Thursday, March 5, 2015

The Real Problem is Strong Central Banks - Not Strong Currencies

One myth driving the irrational policies of central planners is the idea that a depreciating currency is good for a domestic economy.  Presently, this myth is fueling a so-called "currency war" in which each country attempts to depreciate its own currency relative to others.  In essence, the idea is that if you make your currency cheaper relative to other currencies, then people in the other country will buy more of your stuff.  In turn, this will help the export industry in your country thus constituting an economic advantage.  Of course, this idea is hundreds of years old and a major feature of the infamous economic theory known as mercantilism.

Bastiat and Hazlitt taught us that most economic myths persist because people only focus on one direct effect of a policy rather than on all the direct and indirect effects or unintended consequences.  In fact, the value of currency depreciation can be debunked with a simple example.  Let's assume on Day 1,  the currency exchange rate between euros and dollars is 1 to 1 and let's focus on the German company BMW selling one car for 100 euro:

Day 1

     Exchange rate = 1 $/Euro
     BMW (euro) = 100 Euro
     BMW (dollar) = 100 euro * 1 $/euro = $100

Say the Germans depreciate their currency, and further assume that BMW produces all of its cars in Germany and uses all of its inputs from other German companies, and maintains its euro price at 100.

Day 2

     Exchange rate = 0.25 $/Euro
     BMW (euro)  = 100 Euro
     BMW (dollars) = 100 euro * 0.25 $/euro = $25

In the U.S., the BMW now only costs $25!  The total American demand for cars was $100 and at the previous rate, Americans could afford to buy 1 car.  But now, Americans can afford 4 cars at $25 each and be no worse off.

     BMW revenue (Dollars) = 4 cars * $25 = $100
     BMW revenue (Euro) = $100* 1/0.25 Euro/$ = 400 Euros

BMW and its employees are thrilled!  They have made $100 which is now worth 400 Euros whereas before, they were likely to only make 100 Euros from the sale of 1 car. BMW's stock price (in euro) may even go up as would other company's stock who are similarly affected.  BMW is better off, but is the German economy better off in aggregate?

Well, what does BMW do with the $100 it received?  It can only spend the $100 in the U.S.  Even if BMW converts the currency and gets the 400 euros, then the exchanger paid out 400 euros to BMW and now has the $100.  What can the $100 buy?  The $100 can only buy the same amount as before in the U.S., even though it costs 4 times as much for a German in euro.   For example, let's look at this from the perspective of a German who wishes to buy a US Farm Tractor.    


Day 1

     Exchange rate = 1 $/Euro
     US Farm Tractor (dollars) = $100
     US Farm Tractor (euro) = $100 * 1 euro/$  =  100 euros


Day 2

     Exchange rate = 0.25 $/Euro
     US Farm Tractor (dollars) = $100
     US Farm Tractor (euros) = $100 * (1/0.25) euro/$  =  400 euros

The German tractor buyer's cost has gone up to 400 Euros.  While BMW is thrilled that it is making 4 times more money selling its cars, the German farmer has to pay 4 times as much for the same American tractor.  BMW benefited, but the German farmer lost.

In general, the $100 received by the Germans will be spent in the U.S. for something - if not by BMW or a farmer, then by someone further down the line in Germany who exchanged the euros.  If the purchaser of the $100 does not want a consumer product, they would deposit it in a U.S. bank or more likely, buy a U.S. dollar bond.  But whether they buy $100 worth of U.S. bonds or $100 worth of U.S. products, since it now costs them 400 euros, they get 1/4 as much U.S. stuff on day 1 as on day 2.  On Day 1, in aggregate, Germans produced 1 car in exchange for 1 tractor.  Now they have to produce 4 cars in exchange for 1 tractor.  How is this good for the German economy?

Even from this contrived example, you'd have to conclude that currency depreciation is at best a zero sum game in which some (exporters) benefit at the expense of others (non-exporters).  In fact, it's much worse than a zero sum game as Robert Murphy and Patrick Barron demonstrate in more detail. In Bad Idea: Devaluing Currency to Help Exporters, Frank Hollenbeck demonstrates the negative effects of currency depreciation on workers who must "pay higher import prices resulting from depreciation" reaching a familiar conclusion when analyzing central banking:
Few journalists seem to understand that a policy to reduce the foreign exchange value of a currency is, in reality, a policy to transfer wealth from workers — the middle class and the poor — to the wealthier owners of export industries. It is another example of the central bank acting as a reverse Robin Hood, taking from the have-nots to give to the haves.
So why would the central planning bureaucrats engage in "currency wars?"  The reason is that central planners are politicians who do what is in their own short term best interest.  In this case, they seek to politically appease their domestic export lobbies cheered on by Keynesian cranks like Paul Krugman.

As central banks engage in currency depreciation and the so-called "race to the bottom" goes on, it becomes even more clear that the real threat to any economy is not a strong currency, but a strong central bank.  The solution is to end the regime of central banking and to replace political control of our money with a private banking system based on a 100% reserve gold standard.  

Monday, February 16, 2015

Americans Should Support Freedom and Individual Rights Rather than Democrats or Republicans

I am always amazed at how inconsistent people are when it comes to their political views. 

For example, many of the same people who fight for repealing marijuana prohibition, based on the correct premise that people have a right to their own body, at the same time support draconian government regulation of drug companies by the FDA or support laws giving bureaucrats power to control what health insurance they can buy. 


Many of the same people who decry government interference in the economy, under the correct premise that individuals have a right to own and freely trade property, seek to give the government power over women's bodies to coerce them into unwanted pregnancies or support trampling civil liberties in the name of "fighting terrorism."    


Many of the same activists who attack the power of the so-called "evil corporations" and support anti-trust measures, supposedly to prevent the concentration of power, turn around and seek to create the largest monopoly of all - a socialist government, backed by the power of an armed military, to confiscate and nationalize private property.    


Many Democrats properly denounced the Bush administration for usurping individual freedom under the guise of fighting terrorism yet look the other way when perpetrated by Obama's intelligence apparatus. They oppose government censorship of their own ideas but seek government regulation of right wing talk radio through the fairness doctrine or the implementation of so-called speech codes.  Many Republicans cheered the establishment of the Department of Homeland Security and the implementation of policies aimed at neutering civil liberties under Bush but now, correctly, vilify the NSA and other intelligence agencies for comprising an Orwellian police state.


The root of the problem is ignorance of the true nature of individual rights and the proper function of government.  Freedom means the right to think, produce, and own private property as long as you do not violate another's rights by initiating physical force.  The function of government is to secure these rights by banishing the use of force except in self-defense. Broadly applying the concept of individual rights was the essence of the Founding Father's achievement.

Ignorance or evasion of the meaning and nature of rights is why both the mainstream political parties seek to violate individual rights, just at different times and in slightly different forms.  According to a recent report from Gallup, perhaps American are waking up. "Forty-two percent of Americans, on average, identified as political independents in 2013, the highest Gallup has measured since it began conducting interviews by telephone 25 years ago." While this poll is a step in the right direction, it's important for those seeking alternatives to understand the nature of freedom and individual rights and to uphold a non-contradictory platform of ideas.

Wednesday, February 12, 2014

To the Offended Generation, With No Apology

When MSNBC host, Martin Bashir, declared that "someone should defecate and urinate in [Sarah] Palin's mouth, a punishment delivered to some slaves," he immediately issued an on-air apology declaring: "My words were wholly unacceptable. They were neither accurate, nor fair. They were unworthy of anyone who would claim to have an interest in politics."  Then, a few weeks ago, "MSNBC host Melissa Harris-Perry offered an unreserved and tearful apology on her show...for remarks she made last week about Mitt Romney’s family and his recently adopted African-American grandson" tweeting: "I am sorry. Without reservation or qualification. I apologize to the Romney family." Most recently, it was reported that "MSNBC President Phil Griffin apologized to Republican National Committee Chairman Reince Priebus on Thursday for a tweet suggesting conservatives “hate” interracial marriages and “dismissed” the staffer who authored it."

Why were these apologies deemed necessary? For example, the Bashir incident was not a spur of the moment reaction. Evidently, he thought Palin's equation of America's budget deficit to slavery was inappropriate and suggested Palin endure the actual suffering of a slave, and he meant exactly what he wrote. These MSNBC pundits are left wing activists and their statements genuinely reflect their beliefs. While many might disagree with them, what's wrong with expressing their viewpoint on their political talk shows? Why can't these pundits "own" their beliefs and proudly profess them even in the teeth of vehement criticism?

The "controversial statement" followed by "The Apology" appears to be a kind of phenomenon sweeping American culture whereby momentary outbursts of actual thought are swiftly followed by denials and soulful public remorse. To "offend" another by speaking your mind is regarded as a criminal transgression mitigated only through the issuance of a perfunctory apology, a process which serves as a kind of ritualized public catharsis. Rarely is the actual meaning of the "offending" words ever considered or analyzed. Instead, the mere tone of the words and their presumed ability to offend the victim is regarded as the primary concern. Modern intellectuals have replaced objective communication with introspective assessments of feelings to which they modulate their indignation - or apologies.

Contrast this with comedian Natasha Leggero who recently refused to apologize after a joke that targeted Pearl Harbor veterans during a New Year's Eve telecast on NBC. She explained her non-apology on her Tumblr page:
I’m not sorry. I don’t think the amazing courage of American veterans and specifically those who survived Pearl Harbor is in any way diminished by a comedian making a joke about dentures on television. Do we really believe that the people who fought and defended our freedom against Nazis and the Axis powers will find a joke about Spaghetti O’s too much to bear? Sorry, I have more respect for Veterans than to think their honor can be impugned by a glamorous, charming comedian in a fur hat.
In this rare case, rather than succumb to politically correct pressure, Leggero stood her ground and actually intelligently analyzed the nature and intention of the joke ultimately demonstrating more respect for her supposed "victims" than her critics could likely ever conceive.

The progress and vitality of a free society is founded upon vigorous open debate, not retreat and evasion. Consider America's founding generation in the tumultuous 1790s, a period Jefferson dubbed "the reign of witches", when Benjamin Franklin's grandson, Benjamin Franklin Bache, and William Duane poured invective from the pages of their Aurora newspaper characterizing George Washington, the Father of our Country, as a "coward, a traitor, and a murderer" and John Adams "a blind, bald, crippled, toothless, dotard." Bache was ultimately arrested under the Alien and Sedition Acts where he died of yellow fever in captivity.  He never apologized nor did Washington or Adams.          

It is easy to cynically dismiss The Apology as spin doctoring or damage control in the social media age, but I hold that there is a deeper cause. Modern philosophy's assault on reason and objectivity has led to the idea that there is no truth, that nothing is black and white, that there is no right and wrong and no provable standards of morality or achievement.  Ironically, it is the left's own subjectivism that underlies their MSNBC apologies. They are such subjectivists, they cannot even bring themselves to stand by their own criticism. As soon as they utter even a semblance of actual belief, rather than attempt to defend their remarks with a logical argument, they ignominiously retreat into the morass of neutrality and snarky evasion.

The total collapse of objective standards is the essence of today's culture. The core of modern progressive education appears not to be teaching children how to ascertain truth by thinking objectively and analytically, but rather making them feel good by intentionally eschewing standards. Rather than striving to meet an objective standard of excellence, educators are concerned only with propping up the students' pseudo self-esteem inculcated through years of undeserved praise , trophies for all, and smiley faces on "fuzzy" math tests. Rather than teaching that pride is earned through actual achievement and willingness to suffer the consequences of failure, parents and educators construct a psychological house of cards ready to crumble at the first whiff of criticism.

While the left cannot bring itself to acknowledge objective individual achievement, there is one attribute they do urge us to celebrate - our membership in a group. Since the subjectivist left denies the possibility of rational, independent judgement and thus eschews the precepts of individualism, they regard people, not as individuals, but as members of collectives whose identities are determined by the attributes of their group. Rather than see individuals as unique products of choices exercised through freewill, to be judged according to "the content of their character", the multiculturalist left adopts the racist premise that individuals are products of their genetic linkage to some group, conditioned by their circumstances, their "environment", or their race, socio-economic class, or gender.

When individualism is replaced by collectivism, one's identity and sense of self-worth becomes tied to membership in a particular group.   Rather than seek individual goals and achievements by meeting and surpassing objective standards of excellence, individuals are encouraged to "celebrate" their group identity. Note that multiculturalism emphasizes "cultural diversity" rather than "individual" diversity. The implication is that actual differences can only be found within differing ethnicity's - not within different individual minds (see, for example, "whiteness studies").  Since individuals are essentially regarded as interchangeable members of a social organization, any affront to the group is a challenge to the member's pseudo self-esteem derived from membership in the collective - a notion that gives rise to the entire political correctness movement.    

The rejection of objective truth means that modern intellectuals must view ideas as the arbitrary products of conditioned mobs (see identity politics). This philosophy is responsible for pragmatic admonishments for politicians to disregard ideology and just "get something done."  In other words, according to them, it is fruitless to engage in ideological debates over archaic notions of principles related to the purpose of government, individual rights, and the laws of economics, because no such truth is available. Therefore, it is not necessary to reason or offer a policy that is logically consistent with abstract principles. One must forge consensus and compromise, generally through non-cognitive forms of appeal to emotion or fear.  And just what is it they should get done?  When you combine collectivism with the culture's default altruist ethos, it translates politically to egalitarianism - the idea that individuals should receive equal outcomes regardless of their ability, character, or productivity and to statism, the idea that the state must initiate force against individuals to achieve these economic and social outcomes.

America was once a nation of self-confident, resilient individuals eager to freely apply their minds to pursue happiness by overcoming the hardships of life.  The non-objectivity and relativism of post-modern philosophy has spawned an Offended Generation - a pathetic lot of fragile, whining imbeciles demanding a blue ribbon for existing and an Apology for being a victim of everything else that comes with it.

Monday, January 27, 2014

More on Bitcoin: Why It Cannot Replace Money

There has been much debate amongst economists over the nature and usage of bitcoins.  I recently wrote a post in which I briefly summarized the facts that give rise to the need for exchange and the necessary attributes of money, concluding that bitcoins will one day "go to zero" in terms of the gold price.  In the wake of many good comments, this post is a follow-up to that post and elaborates my views on the nature of bitcoins.  

First, it's important to define a few terms related to the meaning of exchange and money.  Following Reisman's Capitalism, a "media of exchange" are goods "sought neither as articles of personal consumption nor as means of further production, but as means of effecting further exchanges."  Media of exchange can be just about anything including cigarettes, cattle, furs, etc.  "The acceptability of the most preferred medium or media of exchange tends to go on increasing, until it or they are universally acceptable-i.e., have developed into money. Money is merely a medium of exchange whose use has grown to the point where it is directly and readily exchangeable against all other goods in a given geographical area." As discussed in the previous post, precious metals became accepted as money due to their unique physical properties.

Another important concept when understanding the nature of bitcoins is "standard money." Again quoting Reisman: "Standard money ...is money that is not itself a claim to anything further.  It possesses ultimate debt-paying power, in that when it is received no further claim to be paid is present.  Under a gold standard, standard money is gold.  Any paper money that exists is a claim to it."  

In a 2013 article, The Bitcoin Money Myth, Austrian economist Frank Shostak wrote: "Bitcoin is not a new form of money that replaces previous forms, but rather a new way of employing existent money in transactions. Because Bitcoin is not real money but merely a different way of employing existent fiat money, obviously it cannot replace it." In other words, a bitcoin is not itself money, because it always relies on an actual form of money (standard money) to underlie it. 

To see this point, consider the following example.  Most people are familiar with Western Union.  It is a way to transfer money to someone in a different place. You can go to a Western Union office, give them a certain amount of cash, and someone in a different city can go to a Western Union office and get the money.  Western Union provides a transferring function and you pay them a fee for their service. 

Let's say Western Union created tickets.  One buys a ticket for say $100.  He can then send the ticket to someone, rather than the $100 bill. The ticket is market "$100 payable on demand at any Western Union office."  When someone receives the ticket, he can take it to a Western Union office and get the $100 in cash. He may be able to trade the ticket to someone for a good or service because the recipient knows he can take the ticket to a Western Union office and get $100.  The tickets in this instance represent transferable claims to standard money payable upon demand to the holders of the tickets.      

The ticket is only valuable for three primary reasons.  First, the ticket is redeemable for $100 in standard money (in this context, the $100 fiat currency is standard money). In other words, the Western Union tickets would have no value in and of themselves.  Their value depends on the existence of, in this case, fiat currency or the $100. Second, the ticket is a legal obligation on behalf of the Western Union company to pay the ticket owner the $100 so that the bearer has a legal claim.  Third, the dollar amount, $100 in this case, is known and not subject to change.         

Bitcoin essentially provides a transfer function.  Like the Western Union tickets, one buys a bitcoin for a certain price and the transaction is recorded.  One can then send a bitcoin to another party to pay for a certain good or service if they are willing to accept it.  With respect to this transfer function, Bitcoin employs sophisticated network technology and appears to be very good at transferring the coins securely and anonymously.    
  
Like the Western Union example, when someone receives the bitcoin, the bitcoin is only valuable to the extent that someone can trade it for a good or can sell it to someone else for standard money.  Again, as Shostak notes, its value depends on the existence of another form of money.  However, unlike the Western Union example, no one is legally obligated to redeem a bitcoin for actual money, i.e., once you buy the bitcoin, no one has a legal obligation to accept it or redeem it, and consequently, the value of the bitcoin may change substantially in terms of actual money, potentially being worthless.  
   
This is why, from an economics standpoint, bitcoins cannot replace actual money. Bitcoin is not money in and of itself. The bitcoin price is essentially the price of transferring already existent fiat currency or, in another sense, it is simply a non-binding "claim" to standard money.   Since the value of bitcoins are not in their usage as standard money but in their usage in transactions, bitcoins are only as good as the fiat currencies in which they can be sold.  In other words, since bitcoins are not redeemable in something physical, if fiat currency goes to zero, bitcoins will go to zero.  Bitcoins may in fact go to zero even if fiat currency does not go to zero, if people just decide to stop using them for some reason. However, if fiat currency goes to zero, in terms of gold, what good is a bitcoin in its present form?    

So why does anyone use bitcoin and what accounts for its popularity in some countries and industries?  Merchants or individuals who accept bitcoins in foreign countries are betting that they can either exchange the bitcoins for something or cash them in for a more stable currency in the future as opposed to accepting local currency.  This is a rational bet if you live in a country with a tyrannical government and/or an unstable currency.  I would rather possess an anonymous potential claim to a valuable currency (in the form of a bitcoin) than possess a currency which is itself of little future value or obtained under monitoring from a government authority (Iran, China, etc.).

While bitcoins may serve a purpose and be of value in this and many other contexts, its actual nature, purpose and value should be better understood by potential buyers and sellers.   

Friday, January 24, 2014

Why Bitcoins Will Go To Zero, but Gold Will Not

If you lived in a simple civil society, how would you survive?  First, you’d have to do something -  like make a tool, cut some wood, harvest some food, catch some fish, etc.  Otherwise, you would just lay there and die.

If you wanted something from someone else, you would not go up to them and say “give me your stuff!” without starting a fight – remember, this is civil society.  You would offer them something in exchange. From time to time, if you wanted to give something away or someone gave you something for nothing, fine, but that would be the exception, not the rule.  If you keep asking for free stuff, that usually doesn’t go over very well.  If you demand free stuff, it leads to fights and wars.          

This brings us to a cardinal rule of economics, and life: there is no such thing as a free lunch.  Someone has to do something in order to survive.

To go beyond mere survival, to flourish, people have to do even more work and succeed at living to such an extent that they can survive while spending time thinking, inventing, and producing.  For example, if one guy figures out how to produce the same amount of food that used to take 10 guys, then the other 9 guys can work on other things besides food like inventing engines, spaceships, medicine, or computers to name a few. This is how human beings actually advance – how they live longer, healthier, and happier.          

If you thoroughly understand and integrate this principle into your thinking, you will be able to detect about 90%-100% of the BS that flows from the modern economics profession.  When a PhD or Federal Reserve official tells you that there is a magic way to create economic growth and prosperity without work or production, you will know something is wrong, even if he has a lot of formulas and pie charts.

When people begin advancing, it becomes a hassle to offer a random chicken or piece of wood in exchange for a carrot or some tobacco or whatever.  What if you don’t have exactly what the other guy wants just then?  What if you don’t want to carry a chicken around with you?  It is much easier to offer a standard asset that is valuable to everyone all the time.  If an asset has certain properties, it can serve as this asset.  What are these properties?

First, the asset would have to be universally recognized as a value, i.e., just about everyone could find a use for it.  It would be nice if it was found to be so valuable that a small amount would generally be accepted for just about anything.  This way, you could carry it in your pocket instead of in a wagon.  It would have to be something that could last a long time so you don’t have to worry about it vanishing.  It would have to be divisible so you could cut it up into different sizes to correspond to other goods that have differing values.  It would have to be something that does not change in value constantly due to dramatic changes in its supply.  It would be best if the material was homogeneous, or the same throughout, so that people could agree easily on its value without having to evaluate it every time you want to trade.

For thousands of years, humans have chosen precious metals like gold and silver since they meet all of these criteria (see this for examples of gold's practical uses).  Again, these are not arbitrary criteria set by me or some government agency.  They are criteria that follow from the nature of reality, i.e., the marketplace.  This does not mean people shouldn't barter good for good.  It just means that using a standard asset is much easier most of the time, and people freely choose to use them since it makes trade and life easier and more productive.  Quoting George Reisman (Capitalism, p. 142):                
Thus, an economic system operating under the constraints of barter exchange would obviously offer only very limited opportunities, for division of labor and would thus be extremely primitive.  In essence, to live in such an economic system, one would either have to be a farmer or produce the kinds of things that could be readily exchanged with farmers, such as blacksmithing services. 
What is required for the existence of a division-of-labor society is the existence of money and monetary exchange.  Money is a good readily acceptable in exchange by everyone in a given geographical area, and is sought for the purpose of being reexchanged.
So, the need for production and trade follows from man’s basic nature and the nature of the world in which we live.  The exchange of value for value is a requirement of human life.  The usage of barter or a standard asset such as precious metals in these exchanges is not arbitrary, it is an objective necessity of human survival.  Money, such as gold and silver, is preferable to barter if you want to live a more productive, happier life. Due to their unique properties, precious metals have been the objective money choice of the market for thousands of years.  Contrary to the claims of modern economists, gold and silver are not “barbarous relics” from a bygone age, but vital and necessary tools of exchange, which allow for an advanced division of labor economy and an increasing quality of life.

From the above, it can be seen that Bitcoin, a so-called digital currency, does not have these properties.  A Bitcoin is not itself valuable as you can not make a wire or a bowl or bullets or a house out of Bitcoins like you could with metals. The only thing that makes Bitcoins temporarily valuable is the belief that someone else will accept them in exchange.  In essence, Bitcoin is a like an even crappier fiat currency.  It's crappier, because at least fiat currency is legal tender, i.e., transactions are legally settled upon payment, and one must pay taxes in fiat currency.  Bitcoin does not even have this property!

At some point, Bitcoin's dollar value will go to zero as everyone who holds them tries to sell them to the next person and no one chooses to accept them.  In fact, since dollars are fiat currency, their value will one day go to zero in terms of actually valuable goods for the same reason.  Gold will never go to zero in terms of other commodities because of its special properties, like the fact that you can use it to do work and survive.

While many people express gold as a price in dollars, conceptually, it should be thought of in the reverse way.  An ounce of gold is an ounce of gold and can always be exchanged into other commodities. Gold is the money. Any commodity price can be expressed in terms of a price in ounces of gold. Even the value of dollars or other fiat currencies and Bitcoins can be expressed in terms of gold. For now, at least, those prices are not yet zero.          

Thursday, January 2, 2014

Milbank and the Flawed Philosophy of the Left: Why His "Weakest Generation" Is Actually the "Offended Generation"

There is certainly a profound political rift dividing the culture. However, the state of modern politics is so anti-intellectual and unprincipled that the essential philosophical premises giving rise to the differences (and similarities) are rarely discussed much less understood. In a seemingly innocuous op-ed characterizing the "weakest generation" and disparaging the Tea Party, Washington Post columnist Dana Milbank unwittingly exposes some of the deeper philosophical premises underlying modern liberalism thus providing contrast for those who wish to truly fight for individual rights and freedom.

In the op-ed titled, "The Weakest Generation," Milbank wistfully recalls his parents devotion to the civil rights movement and various other 1960's causes and laments his generation's, Generation X's, lack of an "equivalent" cause. He writes:
There have been many noble causes in my time — the fight against apartheid, for gay rights and for environmentalism — but none captured my generation or required the sort of sacrifice the civil rights movement did.
According to Milbank, his generation "came of age without an existential threat to the nation and without massive social upheaval at home." Evidently, the Cold War "was just a theoretical threat" and "when we were prepared to sacrifice for the country after the 9/11 attacks, President George W. Bush told us to go shopping." He concludes that "[w]e grew up soft: unthreatened, unchallenged and uninspired" because "we lacked a cause greater than self." [emphasis mine]   Exploring the political implications of his views he writes:
The effects on our politics has been profound. Without any concept of actual combat or crisis, a new crop of leaders — Ted Cruz, Rand Paul, Paul Ryan, Sarah Palin — treats governing as a fight to the death, with no possibility of a negotiated peace. Without a transcendent social struggle calling us to seek justice as Americans, they substitute factional causes — Repeal Obamacare! Taxed Enough Already! — or manufactured crises over debt limits and government shutdowns. 
According to Milbank, the fight over the role of the federal government is not a "transcendent social struggle." To him, Tea Party claims about spiraling debt, the loss of liberty, or the overthrow of the American constitution do not represent a "crisis" or even a matter of "justice." Rather, these are merely "factional cause(s)" manufactured by opportunistic politicians.

What accounts for Milbank's definition of a "noble" cause and what underlies his passionate admiration for the civil rights movement and his utter disdain for the Tea Party?

First, note that Milbank is not simply claiming that certain types of threats challenge and inspire activists. Rather, he is implying that without such a condition, a so-called "existential threat" or "cause greater than self," it is seemingly impossible to be "challenged" and "inspired."  

But, if it were really true that recent generations faced no existential crisis, wouldn't that be a cause for great celebration?  Isn't the reason we seek to defeat a threat to render it no longer a threat?  Consider Thomas Edison, Frank Lloyd Wright, Walt Disney, John Roebling, Sir Isaac Newton, Steve Jobs or Linus Pauling. Did these great thinkers, inventors, and businessmen need existential crises, threats, or even physical combat to challenge and inspire them to achieve their values? Are the creations or values of these individuals "noble"? Is the pursuit of a society where individuals freely pursue their own happiness through productive work and voluntary trade a "transcendent cause"?  Is the struggle to create, build, and profit by eradicating a disease, colonizing space, or creating spectacular abundance challenging and inspiring?  

Milbank's argument exposes a major philosophical principle underlying much of modern political thought. The view that purpose and inspiration come from causes "greater than self" compared to the view that the purpose of life is to pursue happiness through the achievement of values directly relates to the moral philosophy of altruism versus the moral philosophy of egoism.    

What underlies Milbank's angst and confusion is what Ayn Rand identified to be the dominant ethical theory of our time: altruism.  Altruism, she wrote, is the idea "that man has no right to exist for his own sake, that service to others is the only justification of his existence, and that self-sacrifice is his highest moral duty, virtue and value."  Altruism, she warned, is not "kindness, good will or respect for the rights of others." Rather, "[t]he irreducible primary of altruism, the basic absolute, is self-sacrifice—which means; self-immolation, self-abnegation, self-denial, self-destruction—which means: the self as a standard of evil, the selfless as a standard of the good."

The antidote to altruism's code of self-destruction is Rand's ethics of egoism or rational selfishness, which holds that "your life belongs to you and the good is to live it" and that "the moral purpose of life is the achievement of your own happiness" and that one should not sacrifice for others nor sacrifice others to oneself.   Rand distinguished individualism from collectivism.  She wrote:
Individualism regards man—every man—as an independent, sovereign entity who possesses an inalienable right to his own life, a right derived from his nature as a rational being. Individualism holds that a civilized society, or any form of association, cooperation or peaceful coexistence among men, can be achieved only on the basis of the recognition of individual rights—and that a group, as such, has no rights other than the individual rights of its members. 
An individualist is inspired by the challenge of purposeful living and a lack of existential crisis is a primary precondition of such a pursuit. Consider the pride of a scientist who discovers a cure for a disease or a new source of energy, or of a businessman that brings a thrilling new product to market. Consider the joy of a parent watching their children grow and learn, or the exhilaration of romantic love, natural discovery, fine art, good food, or the company of close friends. These are all values achieved by an individual and require the condition of freedom from coercion and are, in essence, the opposite of existential crisis.

To the altruist, these are selfish, banal, or bourgeois aspirations that are at best a necessary evil, and not examples of moral living.  To the altruist, virtue consists of sacrifice to some arbitrarily defined "common good."  This fact is what gives rise to the air of moral righteousness about liberal causes. Whether it be some horrifying government program like Obamacare or calls to throttle the global economy to counteract global cooling - I mean warming - I mean climate change - its adherents maintain a disposition of snarky pretentiousness towards dissenters while displaying a cultish reverence for the various causes and gurus of the 1960's.  Tragically, Milbank's acceptance of the altruistic ethics renders his own life and that of his generation existentially meaningless since he cannot find a recipient of extraordinary sacrifice.

Milbank may be right that recent generations are indeed uninspired.  But the fault is not the lack of a cause, it is the philosophy of people like Milbank.  It is the fault of a philosophy that holds sacrifice as a virtue and deprecates the individual pursuit of happiness. Contrary to Milbank's claim of a "weak generation," the morality of altruism has robbed an entire generation of the profound joy and happiness that results from purposeful living and instead substituted guilt and a sneering hatred of success.  Rather than cultivating a benevolent environment of discovery, productivity, creativity, and entrepreneurship, altruism has created an environment of guilt, victimization, sacrifice, and dependency.  As a result, a more apt characterization of recent generations might be the "Offended Generation."         

Another irony of Milbank's argument is that he cites the civil rights movement as the ultimate example of a "transcendent cause" yet denigrates the Tea Party's goals as merely "factional causes" without any true meaning.  How can this be?

After all, the civil rights movement rightfully sought freedom for blacks from government oppression and equal treatment under the law in accordance with the principles underlying the Declaration of Independence and the U.S. Constitution.  In the same way, today's Tea Party seeks freedom from government oppression threatening to subjugate all individuals and seeks a return to the very same American principles that gave birth to the civil rights movement. Wouldn't the original civil rights movement be a natural ally of today's Tea Party movement? After all, was the American Revolution - a war fought for individual liberty against centralized coercive power - not a transcendent cause?

Of course, in reality, any groups which truly fight for individual rights, i.e., the freedom from coercion, are natural allies. However, Milbank and his ilk do not regard the civil rights movement as a movement toward equality of opportunity under the law, i.e, the right for all individuals, regardless of ethnicity, to freely think and act in pursuit of happiness. To Milbank the altruist, the civil rights movement is a movement toward the egalitarian goal of "social justice" or the redistribution of wealth according to the Marxist-altruist credo: "from each according to ability, to each according to need."    The cause of the egoist is individual rights and equal treatment under the law in the pursuit of voluntary cooperation and trade, while the cause of the altruist is the use of government force to extract equal outcomes regardless of effort or ability as the whole panoply of liberal policies since the 1960's demonstrates.  

But isn't altruism and sacrifice required to fight for a noble cause?  Isn't it true that the participants in the American Revolution or World War II or the civil rights struggle were indeed challenged and inspired?  Yes, but Milbank has the logic backward.  To an egoist, fighting for freedom is a selfish value.  The egoist seeks the preconditions for the pursuit of his own values.  Fighting for freedom from the British monarchy, fighting against slavery, fighting against fascism and communism or Islamic totalitarianism are all moral struggles in this context that take great courage. Ironically, it is the selfish pursuit of liberty and happiness that gave the original civil rights struggle a moral underpinning.  African Americans sought the same rights and treatment under the law that white Americans treasured.  The freedom resulting from the securing of these rights is what led to America's prosperity and why the world's immigrants sought refuge here.

The altruist premises of the modern left not only explain why they regard the Tea Party as morally insignificant, it further explains why they so casually and frequently charge the Tea Party with racism.  To the left, civil rights is redistribution of wealth or "social justice," therefore, opponents of government force, taxation, and redistribution (Objectivists, libertarians, Tea Partiers) are not seen as defenders of liberty and individual freedom for all, but simply as opponents of what they regard as "civil rights" and therefore are regarded as "racists."  Of course, this is a preposterously inverted view of racism.  Racism is the attribution of personal characteristics based on race or genetic lineage. The pursuit of equal treatment under the law for all is a moral and noble cause, while the preferred treatment of some individuals based on race is the very definition of racism, yet, the latter is precisely what the left advocates in the form of affirmative action.        

In reality, altruism is incompatible with actual freedom and incompatible with justice. On this point, Rand made the following observation:
If it is true that what I mean by “selfishness” is not what is meant conventionally, then this is one of the worst indictments of altruism: it means that altruism permits no concept of a self-respecting, self-supporting man—a man who supports his life by his own effort and neither sacrifices himself nor others. It means that altruism permits no view of men except as sacrificial animals and profiteers-on-sacrifice, as victims and parasites—that it permits no concept of a benevolent co-existence among men—that it permits no concept of justice.
Note that moral philosophy is not what distinguishes the modern political parties.  In fact, altruist ethics unites the religious right to the secular left - the only difference between them being the object of the sacrifice. For example, the religionist wants you to sacrifice to God, the socialist wants you to sacrifice to the state, the environmentalist wants you to sacrifice to the earth, etc.  The reason why Republicans and Democrats are so similar is their acceptance of the same fundamental moral philosophy. They only disagree on who should sacrifice to whom and how much and is the reason America has been drifting toward socialism for over a hundred years.

The fissures in American politics are based on fundamental philosophy. Defining the debate properly around philosophy helps to simplify and perhaps finally import the highest form of moral righteousness to the case for freedom and individual rights.

Sunday, November 3, 2013

The Mistake of Thinking that Obamacare's Failure is Just a Technology Problem

The rollout of Obamacare has been an unmitigated disaster. From a website that doesn't work to skyrocketing premiums, Americans are finding out "what's in it." The administration and its lackeys have now begun characterizing the problems as due to nothing more than technical problems or so called "glitches" that will be fixed in due time with perhaps another billion dollars of funding. According to this National Review article, Biden "apologized for the disastrous rollout of the federal health-care website , saying that he and President Obama thought that the website was ready, but didn’t understand it themselves." He added:
“Neither he and I are technology geeks, and we assumed that it was up and ready to run,” Biden told HLN’s Christi Paul in an interview. “The good news is — although it’s not, and we apologize for that — we’re confident that by the end of November it will be and there will still be plenty of time for people to register online.”
In other words, according to Biden, the failure of Obamacare is a short term technology problem that could have been fixed if only he and Obama were "technology geeks" that could have personally attended to the engineering of the website.  In another example, after voicing support for the law in September, Starbucks CEO Howard Schultz criticized the rollout of Obamacare but attributed the problem to practical implementation:   
”Unfortunately, in this kind of situation, execution trumps strategy," Schultz said on CNBC. "It might be a great strategy, but the execution is really flawed. It’s off the rails.”
Critics of Obamacare are committing an enormous error if they think the problem is simply a technology problem.  Like public education, public housing, and public toilets, the government's virtual takeover of the health insurance market is doomed to fail, because government intervention in the economy is always doomed to fail. Socialism is not "good in theory" but bad in practice, it is bad in theory and therefore bad in practice.    

Socialism in all its forms must fail because it destroys the private ownership of the means of production and with it the profit motive and the price system.  In fact, socialism's only purpose is the negation of the price system, i.e., the prohibition of private property and free exchange between individuals.  In destroying the price system, socialism destroys the central method of economic calculation by which individual businessmen and consumers weigh revenues and costs and substitutes for it the arbitrary judgments of government bureaucrats. In his treatise, Capitalism (chapter 8), George Reisman thoroughly demonstrates how "capitalism and the price system bring about a harmoniously integrated planning of the entire economic system" concluding: 
...socialism, in destroying the price system, destroys the possibility of economic calculation and the coordination of the activities of separate, independent planners.  It therefore makes rational economic planning impossible and creates chaos.   
The particular case of health care insurance is no different.  The entire system of health insurance was distorted by incentives in the U.S. tax code which led employers to pay employees in benefits rather than wages, a distortion compounded when states began mandating particular benefits which led to rising premiums, a distortion compounded yet again by Obamacare's mandates of even more benefits and regulations which have driven premiums even higher (see FIRM for a detailed history of government intervention in health care).  It is simple to see the effects of this distortion by comparing the heavily distorted health insurance market to the relatively less distorted car insurance market and observing that there is no car insurance crisis nor even discussion of ObamaCarCare, yet.    

At a more fundamental level, socialism represents a negation of man's nature which requires the freedom to think, act, and own property in order to survive and prosper.  Socialism is therefore not "good in theory" but rather, vicious in theory.  It is not a coincidence that it has resulted in nothing but poverty, misery, and tyranny in practice.  On the other hand, as Reisman states:
Freedom and free exchange create an inherent harmony of the rational self-interests of people.  When the actions of individuals are free and do not represent the use of force, their effect is necessarily to benefit everyone involved.  This is because each individual acts to benefit himself and must at the same time benefit those whose cooperation is to be secured, or else he will not receive it.  In addition, no one standing outside the transaction can be harmed, because any evidence of harm to the person or property of others is grounds to prohibit the action as an act of force and violation of freedom.  ....As a result, the inherent tendency of my action is to produce improvement for others as well as myself, and thereby to improve general well-being.
The more frightening aspect of this debacle is that despite a hundred years of theory and practice, so many believe "this time it will be different."  Unless the nature of the universe and reality change, it will not be different this time, whether Biden gets a computer science degree or not.   

Wednesday, October 9, 2013

Is Stealing Good For the Economy?

If I steal a toaster, is that good for the economy?  Hmmm. 

Well, stealing is the act of taking something from someone without their consent.  In other words, the thief receives a value and offers nothing in return. Obviously, if everyone was allowed to steal toasters it would be a disaster.  A lot of people would work to make the toasters while others simply took them without producing or offering anything of value in return.  It would not take long for the toaster maker to stop producing them.
    
What if the thief was a little more clever?  Instead of shoplifting the toaster through concealment of some kind, he prints a counterfeit bill in his basement printing press.  He takes the bill to the store and "pays" for the toaster.  Once again, he has done no real work and offers nothing to the makers of the toaster.  He has simply tricked them into thinking that they have received something of value in exchange for their work making the toaster. The thief has the toaster, and the toaster maker has a worthless piece of paper. 

What if the thief, rather than stealing the toaster or counterfeiting money, just stole real money from his neighbor?  Then he could waltz into the store with a fresh bill and just buy that toaster. 

How are these three situations different in principle?  In the first case, the thief overtly stole a toaster.  In the second case, the thief also stole the toaster, just in a slightly more clever way. In the third case, the thief stole the money for the toaster.  If the first case is immoral and impractical, why wouldn't the second and third cases be equally as immoral and impractical? In fact, all three methods are just different forms of theft and all have similar practical results. But don't tell that to an economics professor or politician.  

The second case is the essential basis upon which the entire Federal Reserve system operates and provides the ideological basis for the Nobel Prize winning academics that serve on its board. With the nomination of Janet Yellen as the new Fed chairman, this philosophy promises to be taken to an even more absurd height.  The third case is the essential premise behind government stimulus spending equally in favor amongst prize winning academics.  Are they all crazy or stupid?  In short, yes.           

How could the Yellen's and Bernanke's of the world possibly think that counterfeiting money is a good idea?  Well, they would say, once the toaster maker has the counterfeit bills, he can take those bills and trick his suppliers and employees, even if he doesn't know he has counterfeit bills. Then the suppliers and employees can take the counterfeit bills and trick others too.  In this way, they boost "aggregate demand" which in the short run tricks people into thinking that actual production is being exchanged value for value - even though it is not.  Somehow, they believe, this will be "good" for the economy.

What about government "stimulus?" This is the idea that if the government spends other people's money, it will be good for the economy.  In other words, if the government steals money from one group, ultimately through taxes, and simply gives it to another group, this will help the economy.  

So, can we really cheat reality in this way?  Can we just print counterfeit money and make goods appear? Can we take money from one group and give it to another in such a way that more is created?    If we think in these simple terms, isn't it obvious that none of these ideas will "work" in the sense of creating actual wealth and prosperity?  In fact, only creating wealth creates wealth, and the precondition to creating wealth is the freedom to produce and trade which, in turn, depends on the right to think, act, and own property free from coercion - particularly, from theft.      

Wednesday, September 18, 2013

Obama Brings Back the Carter Malaise

"If you are going through hell, keep going." - Winston Churchill

This quote captures the essence of an important psychological fact: most people can suffer through difficulty or tragedy if they regard it as temporary. On the other hand, when one adopts the view that the future is hopeless, either psychologically or philosophically,  it leads to a much deeper existential level crisis or depression. The latter is how I would characterize American culture in the late 1970's.

Growing up in that decade, I was too young to understand much about current events or political economy, but I do recall my general feelings from watching news and listening to adults or teachers.  It was horrible. After the turbulent events of the 1960's, Vietnam, and the Watergate scandal, the economy was in shambles amid the so-called "energy crisis," raging inflation, skyrocketing interest rates, and high unemployment. The never ending Iran hostage crisis taunted Americans daily culminating in Carter's bungled military rescue which only compounded the nation's angst. People were miserable, but it wasn't just a temporary sense of disappointment over some random tragic event.  It was deeper and more profound. There was a sense that the future of the country was hopeless.  America was in a cultural depression.

President Jimmy Carter, sensing this grievous state of affairs, gave an infamous speech in which he tried to address the "crisis of confidence" as he called it, and rally the nation around his political agenda.  The speech is now accurately referred to as the "malaise speech," even though Carter never used that word. The graveness of what Carter sensed was captured by the following excerpt:   
The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation. 
The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.
In addition to a lack of "confidence," he identified further symptoms of hopelessness observing, "for the first time in the history of our country a majority of our people believe that the next five years will be worse than the past five years" and he pointed to "a growing disrespect for government and for churches and for schools, the news media, and other institutions." Of course, Carter believed the government could solve all these problem if not for the usual culprits: special interest groups and those pesky ideological dissenters.  He claimed:
"What you see too often in Washington and elsewhere around the country is a system of government that seems incapable of action. You see a Congress twisted and pulled in every direction by hundreds of well-financed and powerful special interests.  You see every extreme position defended to the last vote, almost to the last breath by one unyielding group or another. 
And exactly what was this "action" he sought? According to Carter, a "balanced and fair approach" demanded "sacrifice" albeit just a "little sacrifice from everyone" - an approach that too often, he groused, "you see abandoned like an orphan without support and without friends."

The reason this is significant is that America today is in essentially the same state of economic and psychological depression as it was in the 1970's.  More importantly, it is in this position for fundamentally the same reasons as it was in the 1970's, and not surprisingly, it has a leader in power with the same underlying philosophy as Carter.

The American economy in the 1970's was in shambles due to government intervention in the economy.  Nixon abandoned the last vestiges of gold backed money in 1971 when he famously reneged on America's commitment to maintain international convertibility of dollars.  Shorn of any sound money pretense, the American government printing press went full bore, inflation spiraled, and interest rates skyrocketed along with unemployment, while government price controls led to shortages of basic commodities (see George Reisman's The Government Against the Economy for a thorough analysis of the 1970's, also incorporated into his book Capitalism: A Treatise on Economics as Chapters 6-8 which can be downloaded here).    

From the speech, it is clear that Carter seemed to regard the crisis as separate from his own statist policies or even the statist policies of his predecessors. It was as if the various economic and political maladies destroying America had suddenly emerged out of thin air like a plague and the only remedy was some mysterious undiscovered antidote. So clueless was Carter that, rather than understanding that the causes of the economic crisis were government intervention in the economy and proposing a logical solution such as removing government intervention in the economy, Carter proposed more of the very ideas that caused the mess in the first place!

For example, later in this speech he made various proposals including import quotas on oil (uh, to reduce imports of oil during a shortage!), the creation of something called a "solar bank," a "windfall profits tax" (evidently to reduce the funds with which American companies could search for and produce more oil !), forcing energy companies to switch from oil to coal (ahem), create the "energy mobilization board" (yes, a new government agency to "cut through the red tape and the "endless roadblocks" created by government agencies or, I guess, an anti-government agency agency), something he called "mandatory conservation and standby gasoline rationing," and my favorite:
I'm asking you for your good and for your nation's security to take no unnecessary trips, to use carpools or public transportation whenever you can, to park your car one extra day per week, to obey the speed limit, and to set your thermostats to save fuel. Every act of energy conservation like this is more than just common sense -- I tell you it is an act of patriotism.
In other words, rather than liberating the American economy by establishing a free market in energy, eliminating price controls, and returning to sound monetary policy, he simply proposed a new round of even more disastrous government remedies and urged the sacrifice of individual happiness by riding in cars with strangers and parking your car, evidently, to do literally nothing.

Does this all sound really familiar?  Let's see - economic crisis caused by government intervention in the economy, more government intervention to solve the problems of previous intervention that causes even worse disasters, apocalyptic warnings of imminent ecological disaster, calls for more government "action" and denigration of dissenters as dangerous "extremists" or "deniers," eroding personal liberty, weakness and humiliation abroad, confusing blitzkriegs of government actions causing businesses to reduce production or close due to the uncertainty of new taxes and regulations, high unemployment, monetary inflation and debasement of the currency to finance the government's escalating debt, increases in the hoarding of precious metals, calls for ever more sacrifice from the remaining producers, growing cynicism and disrespect for law and institutions, and with no end in sight, misery, frustration, hopelessness, depression, and malaise. Wait, this is precisely the state of America today!

Why do statist policies lead to cultural malaise?

For an individual who adopts a rational approach to life, confidence in one's own efficacy, or self-esteem, is a natural result.  If an individual knows that he can go as far as his ability can take him, he naturally feels a sense of confidence in the future knowing that the logical result of hard work is success. The only political precondition to productive achievement is the freedom to think and act, and as long as people are free, they must work and produce to whatever extent their ability and character allow them. Political freedom, the freedom to think, produce, and own property without coercion, is the basis of America's extraordinary productive achievements, and underlies the American spirit of self-reliance, innovation, pioneering, and entrepreneurship.  

But what if an individual began to believe it didn't matter how hard he worked?  What if he realized that his life didn't belong to him and that in fact, the harder he worked, the more would be taken from him?  What if he knew that even if he worked very hard, a random government edict may derail his efforts at any time?  What if his competitors needed only political pull rather than ability to subvert his work?  What if by virtue of his efforts he was regarded as guilty until proven innocent and harassed and vilified? What if he was not allowed to charge a profitable price for his product or to freely negotiate with his employees or customers?  Would he remain confident about his ability to succeed? At what point would he slow down, not seek to achieve as much, or even fire employees who now constitute more of a threat than a value? And what about those who rely on the producers for employment or for their goods and services? Extrapolated to a cultural level, at what point would cynicism, apathy, and depression replace healthy optimism about an unlimited future?

While any given individual can lack confidence to varying degrees for a variety of reasons, for a "crisis of confidence" to pervade an entire culture the precondition to individual success, i.e., the freedom to think and produce, must be upended to an extraordinary degree.  Carter was right about Americans lacking confidence, but it's cause was not mysterious nor was the solution "faith" and "sacrifice." Much to Carter and Obama's chagrin, the antidote to cultural and economic malaise are simply the abandonment of their statist policies and a total rejection of the altruist-collectivist philosophy upon which they are based along with the adoption of a philosophy of rational self-interest, individual rights, free markets, sound money.

Benevolent optimism accompanies free men - malaise is what accompanies slaves.