for not making things clearer.

Most of us do not value money for its own sake, but for the possibilities that it represents. When you have x amount of dollars, you can turn that amount into a computer, a hamburger, a charitable donation, a trip, education, or any number of other things. Naturally, we all prefer having more things/experiences, or at least higher quality things/experiences than less.

What people seem to discount (no pun intended) is how we get it. The bottom line is that we can only get money by doing something that other people want. The potential for making money is directly related to how great a want we satisfy. Working, and profiting from that work, is a benefit to society. As you profit, you employ others for your wants. Other people can make your lunch, drive you to work, clean your suit, educate your children, or whatever comes into your mind.

This is the real definition of a wealthy society. People use dollars to satisfy their wants and they can only get them by satisfying the wants of others. The more people that do this, the wealthier we are. Not because of the dollars, but because of the services and products we make for others.

Too many people make an artificial distinction between monetary freedom and “personal” freedom. They are the same thing, this is what economics is all about. Somehow people have gotten it into their heads that things like taxation and education are not related. They think that we can discuss health care and civil liberties as separate topics. No one seems to see the connection.

If you restrict things on the monetary side of things, you will eventually impact things on the freedom side of things. Imagine that taxes have to go up in order to pay for some things. The money you pay in taxes is diffused throughout the country so you will inevitably not see the direct effect of your money paid to the government. So you end up getting less money for the same amount of work, or you work more for the same amount of money. Monetary issues have taken away some of your time, liberty has been lost to a monetary measure. The same thing happens with any regulation that increases the cost of a product or service. We must work more for the same benefit…

If you curtail liberties, it will eventually impact the wealth of the nation. Remember, wealth is determined by people satisfying wants and needs of other people. For people to achieve their potential, they must be free to pursue what is important to them. Remember, there are always two people behind every transaction. They must be free to pursue what is important to them, and be free to pursue what is important to others. Doing both of those things is the very definition of wealth, you can’t have wealth without freedom.

In order for society to function, there needs to be some limits, I’ll admit that. But I tend to lean more towards things like prohibiting murder and leaving things like marriage, food, recreational chemical usage, etc. up to the individual.

So the thing that I have as my primary subject in my posts is not money, but freedom. Money is usually a good short hand method for talking about freedom and liberties in general. Most people tend to only look at liberty OR money, I want people to reconnect those concepts…

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economics free market politics

From 1850

“The delusion of the day is to enrich all classes at the expense of each other; it is to engender plunder under pretense of organizing it.”

Quite so, some things never change…

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economics free market freedom

Vanity Fair econ… ugh.

A friend asked me what I though of this article in Vanity Fair. My basic thought is that you find what you look for. Everything he mentioned reminded me how much the government had screwed up. He enumerated all of the things that the government did or had power to do (Alan Greenspan, various legislation, etc.) and how disastrous they were and then concludes that “anti-regulation fanatics” were to blame for the current mess. Huh?

I think a more reasonable way to look at it is that the government either shouldn’t have the power it does (via the fed) or should stop trying to compensate for its market distorting reactions to other market distorting legislation (like Sarbanes Oxely etc.). Instead of picking out one fed chair and (rightfully) complain that he screwed some things up, why not ask why a person or board has that kind of power in the first place? Instead of complaining about the repeal of Sarbanes et. al, why not ask what the markets were reacting to that made that legislation first attractive and then unattractive? I’m willing to bet that it was a reaction to some sort of legislation that caused that law to be “needed” in the first place. I’m also willing to bet that both in the enactment and the repeal of that law, they got it wrong…

His sneering at self-correcting markets is especially galling, how would he know how well they work? First off, they don’t exist in the financial world. On top of that, they are never allowed to correct. No one ever claimed that perfection would result from totally deregulated markets, but they do indeed “correct” themselves. I’m ignoring the strawman that people have been chomping at the bit for totally deregulated markets. As far as I can tell, people have wanted less regulated markets, or at least minimally regulated ones.That’s not the same thing at all… Anyway, it is the attempt to mitigate these corrections that causes so much widespread trouble. Trying to “fix” the result of markets only leads to other consequences. Markets only work well if the negative things are allowed to happen. Stupidity and excessive risk taking should be their own punishment….

How people can propose more regulation to fix problems that have government’s fingerprints all over them really confounds me. Why does he think it is possible for effective legislation for such a complicated issue to come out of the political process? Why does he not think that even if we did get the most brilliant economists (even by his standards) running things via regulation that they would be replaced by other people eventually? If you give power to people to regulate things, the political process will make a hash out of the best intentions.

So I’m not going to attack his econ cred. I’d look pretty silly with my several semesters worth of econ vs. his nobel prize… I have no reason to disbelieve his analysis of cause and effect. I am attacking his myopic view of what regulation is capable of and of the process that creates that legislation. There isn’t any reason to think that different regulations wouldn’t cause other problems. This is, in a nutshell, why the vast majority of professional economists drive me crazy. They know their models well, but they confuse those things with economics.

The main point that I got out of it was “The party I don’t like made some decisions that had bad consequences, so they’re all stupid.” His juvenile worship of the philosopher/economist technocrat getting things right blinds him to the reality of the political process. Unfortunetly, this idea of “If only we had the right people administering the right laws, everything would be fine,” is probably the most widespread view out there. Sigh…. Freer markets are by no means perfect, but they are a hell of a lot more democratic. In a totally free market of exchange, the damage caused by bad decisions are mostly limited to the people involved in that exchange. In his world, if all of the politicians involved in his regulating efforts aren’t blessed with perfect foreknowledge of all consequences for years to come from their regulations, we all feel the effects of their decisions.

Categories
economics free market freedom of choice

Scalping silliness

I’ve noticed a few places where people are complaining that the “free” tickets to the upcoming inauguration are selling for up to $2500. The basic argument seems to be that since the people got the ticket for free, they shouldn’t sell it. Well guess what? Those people don’t think the same way you do, time to move on…

Seriously, regardless of the cost of the item, that person now has something that other people value. If he values the money more than the event, why shouldn’t he take the money? Why shouldn’t he profit from it?

We can (and should) flip that around too. Why should someone be denied the opportunity to go to an event just because they weren’t willing to stand in line/didn’t know someone in order to get tickets? If they are huge fans of Obama and worry that they might miss a historic event, why not allow them to pay whatever they think is a fair price? Think about it, what would you have paid to be there when King said, “I have a dream…” or Kennedy said, “Ask not..” or Reagan when he said, “…Mr. Gorbechev, tear down that wall!” or Kennedy when he said, “Ich bin ein Berliner!”? I’m not saying something of that magnitude is going to happen, but there is definitely a non-zero chance of it happening. Why not let people pay for that opportunity?

So many laws are passed with only the idea that “I don’t think people should do that,” When it’s really none of their business. If someone owns something and someone else values it more than the owner, than the trade will most likely take place regardless of what you think. Just let it happen and spare everyone your outrage….

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economics free market politics

Another ridiculous Obama ad

I just saw another Obama campaign ad talking about jobs shipped overseas. This one laments that workers in the Carolinas the sewed the American flag had their jobs sent overseas. They lost not only their jobs, but their “dignity” as well.

Where to start? OK, first of all, those people were either going to lose their jobs to increased mechanization or outsourcing. Odds are that the investment in new machinery was too expensive, so the company could either outsource the labor, or go out of business. Would Obama rather have had the company go under? The idea that we can force companies to keep employees when it is not viable and not to have any bad consequences is naive and comical…

Second of all, and this may be what gets me more wound up, is since when are companies responsible for the “dignity” of their workers? More importantly, since when is the federal government responsible? This has to be one of the more obvious examples of the government overstepping it’s bounds. Dignity is up to the individual, not their employers and certainly not the government. I wish that there was at least the suggestion that the government cannot do certain things let alone hint that there are things that it shouldn’t do….

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economics free market

Things to remember about the great depression

I keep hearing comparisons to the great depressions when people talk about banks closing, markets tumbling, etc. It’s important to remember that what we are experiencing is a financial meltdown, not an economic one… so far. The government has stepped in to “stabilize” markets. The result? Wild wild volatility (look for another big drop tomorrow) in the stock markets and an unknown effect on the financial institutions that they are trying so desperately to save.

One thing that we should remember about the great depression is how long it was and why it was that long. We have to remember that government cannot produce jobs, productivity, or wealth unless it takes it from somewhere else. Like it or not, it is the private sector that drives an economy. If you want to jump start the economy, make sure that businesses can make good decisions. This is a rather good podcast about the great depression. I found it quite illuminating, the key thing I got out of it was that the length of the depression can mostly be laid at the government’s feet, more specifically at the feet of FDR and Keynes.

FDR, following the advice of Keynes, managed to inject so much uncertainty into markets that the private sector was unwilling to invest for a very long time. It’s a lesson we should remember these days. Nobody has a good idea what kind of effect the latest shenanigans will have on wall street. And nobody is sure how it will impact the credit markets. Left to their own devices, they would have had to figure something out, now they’re all waiting for the feds to figure things out instead. I can only hope that lessons have been learned and not forgotten…

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economics free market freedom of choice

Fascism vs. socialism

Just to pick up on my last post, it’s important to remember the differences between these two evils. In socialism, the government is the supplier of goods and services. Under a fascist government, the government controls businesses in order to further the aims of the government. So, nationalized healthcare where the government is the only supplier of hospitals, doctors, medicines, etc. would be an example of a socialist program. The current bank issues don’t really fall into that category, the banks still exist outside of the government, and there are plenty of banks that are not involved so you can choose one of them if you want.

Fascism is all about the vision of “the country” by the powers in charge. The basic philosophy can be summed up in that awful speech by Kennedy, “Ask not what your country can do for you, ask what can I do for my country.” This was considered uplifting and inspiring at the time. People quickly figured out what it really meant when the government stopped asking and forced people to go die in Vietnam. Nationalism is intrinsically tied up in fascism. The belief that the state is the most important thing and that citizens exist to further the aims of the government is the driving force behind fascism. Can you see why I worry about this so much?

The purchasing of bank shares is rather ominous in my mind. There are some technical issues that need to be addressed. Will the treasury have voting shares in the bank ownership? If regulators feel that a bank is being mismanaged, will they need to bring suit against the treasury department? Can the same branch of the government sue itself?

More worrying to me is the political pressure that could be brought to bear in bank operations. It would be far better to allow those banks to go under. If banks are left alone, ones that are badly managed will go away either through bankruptcy or being bought out. There is the worry that banks that the government have a share in will no longer be as worried about little things like making a profit but will be used to further political ends. Sounds ridiculous? Look at Fannie and Freddy, economists have been warning us of the eventual collapse of those institutions for decades. Because they were tied to the government and had to follow government mandates, we all pay to bail them out.

Why does it matter? With enough government money being spread around, it impacts you and me in the long run. All of these things need to be paid for eventually. We could raise taxes, the government could just print more money (and then we get all the wonderful effects of inflation to deal with) or the government could just default on the loans. None of those things are good, and they’re all avoidable. All we have to do is not fall into the trap of relying on the government to solve things. The line of what should be the realm of government and private enterprise has been dangerously blurred…

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economics free market

It’s late and I’m not thinking straight…

I’ll write more on the bank thing later, but I do want to say something now about the ongoing banking thing. I’ve heard some people worried about the “socialist” implications of the government owning parts of banks. I think the thing we need to worry about more is fascism. The government using private businesses to accomplish aims that are important to it. Surely the government knows what’s best, surely they will do what is in the best interest of us all. We should always worry when the government starts to exert new controls. At what point do those ownership shares get subjected to the political process? Be afraid, be very afraid…

Categories
free market freedom of choice politics

I’ve been thinking about this all wrong

I’ve been bitching and moaning for a while about how I don’t really like either candidate. This bailout bill is the straw that broke the camel’s back. Neither of the candidates even said, “Well, maybe we should think about this…” let alone thought that the bailout was a bad idea. Both parties were all gung-ho to pass this as soon as possible. That is an amazing amount of money that has just been handed over to the federal government and there was only token debate about how much power was being given essentially to one man.

I’ve had it, but what to do? I, along with everyone else, have been looking at the voting options as a two horse race. It occurred to me today that that isn’t so. There are a handful of other parties on the ballot in Virginia, how does this platform sound?

“We defend America’s traditional civil liberties and personal freedoms as the foundation of a tolerant society. We believe in the protection of people from dishonest business through liability in the courts. We endorse a foreign policy of non-intervention, peace, and free trade as prescribed by America’s Founding Fathers. Unlike the two major parties, for whom the only debate is whether the government should be enormous or merely huge, we believe the size and scope of government must be substantially reduced. Individuals should have sovereignty over their own lives as long as they do not interfere with the rights of others.”

Guess what party that is? It’s the Libertarian party. It basically fits my sensibilities to a tee and I’m willing to bet it fits a lot of other people’s too, they just don’t know about this party. I’ve known about them, but I never really thought about voting for them. Why not?

Well, there is zero chance that any of their policies will ever get written into law. Zero. Things like real free trade (not what passes for that in all of the trade bills coming out of the congress) and the elimination of all of the unnecessary federal bureaucracy just don’t have any political traction and probably won’t any time soon. Other things like the abolition of the federal income tax are so big that the idea is a little scary. But that’ll never happen either.

As it turns out, that’s probably a good thing. Knowing that the huge stuff won’t get done is fine. Right now, I’d be happy with resistance to the crazy things that are going on right now. A Libertarian would not have voted to invade Iraq (see Ron Paul) and a libertarian wouldn’t have voted for this enormous bailout. it would be nice if someone was fighting for me instead of selling me out.

Of course the big reason I wasn’t going to vote for a Libertarian is because they weren’t going to win. Especially after the Nadar issue that got W elected, third party votes have been seen as throwing away your vote, at best.

This is the killer, the guy isn’t going to win, so why bother? Of course one of the other guys is going to win, so why bother voting for them? Especially if I don’t like either of them. Something struck me today, voting for these guys could actually make a difference, even if they don’t win. Counting votes is the only way people know that that outlook exists in the population at large. This vote will actually mean more than just another vote for the big two, it will show that someone does care about things that the candidates are ignoring. I believe that most of the people that don’t vote are sick of the big two. Politics is stupid, politics is inherently corrupt, etc. If people realize that there is another choice and vote that way, things can be accomplished. Even if I am the only one in my district to vote this way, it might get someone to say, “Libertarians, who are they?” That chance is worth a lot more to me than “throwing away” my vote on Obama or McCain.

So for me, this makes a lot of sense. If you are disgusted by the bailout and Iraq, a libertarian vote makes a lot of sense. A democratic vote may communicate your dislike of the Iraq situation, but it is also tacit approval of Obama’s financial largess to very wealthy people. If you want to say no to interventionist wars, bailouts, ever increasing debt, and government intrusions into things like sexuality, vote Libertarian. It’s gotta start somewhere, so I’m voting libertarian down the line…