Wednesday, June 29, 2011

Central Bankers Powned by Ron Paul and... Lindsay Lohan?

[Citations to come very soon.]

This week, the occasionally entertaining Daniel Indiviglio took it upon himself to negatively connect Ron Paul to Lindsay Lohan because she spoke out about the Fed’s inflation machine on Twitter. Even if Lohan’s tweet was just an ad, the statement she makes is demonstrably correct, and the fact that Indiviglio found it necessary to throw Rep. Paul’s name into the mix is an acknowledgement of the fact that putting the words “Ron Paul” into any web article’s title greatly increases the number of hits. The Internet is indisputably Paul's territory. With that in mind, why wouldn’t establishment shills use his name to promote themselves? After all, it’s not like Paul is even named in the body of the article, meaning the author doesn’t really have to address Austrian economics, business cycle theory, or libertarian philosophy. It’s just too much fun to ridicule those who dare to question the prevailing orthodoxy.

Of substantially greater interest, though, is the unfounded assertion that the Fed has had nothing to do with the rising prices of commodities such as oil and food. The St. Louis Fed’s own numbers show that the dollar’s value has already fallen against other major currencies by 17% since March 2009. As Austrian economist Bob Murphy points out, oil is traded on a world market, and as a result the dollar’s depreciation against other currencies has raised the dollar-price of oil by over 20 percent. The Joint Economic Committee estimates that Fed policy has caused Americans to pay 57 cents more per gallon of gas than they did in late 2008.

Those who attribute the rising commodity prices entirely to real growth and not to the Fed’s monetary expansion are directly contradicted by prominent economists (you know, the ones Lohan should be worshipping). CNBC economist Steve Liesman recently stated that “some Fed officials suggest they could lower commodities prices only by tightening policy and reducing economic growth.” If even those at the Fed admit that raising interest rates will lower commodity prices, then how can it be argued that keeping interest rates artificially low won’t have the opposite effect?

Writing for the Mises Institute, Kel Kelly points out that if increased real demand and strong growth were really causing the movements in commodity prices, and not the creation of new money, the corresponding increase in employment and in the production of goods would cause those prices to fall, not rise. Increased prices of commodities, without monetary expansion, would be offset by reductions in other prices, which hasn’t happened. The government’s and the Fed’s own statistics and media shills can’t even tell a consistent story, let alone a factual one.

The bottom line is that the Federal Reserve is making life harder for American taxpayers, and the only candidate on either side of the 2012 race with the knowledge and the principles to do anything meaningful about it is Ron Paul. Good for Lindsay, though. She’s already managed to outsmart most of the media jokers and several Nobel laureates in economics. Now someone needs to send her a copy of End the Fed.

Monday, August 30, 2010

Stimulus Chat

I recently discussed Obama's economic policies with a family member, and the general attitude expressed was that the bailouts and stimulus packages are making things better in the economy.

I think this betrays a misunderstanding of the economic situation, especially when it comes to the rational allocation of factors of production. The answer to such (completely understandable) ignorance is knowledge of the Austrian Theory of the Business Cycle as developed by F.A. Hayek, winner of a Nobel Prize in the 1970's for Economics. I aim to show here that the bailouts were not only unnecessary, but in fact detrimental to our economic recovery. I've had enough of the "experts" telling me that all we need to do to get out of this jam is to spend/print/borrow more money. The experts' conclusions are based on fundamentally flawed economic analysis and a seriously lacking theory of capital.

According to Hayek, interest rates can go down in two different ways: 1) More saving is happening, meaning that people have more of a future-oriented outlook and are allowing a larger supply of their resources to be lent by banks to interested investors and driving the "price" of loaned capital downward, and 2) rates are forced downward by a central monetary authority, in this case the Federal Reserve, through open market operations (basically, the Fed creates money out of thin air and buys securities with it, increasing the amount of money in the banks). There are vastly different implications to these situations.

When investors and businessmen see falling interest rates, they are led to believe that more resources have been made available for use in productive activities by future-oriented savers, leading to a lower interest rate. When these market actors see that it's become cheaper to borrow money, they generally decide to focus on more long-term, capital-intensive projects (after all, it's cheaper to raise capital) such as housing and construction. If interest rates have fallen naturally because of increased saving, then the interest rate is doing its job by coordinating production over time.

If, however, the interest rate is "artificially" forced down by the Fed increasing the money supply via open market operations, then more debt and investment in long-term projects will come about without a corresponding increase in the amount of available resources. A larger number of people will now be looking to take advantage of the perceived increase in available resources, only to find that said resources are less abundant than previously thought, and therefore more expensive. When this is realized, projects and even whole businesses have to be scrapped because so much land, labor, and capital have been wasted. The reason this seems to happen all at the same time is not because "the free market failed" or because of "animal spirits" or other purely psychological factors, but because the interest rate is such an important figure throughout the entire economy that when interest rates are artificially kept below their market rate, actors on the market tend to make the same mistakes because they're all relying on the same bad information. In fact, it was precisely the government's interference with the coordinating function of the interest rate that was the most important factor in precipitating the financial crisis.

With all this in mind, I'll address why I believe the Bush/Obama bailouts and stimulus packages cannot rectify our situation and can only make things worse. If a gross misallocation of resources due to government planning is what led to the bust in the first place, then expanding the money supply, keeping interest rates at zero, and spending like there's no tomorrow will only exacerbate the trouble. Instead of allowing the poorly run companies to be weeded out, and the resources previously owned by said companies sold off to new owners looking to find the most efficient use for them, the government has decided that we need to continue pumping up new credit bubbles and spending billions and trillions of dollars, which will only lead to even more misallocation of resources and even worse bust in the future. While allowing a correction of prices on the market and allowing liquidation of unsustainable ventures may sound scary and chaotic to one who is used to the idea of government control, it's really the quickest way to get back to a rational configuration of capital and a movement of the unemployed into jobs producing things for which people indicate demand on the market. If we spend government money to create jobs instead of allowing markets to work, all we'll be producing is more debt and more inflation. That simply cannot continue forever.

To those who believe we are recovering because the numbers say so, I say that the numbers don't tell the whole story. GDP will of course go up if the government spends more money, and it can affect the unemployment numbers by spending government money to give more people jobs, but this says nothing about the sustainability of the jobs or the spending. Concerns over the effects that debt and inflation will have on our ability to borrow and spend in the long term are generally dismissed as kooky. Keynesian columnists like Paul Krugman don't pay nearly enough attention to how resources should be rationally allocated among different sectors and industries of the economy and which kinds of capital can be used for which projects, preferring to look at capital as homogenous and completely convertible. Many economists really believe that the engine of economic progress and growth is spending, rather than production. If we just throw more money at the economy in general to stimulate aggregate demand, the problem will go away. But without a developed theory of capital and an understanding of its heterogeneity, Keynesian economists, the ones taken most seriously by the establishment left, will never understand why it is that aggregate demand is too low: because the government encourages the production of things for which the market has not indicated a preference, so people don't want the particular items that have been produced.

As an update, what would be the most libertarian/anarchist way to deal with this? The answer is an end to central planning of interest rates and to all central banking. The proper money for a free society is chosen by competition on the market. We should allow any currency to be used that can be agreed upon by buyers and sellers, and let them follow their own preferences, whether for gold, silver, certificates representing a certain amount of a commodity stored by a private organization, commodities themselves, or whatever is most convenient. Fraud would still cause financial damage and could be settled between the parties. Competition would result in more freedom and a currency that reflects individual decisions of market actors rather than the military spending of an empire and ongoing fascist economic regime.

Monday, August 23, 2010

Anarchist ramblings, part 4-ish

In what way or ways would it be most difficult for insurance companies to function successfully as sources of justice and defense against aggression?

Some market anarchists propose the idea of insurance companies in a stateless society as defenders against aggression ensuring a just outcome. While the insurance industry has been described as thoroughly unethical under our current system, it must be pointed out that, in many cases, the regulatory protection and subsidies handed out to the largest and most politically connected corporations have had a hand in creating this outcome. With the corruption and inherent violence of the State thrown aside, the industry would undoubtedly be more competitive than it is now, eliminating much of the inefficient service and high costs.

Beyond this basic statement, it’s necessary to anticipate what the most likely problem areas are. The most obvious potential problem comes from the additional risk and cost undertaken by the insurance company in dealing with especially obstinate losers of disputes. It’s true that an insurance company can recover the money paid out initially to a client by making agreements with the employer or bank of a losing party in a dispute. If the institutions connected to an individual do not consent to allow access to the specified monetary amount, for whatever reason, the situation becomes more difficult. While good reporting and business ostracism can be a powerful motivating force, and the unsavory reputation that would come with defending customers who are guilty of skipping out on publicly recognized judgments against them would work in the same way, it is still possible that the involved parties could continue resisting collection, for whatever reason. In such rare cases, the Tannehills argue that the use of force can then be applied to take back the property on behalf of the insurance company. I don’t have a problem with such force after all other options are exhausted, but this likely presents a high level of risk and thus will be costly for all involved. If the insurance company used excessive force, they might incur legal liability for damages over and above the debt, find that the operation has become too expensive to be justified, or lose the trust of customers. In such extreme and rare cases, the company may decide to take the loss and allow public knowledge of the delinquency to have its effects on the debtor’s business relationships and those of his associates. For larger losses where this isn’t enough, reinsurance contracts would mitigate the insurance company’s risks.

While it’s possible for a sufficiently obstinate person to avoid rightly paying damages in a stateless society, the consequences are clear and have both direct and indirect effects on important aspects of one’s life. The limits of insurance companies as protectors give way to voluntary enforcement by communities and markets. To be known as a violent or dishonest criminal would ensure heightened scrutiny by communities, defense agencies, lenders, customers, neighbors, and many others, making it harder to commit future crimes or even be connected to society. The checks on lawlessness provided by a freely competitive market in dispute resolution, freedom of choice in defense, and the threat of isolation for aggressors are harder to circumvent than a monopolistic and politicized “justice” system.

Tuesday, August 10, 2010

Government being annoying

I'm severely frustrated today, because I can't buy contacts due to my prescription being too old. It's one of my special pet peeves about State control: having to wear glasses until I get a new job with health insurance because the wise overlords apparently know better than me what contacts I should wear, even though I am functioning quite well wearing glasses of the same prescription and have recent orders placed with no problems reported. What pig-headed arrogance. Of course, since I'm not properly connected and only a mundane citizen, I get screwed by the same double-kick to the face government gives most of us: You don't have a job, and since we've subsidized, taxed, regulated, and inflated too much, health insurance is too expensive unless you have a job, which we've (oops!) taken from you by distorting the markets with expanded bank credit and creating boom/bust cycles. Since I can't deduct all my medical expenses from taxes, like an employer can with insurance premiums, they've stuck me in a completely unnecessary catch-22. Let's not forget the whole government-imposed third-party payer system that gets in the way of nearly all doctor-patient relationships and separates patients from the real costs, setting the stage for even higher prices. Of course, doctors can make more money off of us if we need their say-so to get lenses, and corporations make more when competition and freedom are restricted, so at least the elites and their friends are happy.

For more, read Bill Anderson and Ron Paul.

Thursday, August 5, 2010

Is Taxation Theft?

Is Taxation Theft? Why or why not?

Taxation is the State’s taking of one’s property in the form of money by the force of law to fund its own activities. It is necessarily coercive and a violation of one’s right to full ownership of his property, as it is levied on citizens without regard for their consent or their individual needs, and is backed by the threat of governmental violence as a penalty for non-compliance. It is an act for which private citizens would be prosecuted, but for which the State is lionized. The threat of violence that is necessary for taxation to take place indicates that it is not merely an exchange between two market actors of money for goods or services but an act of aggression with a perpetrator and a victim. Taxation is no less an act of theft than mugging someone on the street.

Taxation is not, as some will object, part of some nebulous “social contract” by which everyone automatically agrees to institute a monopoly on defense and other services to be financially supported under pain of imprisonment. The imposition of a collective “will of society” upon even those who object individually to the actions of government is convenient for argumentation, but unrealistic. Collective groups cannot legitimately violate rights belonging to individuals, such as the right to ownership of one’s own property.

Others may object that taxation is simply the cost one must pay to live in a civilized society. The irony of any argument that requires submission to the coercive acts of a violent monopolist in order to be “civilized” is too obvious to be ignored. A stateless society based on voluntary and cooperative exchange rather than the threat of force is by its very nature much more civilized.

A common response, in my experience, to the assertion that taxation is theft is that we don’t have to pay the taxes of a particular area if we just move somewhere else, so we’re really volunteering to pay, in a sense, by choosing not to move. This too is irrelevant for those who own land in said area, because the taxation still negates the rights of complete ownership in one’s piece of owned property. In the case of sales taxes, no matter where the sale is completed, one’s right to contract voluntarily with others is violated by coercive interference. Oddly enough, supporters of centralized government power often argue that it’s cruel to allow states and localities to engage in decentralized rule-making, because it might be too expensive for those affected by bad policy to move away and escape such laws.

The purpose of voluntary exchange is to better the situation of both parties to the transaction. If a street thug interferes in a transaction by pointing guns at both parties and demanding a surcharge be paid on the value of the transaction “because I have the gun,” he will promptly be arrested. Replacing the street thug with a different thug wearing a uniform and working for the State changes nothing as far as morality is concerned. It would be equally unacceptable for me to knock on a neighbor’s door and force him to give me a certain percentage of the value of his tract of land or of his yearly income, justifying my violence by describing all the great services I’ll provide with his money and saying that if he doesn’t like it, he can just move away. If it is theft when done by a private citizen, it must also be theft when the perpetrator has a badge or a tax-funded salary.

Tuesday, July 27, 2010

Diminishing Returns and Private Law Enforcement

I was talking to a friend about the idea of a free market in law enforcement recently. He gave the well-known objection that one security firm could come to dominate a regional market and become the monopoly provider (specifically because economies of scale make such expansion profitable), using its power to take advantage of its customers. I have two things to say to that:

1) The first point is more for non-anarchists: If you're so afraid of a monopolistic law enforcement agency, then why support the same in the form of a State whose coercive power precludes the very possibility that competition can break the monopolist's hold on power?

2) Second, and I'm not certain I have this right: In a freely competitive market for law enforcement, how can any one firm consistently achieve the necessary economies of scale to make continual expansion possible, so as to become a monopolist? If a firm is faced with stiff price competition and can't raise prices to cover the acquisition of the extra capital without losing customers, it won't be able to expand its workforce beyond a certain point without increasing average total cost due to diminishing returns (more workers are employed than can use the existing capital stock efficiently). Wouldn't this inhibit the growth of any one firm?

Point 2 has been floating around in my head for awhile now. Am I missing something, or oversimplifying? Discuss!

Stateless Society Critique, Part 2 of many

How is Government Like a Monopoly?

The State is a monopoly on the use of violent force within a given geographical area. Its status as complete or partial monopolist in various industries creates many of the same problems we see in government-supported private monopolies. Corruption and inefficiency, and unhealthy incentives are present in degrees unimaginable for firms in a market of free competition.
A government program’s incentives are very different from those of private firms, as one example. Private firms must, to the extent that they are not recipients of government largesse in the form of subsidies and preferential regulations, compete with many other companies to impress customers with the superior price and quality of their products. Government, on the other hand, has a legally recognized power to force its subjects to continue to support its programs financially, so it doesn’t have to do nearly as much to compete with providers of similar services in the private markets. This severely reduces the incentive to produce the best products or services in the most cost-effective way. If the program fails, its bureaucrats will come riding to its defense to increase funding and manpower to their respective departments. It can always be argued that it was merely under-funded or administered by people who don’t sufficiently believe in the benevolent violence of the State. A private business will properly be allowed to fail on a free market if its customers leave because of bad service or high prices, and so operates on entirely different incentives. The State tends to subsidize failure, while voluntary exchange creates an incentive to provide better service.
The above is clearly demonstrated by, among other things, the history of mail delivery in the United States. Lysander Spooner’s campaign in the 1850s to establish a postal service in competition with the Federal mail delivery service was successful in taking for itself a substantial portion of the country’s mail business, forcing a decrease in the extremely high rates charged by the government. It took a congressional ban to save the government’s monopoly and put Spooner’s American Letter Mail Company out of business. The government was able to charge very high prices for its services as a monopolist, but had to lower them when people finally saw a better alternative. Rather than merely improving service and lowering prices, as a private business would, the government used its monopoly on violent force to arbitrarily eliminate its competition.
In how many other areas has the government exercised monopoly power to the detriment of its taxpaying victims? Fred Reed’s description of U.S. armed forces as a “Vienna sausage military at filet mignon prices” describes well the result of a tax-supported monopoly on national “defense” that continues to grow in spite of its almost constant failures. Police forces largely monopolize personal protection and abuse their power by using increasingly militaristic tactics even with unarmed civilians. Anti-poverty programs and public schools, as another example, operate in an environment of reduced competition that makes inefficiency and sub par service much more frequent, if not inevitable, because the programs continue to coerce others for funding regardless of their performance. In these and other areas, the presence of the State as a specially protected actor on the market removes the healthy incentives of competition much like a private monopolist would.