Sunday, October 19, 2008

Church and State - should they be separate?

The mantra of liberals these days is separation of church and State - keep religion out of politics (because apparently religion can somehow make politics even worse), keep theology out of government schools, and so on.

The mantra of conservatives is not quite the opposite - because everyone is all too painfully aware of the horrific instances of State power wielded for the purposes of church-sanctioned "purification" of society, the Inquisition being perhaps the most notable example. But evangelical conservatives in the United States have come to see the State as the sole salvation of moral goodness in society. Why, if we don't ban those gay marriages, the whole country will become overrun by a bunch of girly men! If we don't incarcerate teens for pot or alcohol possession, why, they won't learn their lesson! If they intend to destroy their lives on pot and alcohol, we'll make sure we destroy them first in state prisons and juvenile facilities. Think of it like a nuclear first strike, just on a smaller scale.

But before answering the question of whether church and State should be separate, let's ask why anyone would ever want to unite them in the first place. Why would the church want to be entangled with the state? And, more importantly, why would the State want to be involved with the church? I think everyone understands the benefits to the church of involvement with the state - enforcing orthodoxy, church attendance, belief conformity, perceptions of morality etc. But is the State somehow a hapless victim of the wiles of conniving clergymen wherever church and State have been commingled? I hardly think so. The State has only ever been involved in religion because it serves the State's ends. So, what are the ends of the State, and how does religion serve them?

Well, the State is a parasitic entity which sustains itself by seizing property through the largely voluntary cooperation of its host population. From before recorded history, some men have been enslaving other men, forcing them to do their bidding building palaces, monuments, temples, pyramids, pantheons and other public works, most of which have been purely wasteful acts of egotistical self-aggrandizement. In short, the State is a criminal organization. It derives its revenues from robbery and slavery. It enforces its will through the use of summary violence.

But the State is unlike any other criminal organization in that somehow, the large part of the populace doesn't mind its criminal activities, at least, until they are taken too far. This is true in all parts of the globe and in all recorded history. Religion gives us a clue as to how it is that the State is different from every other criminal enterprise. A criminal gang makes no apologies for its robbery - it is a robbery. The victim and the perpetrators are all fully aware of what is occurring and why. There are no illusions. The State, on the other hand, first sponsors the building of a temple and then says that the taxes it is collecting (robbery) is to appease the gods and avert their wrath, or whatever. The priests and religious tapestry are but enablers. They are really nothing more than state apologists.

Most religions contain stories of unconditional obedience to God. In the Bible, for example, we have the story of Abraham who is commanded by God to sacrifice his only son. Abraham obeys (though he is ultimately deterred by a late intervention by God who is pleased with his obedient attitude), despite the obvious immorality of the action, knowing that, somewhow, in the end, God means it for good because God can do no evil. Similarly, when Joseph is sold into slavery by his brothers, he later becomes vice-Pharaoh of all Egypt and tells his brothers that "You meant it for evil, but God meant it for good" ... the implication being that God can do no evil. Whatever God does, no matter how apparently evil on the surface, is ultimately good.

This is part of my own religious beliefs.

However, the State finds in this a most convenient parallel for itself. No matter how evil the State's actions appear to be, they are really for our good. The church is the perfect supplier of such a white-washing agent: God Himself. When the State acts in accordance with the will of God, it can do no evil because God can do no evil. Genocide, torture, rape, plunder and murder are all just part of a bigger plan. Of course, just as the will of God is inscrutable, so is the bureaucratic state. We mere mortals cannot possibly hope to comprehend the mind of God, nor should we presume to question the goodness of the State no matter how blatantly evil its actions.

Peruse for yourself a selection of the unspeakable evils which the criminal State has perpetrated upon its hapless victims for millenia. Torture is perhaps the most compressed, intense and personalized manifestation of the evil of the State. No justification can possibly be offered for the use of organized torture or a torture device*. See how the State has stripped people of their humanity. The State has whipped, beaten, flayed, sawed, boiled, buried, burned, crushed, poisoned, disemboweled, suffocated, impaled and electrocuted us, its slaves, since before the dawn of history. All of which is washed away by the blessing of His Holiness - we have assurance that no matter how evil it may seem on the surface, God can do no evil, and, as His holy servant, the State can do no evil so long as it is doing His will.

The separation of church and State has nothing to do with keeping the irrationality of religion from enmiring the "rationality" our secular politics. Rather, it is borne from the recognition that the criminal syndicate of the State must be denied access to the moral whitewash of the church. The Inquisition and the Salem Witch Trials are among the more dramatic recent examples of how the evils of the State can be justified by the church. And there have always been willing apostates within the church salivating at the opportunity for self-aggrandizement and enrichment in cooperation with the State and baptizing its crimes.

Unfortunately, conservatives still believe, despite the unanimous testimony of history, that the State can be a servant of morality. And, just as unfortunate, liberals believe that the only problem with the State was the involvement of the Church and, having properly secularized the State, it can now be a servant for the good. But what the State is has never changed from time immemorial. The state is still the device of slavery, it is still the means by which we are robbed of our property, stripped of our dignity and bridled to the parasitism of the elites who believe they were born to live off the productivity of others.

Just peruse one of the online museums of torture which I linked to above - if you can stomach it - and tell me the State is not pure, criminal evil. It is nothing but evil and has never been anything but evil. Murray Rothbard is right that every man, woman and child should be filled with a seething hatred for the State. It is the confounding of morality, calling evil good and good evil. It has enslaved us and mocked us for millenia. It's time we said enough is enough and threw off our slave masters.

Misanthropy and Global Warming

In an earlier post, I discussed the risks associated with making extended preparations for extinction events and other armageddon scenarios (by making a human-induced extinction event significantly more probable).

I just ran across an article today that presents many of the same concerns about ultra-wealthy misanthropes using their wealth to promote anti-population causes (the latest rage being Global Warming). I found this quote particularly salient:

"It may not come as a shock to find that those involved heavily in the unproductive, if still important, sphere of finance should believe that there is little point to the human race. When you are a member of a strand of society that is widely regarded as parasitic on the rest, the notion that the whole of humanity is parasitical on the planet is not a huge intellectual leap. But once you have ruled out suicide as an option, you need some reason to keep going. ‘Saving the planet’ has become a mission statement both for the pointlessly rich and the political class. As former UK chancellor Nigel Lawson noted in a talk at the LSE bookshop in July, people ‘want to believe there is more to life than everyday getting and spending’ – and that includes the fabulously wealthy and the politically ambitious."

Remember - World War I was preceded by the Gay '90's (a time of high optimism in Europe about the potential for progress and liberalism) and the Great Depression by the Roaring 20's. The stagflation of the 70's was preceded by the first man to set foot on the moon in 1969. Do not assume that humanity is too modern and too englightened to plunge itself back into the depths of horror which have plagued us in the past. Wars and atrocities never happen by accident.

What if these men believe so strongly that we are a plague of the planet that they're willing to take direct action to resolve the problem? They certainly have the means - the Pentagon keeps warning that biological warfare is accessible even to relatively low-funded terrorist groups. And some of them (ultra-wealthy misanthropes) have even clearly intimated they have the will (Prince Philip of England has said, "In the event that I am reincarnated, I would like to return as a deadly virus, in order to contribute something to solve overpopulation." I cannot imagine anything more terrifying than a small group of ultra-wealthy misanthropes hell-bent on "saving the planet" from the rest of us. And I don't put it past any of them - not because they're rich, but because I don't buy this nonsense about social progress. Humans have every bit as much capacity for atrocity as they ever did. We just have even more tools with which the elite can slaughter us than even Hitler, Stalin and Mao did.

The desire to eradicate potential human competitors in the environment is a primitive urge. In what evolutionary psychologists refer to as the "ancestral environment" there would have been very little exchange or trade and, hence, little opportunity for expansion of the carrying capacity of the environment. Those who eliminated (killed off) neighboring tribes retained more resources for themselves and increased their own ability to reproduce. Hence, we have inherited their pre-market genes which see the world through a zero-sum lens. In a sense, these ultra-wealthy misanthropes are simply acting in accordance with their primitive urge to eradicate potential resource competition to increase their reproductive success, just as their forefathers did. But today, this urge serves no useful function and is incredibly dangerous to the long-term survival of humanity. I'm not worried about the billions of people driving to work every day and causing Global Warming (if indeed they are). I'm worried about the ultra-wealthy elites who consider the idea of infecting humanity with a super-virus a good thing. That terrifies me.

Zimbabwe: The true face of the State

An article in the news today details violent suppression of protests in Zimbabwe. With hyper-inflation (11,000,000%!), Zimbabwe's corrupt government gives us a look behind the curtain at the true nature of any state.

When Mugabe came to power, he used the crimes of the British (esp. the much-celebrated criminal, Cecil Rhodes) to justify confiscation of the farms of whites. In principle, retaking stolen property is not wrong. But the State has no interest in justice and a state actor never intends to seize property to do justice.

Mugabe has distributed the seized land to his cronies - friends and family - to solidify his power base. In the process, the agricultural industry of Zimbabwe has been decimated and its population hurled into 85% unemployment with disastrous hyper-inflation. This is the true face of the state. Our government is only better as a matter of degree, but its actions in running up public debt, inflating the currency and redistributing wealth from the poor to rich cronies for political ends are no different in kind than Mugabe's.

My concern is that as our Rehoboamic government intends to burden us with ever greater debt, inflation and (inevitably) taxation, we may be moving towards such scenes of violent suppression of popular protests. Certainly, with the PATRIOT Act, Military Commissions Act and the rest of the Orwellian legislation passed since 9/11, the President has all the formal authority needed for it. Zimbabweans are protesting in the streets because, ultimately, their government has laid waste to their country and left them impoverished and starving. To maintain its grip on power, our government will do no less and it is far better equipped than Mugabe to retain power.

It's time we start to rein in the beast before it's too late.

Forget the election for a minute - let's look at history

The Presidential election is a dog and pony show, people. It is the modern equivalent of the Roman games. The intent is to keep you, the sheeple, distracted on something irrelevant while you are being fleeced by the Washington Mafia. Remember, the basic principle of magic (and street cons) is to conceal the minor motion (the trick) with a major motion (the flourish). The election is the flourish. The bailout is the trick, though today's political magicians are pretty pathetic. They just don't make FDRs anymore.

Isn't this a bit extreme? Maybe, maybe not, but you at least owe it to yourself to understand this financial catastrophe and the implications for you.

Here's some of the lessons of history that are relevant.

1) Fiat and inflationary currencies always collapse sooner or later. Whether it be the Chinese and their "flying cash" under Kublai Khan, the debased coins of the Roman empire, the paper Continental under the Continental Congress, the paper money of the French under John Law and afterwards, the German mark in the 1920's or the US dollar today. The key principle to understand is that government-controlled paper money monopolies and the banking systems built on them are always fraudulent. They would not require so much legal and regulatory protections if they were honest. Like any fraudulent system, they are doomed to eventual collapse.

Our currency has been pure fiat for just 37 years (Nixon cut the last ties to gold in 1971). Inflation has been through the roof since then. Sooner or later, it will collapse. If, by some miracle, they manage to avert disaster this time, an even larger crisis will develop in the future. Sooner or later.

2) The government's actions only deepen and worsen economic downturns. Since the popular opinion seems to be that we need to repeat the Great Depression by making all the same mistakes we made in the 1920's and '30's, we can expect to enter another, long period of economic depression. If the government were to stop trying to prop up its fraudulent system and allow the market to reconstitute our money and economy on an honest footing, the damage would be severe but not catastrophic and recovery would be long in coming, but not indefinite. However, we will pursue a policy of propping the system up (of course, there are too many vested interests... they're called bondholders) and this spells hardship and misery for a long, long, long time.

3) The government never takes care of people in times of economic crisis. Please, please do not make the mistake of assuming that the government's going to make everything good in the end. Just 37 years ago, Nixon defaulted on US obligations to pay gold to bearers of US dollars. The governemnt will never hesitate to default on its obligations and promises whenever that is what is in its best interests. The worse things get, the more incentive the government has to abandon whatever promises you were counting on it keeping.

Since the government has no money of its own, it can only help you by taking something from someone else. When we're all experiencing an economic downturn at the same time, how do you expect the government can help you? They can't and they won't. As in the Depression, you'll have to hope you're far enough up in the soup line. If not, too bad for you, you go hungry today.

Now is the time to call up friends and family and re-establish old contacts. Get ready to work together with one another, if need be, to produce and distribute basic necessities amongst yourselves if things get that bad. Keep some physical cash on hand so you can travel to buy necessities once the government begins imposing price controls in your area and shortages develop. Pay down your high interest debts, reduce your discretionary spending and, if you have the luxury, buy some gold and/or silver to protect some of your savings from the coming tsunami of inflation. Have your legal affairs in order, including passports, etc. Get exercise and lose weight so you can be ready to stand in long lines for long periods of time.

In short, don't depend on the government to look out for you because the government doesn't give a hoot about you. Anything you thought, when you read about the Great Depression, "Boy, it sure would have been smart if people had __________ beforehand"... do that now. Act as if we are entering a Second Great Depression because the odds that we'll avoid such a catastrophe are growing smaller every day. Hopefully, all such preparations will be in vain. But from the looks of things, we are set to repeat every single mistake which caused and protracted the Great Depression. This time, the entire global fiat currency system may be in for a catastrophic collapse. Only time will tell.

The comic relief horse-race between McBama and O'Cain, Republocrat versus Demican, is a charade. It doesn't matter who gets in. You're being fleeced of all the wealth you have produced in your lifetime by incompetent, out-of-touch criminals who really believe their own myth and think they control the world. I fear that the first Great Depression was not lesson enough, so we are likely to repeat it. But let's make this one the last. No more government- and central-bank-induced Depressions. Enough is enough! I don't know about you, but I am tired of the legalized counterfeiting Mafia cartel in Washington and on the Federal Reserve Boards and the boards of central banks throughout the rest of the world taking everything we produce. They are parasites and should be expunged.

By entrusting governments with the power to print as much counterfeit money as they like, we have granted them the closest thing to absolute power there is in this world. And we all know what absolute power does.

Forget the election. Read your history books and get mad.

A small victory for liberty amidst a hurricane of fascism

Well, we should take time to celebrate the small advances of liberty, especially during these times of rampant fascism. While it is my religious belief that homosexuality is immoral, if two adults make a choice to live in a certain way, that is their business. While marriage, per se, should be a religious, not a civil issue, in my opinion, it is a step in the right direction for the court system to extend the same property protections and make available divorce and other kinds of legal proceedings related to resolving disputes that arise in sexual relationships of any kind.

We have a long way to go in terms of sexual freedom - there is still a massive prejudice on the left against poly- lifestyles. It will be interesting to see the left forced to confront its own moral fascism over the next decade or so in the arena of poly- families. Apparently, Canada is already extending some protections to poly- families. Hopefully, the US will follow suit soon, though the recent FLDS raid is not much solace in that regard.

Stop using the government to impose your view of "the way it oughtta be" onto others where their actions affect no one other than themselves. The sooner we stop the nanny (aka fascist) state, the sooner we will be free.

Socialism 101: Redistribution of Negative Wealth

The Renaissance Italian Luca Pacioli is credited with the invention of double-entry bookkeeping (liabilities, equity, revenues, expenses and asset balance.) This enables businesses to calculate in terms of money their profitability and track their true capital.

When the government redistributes "wealth" it is not really redistributing what economists call wealth ("subjective satisfaction with a good, service or state of affairs") because that cannot be redistributed. Rather, it is redistributing profits orequity (assets). It does this by putting a liability or expense on the balance sheet of one individual or organization (usually in the form of taxes) and simultaneously putting an equity or revenue on the balance sheet of some other individual or organization. This is no different than any other transaction, except that it is not voluntary. Pacioli's double-entry bookkeeping could be used to track how this occurs all throughout our economy as wealth is redistributed by government fiat.

What I want to point out, however, is that negative wealth can also be redistributed, where I am using the term "negative wealth" to refer to liabilities. This is exactly what the bailout is, it is a transfer of liabilities or losses. Usually, the government moves an existing profit or equity from one individual or organization to another (taxes usually confiscate positive wealth). The bailout has the same net effect but works on the other column of the balance sheet. Instead of transferring money from you and me to Wall Street cronies as is usual, the government is this time transferring Wall Street's debts and losses to you and me. Different mechanism. Same difference.

In fact, if we were using Pacioli's double-entry bookkeeping to track it, we wouldn't see any difference at all. The government is still just placing a liability or loss on our balance sheets and placing an equity or profit on the balance sheets of the Wall Street fatcats. It's just business as usual, folks.

This isn't complicated. You perform double-entry bookkeeping every time you balance your checkbook. The net effect of this bailout is that Wall Street has been given the power to swipe your debit card and put debits on your checking account. It really is that simple. If you're not mad, you're either not understanding what's going on, or you're part of it and you should be ashamed of yourself.

The dreaded credit "freeze"

What does it even mean for credit to freeze and why should that be a problem?

Let's look at what credit is. Loans (credit ) are given out to individuals or organizations on the basis of their credit-worthiness. Credit-worthiness is a kind of financial reputation that is usually attained through documented repayment of past credit. Or, in the case of the loan by which I purchased our second car, credit-worthiness is established through family relationship to my creditor (my wife's grandfather). In any case, loans entail some degree of reputability and trustworthiness of the debtor and the creditor's ability to believe in the debtor's reputability.

The giving of a loan requires the creditor to forego the consumption or capital purchases he could have otherwise engaged in with the money. This means that the act of giving a loan has a cost to the creditor. This is a common point of confusion among the populace as the charging of interest (usury) is typically seen as mean-spirited and evil, especially when decent people are bankrupted by loans they cannot afford to repay. Interest is the means by which the debtor compensates the creditor for the costs he is incurring by loaning out his money.

Interest, in fact, is a price like any other. And, like all other prices, interest rates are determined by supply and demand. The fewer people willing to give a certain kind of loan (and the more people demanding that kind of loan), the higher the interest rate will be. And vice-versa for lower interest rates. Interest rates are not arbitrary, they are determined by the supply and demand for money itself.

So, why would someone want to take out a loan? Well, there are lots of reasons. The average person will likely think of buying a car or buying a house as occasions to take out a loan. But why should buying a car or house entail taking out a loan? You might say that you cannot afford it if you didn't take out the loan, but this is not true. If it were really true that you could not afford to buy a car without a loan, no one would grant you the loan in the first place. Think about it. You can afford that $20,000 car and more... you are going to eventually pay the purchase price plus interest back to the bank, right? The missing element is time. You cannot afford the car right now and you do not want to wait until you have saved enough money to buy it.

Let's say you buy a $20,000 car and you will pay $5,000 in interest over the 4-year lifetime of the loan for a grand total of $25,000. Now, you could either wait 4 years and save your money then buy the car (and save $5,000 in the process), or you can pay the loan and interest over the 4 years and have the car now. The $5,000 in interest is the price you are willing to pay to have the car sooner rather than later. Let's say you cannot get to work without a car. You will benefit by far more than $5,000 over the next 4 years by virtue of having a job and being able to drive to it. So, it is certainly worth paying the bank $5,000 in interest over the period of 4 years for the benefit of having a car now rather than 4 years from now.

Businesses make the same calculation when they take out loans. Let's say your manufacturing business could increase revenues by $1M/yr. if you could build an additional manufacturing plant. But, the plant will cost $2M and it will take a long time to build that much capital from your current revenues. So, you go to the bank with your proposition and they loan you the $2M. Over the lifetime of the loan, you are going to pay $500,000 in interest, for a grand total of $2.5M. But it will have been worth paying that $500K extra to get the benefit of the new manufacturing plant now rather than later and after 3 or 4 years your manufacturing plant will have paid itself off and your business will be more profitable than it was before.

When credit becomes tighter (the fashionable term seems to be "freezes"), banks are more hesitant to give loans because the reason credit is tight is that loan defaults are increasing. They want to see higher profit margins on the capital, they want to see price decreases taken into account. They want to see a more robust record of past loan repayment. Some businesses use credit for operational expenses and for these businesses, a credit tightening can mean bankruptcy. This is not so different than the credit-card driven American consumer household which has been sustaining itself on an ever-rising pile of debt - day-to-day expenses being charged to credit is a sure recipe for financial ruin.

I don't see why it's such a nightmare that people who have been living beyond their means on credit cards should now be forced to live within their means. They may have to move to a smaller, less luxurious home. Get a smaller, less gas-guzzling car. Downsize their entertainment system a little. Downgrade their wardrobe and furniture a notch. They will not die.

But the same goes for business. All the empty suits on TV keep talking about the "credit freeze" and how this spells disaster for American businesses. Those businesses for which a credit tightening means bankruptcy ought to go bankrupt because they are misallocating resources. A business which can sustain itself only by spending more than it takes in is unviable anyway. Let it go bankrupt, let those capital and human resources be freed for more productive uses. Yes, this entails some temporary pain and hardship as people are scrambling to find new jobs and lines of work and business owners are forced to liquidate their capital equipment for new uses. In the end, however, it is the best thing that can happen for the economy as the foundation is built for the next wave of sustainable growth built on the solid foundation of fiscal restraint and well-allocated resources.

So, let the credit "freeze up." It's only a problem for those individuals and businesses that have been living beyond their means and thereby misallocating resources.


Here is a sobering article discussing Britain's planned next steps in implementing the techno-fascist society.

I would like to note that there are a few monkey wrenches in the plans of the would-be Big Brothers. First, while technology enables data-mining and other voyeuristic activities - to which the perverts in government bureaucracy are perenially addicted - technology also enables far more interaction than is possible without it. Since there are far more data-generators than data-miners, the job is still disproportionately difficult.

Second, computers are not AI - they only automate things. Spying requires more than automated data-mining, it requires intelligent filtering. While government perverts can use computer software to amplify the amount and detail of voyeurism they engage in, so long as they are dealing with 1000:1 or greater ratio of human data generators to human data miners, their task will always be just as hard.

Last, the more government spies on us, the more incentive we have to use cheap, widely-available, military-grade cryptography software and integrate it into every part of our infrastructure. So, incidentally, the government may simply be helping us perform the much-needed upgrade of our data infrastructure to ubiquitous cryptography. The nice thing about cryptography and steganography, is that they have the effect of making information freedom all-or-nothing. Either the government violently prohibits us from using computers and networks completely (and thereby prevents us from using cryptography), or it does not, in which case, it cannot prevent us from transmitting whatever data, information or communication we choose. The much-vaunted, but very leaky, Great Firewall of China is the perfect example of how the government is ultimately powerless to really stop the flow of data once people are free to use the technology at all.

My greatest hope for freedom is the unfathomable incompetence of government. Good luck spying on us, morons.

An economics question

Originally Posted by "Undead2" on CARM discussion forums:

"So a person in my shop is asking how this will affect him personally?

I gave the analogy about how when the price of oil goes up from Saudi, that means the price of corn goes up because farmers must pay more for the deisel in their tractors and that increase must be passed on to consumers, but he doesn't understand (and I am having trouble explaining) how the real estate market will affect him. He says he buys corn but is not buying a house any time soon..

Can you explain to both of us how this could balloon into another depression?

Thanks in advance"

Well, a recession/depression is inevitable, it's not a "this could happen if the government doesn't step in to ___________" scenario, as is being painted out by the bailout proponents. The only question we need to answer is how deep and long we intend to make this recession. The root causes of this economic downturn are:

- too much easy credit
- housing prices too high (speculative bubble driven by the easy credit)
- misallocation of resources to where they are less in demand (home construction, etc.)

Let's say the government chose to do no further harm to the economy than it has already done, and let collapsing banks fail naturally and so on. In this case, Joe Six-Pack is going to feel the crunch as follows:

- businesses will hunker down and try to weather the storm by cutting their expenditures
- one of the consequences of easy credit is that businesses across the board expand their outlays without necessarily increasing their revenues (they become more speculative on future revenue increases which may not materialize)
- as a result, jobs will become more scarce as businesses cut their outlays (labor is an outlay) - that is, unemployement is going to increase
- this will mean a general decline in wages which will
- effectively increase the cost of living
- in addition, to counteract the collapsing credit (which shrinks the size of the total pool of money in the country), the government will likely print more money which
- causes prices to rise, decreasing Joe Sixpack's standard of living even further

If Joe Sixpack holds a lot of debt, it is going to become increasingly difficult to meet the minimum payments as his wages decrease. And, since credit is tightening, his credit ceiling is lowering as well, meaning he can't pay it forward anymore. In short, if Joe Sixpack was living beyond his true means before, he will no longer be able to do so. In addition to the general decrease in the standard of living, Joe Sixpack is also stuck with high credit card payments which he cannot juggle away anymore, further decreasing his standard of living.

The bailout, however, will make every single one of these negatives that much greater. Its sole effect is to get the well-connected, big business interests in Wall St. off the hook for the insane credit practices they were engaging in. The bill will be marked up to you and I... adding that much more burden to us at the worst possible time. While we are all experiencing the pain of having to cut back to living within our means (and then some), taxes are going to be increased as foreign and domestic bondholders alike become increasingly nervous about the possibility of default on the astronomical US government debt.

Even worse, the bailout is going to attempt to perpetuate the very misallocation of resources that triggered the crisis in the first place. The goal is to try to price control home prices (to keep them high) so that the big boys on Wall St. who were asleep at the wheel can cut and run now that the game is up. But this will only perpetuate the problem by diverting resources to new home loans and home construction at a time when the market is drowning in homes!

In short, our political leaders intend to repeat every mistake that deepend and lengthened the Great Depression. All I can say is look out for yourself, don't trust anyone, especially the government, to look out for your welfare. Put your money where you know it is safe and get ready for a long, hard road over the next 5 to 10 years, depending on how bad these bailouts get.

The bailout - economist Steven Landsburg isn't buying it

In this little article, Steven Landsburg raises obvious objections to the bailout that few people are talking about. I have been saying essentially the same thing on this forum since the beginning. It's good to know a well-respected economist shares my concerns.

Why do we need these big Wall St. banks again? With a price tag of $700bn, surely our leaders owe us an explanation of at least that.

The bailout proposal eviscerated

One of the very, very few defenders of freedom in our government, Ron Paul, demolished the bailout proposal in a few short paragraphs today. You can read his statements here.

In light of what Ron Paul says, I have a question for those of you touting this bailout bill: If the price of "stability" is rewarding rich, irresponsible CEO's, stockholders and boardmembers of reckless companies and punishing the American public with the double insult of a future tax burden and untold billions in lost investment opportunities, how is stability worth it? What is stability? Is it not having your own 401(k) go down? Is that what this is all about? The war of invested Americans on the uninvested? I cannot for the life of me understand how anyone with an ounce of humanitarian conscience can justify this bailout plan.

It is the raw, unconcealed, naked use of power to rob the poor to give to the rich. This is American socialism, folks. Welcome to 1984.

Has the Executive become a de facto dictatorship?

I ask this in light of the new powers (read the section "Out of Control?") the Treasury and the Federal Reserve have bestowed upon themselves. The annual Federal budget is but $3T, a sum whose expenditure is controlled by the 435 members of Congress but just two men have directed the expenditure of over 1/3 of the yearly Federal budget in the span of a couple weeks! Leave aside the sophistry which could be used to justify these actions de jure, and ask yourself, has the executive - and the Fed - assumed de facto dictatorial powers, regardless of the Constitutional window dressing? Remember, Hitler was very careful to have the Enabling Act (which gave him unlimited power) renewed every four years. Legality and reality are often two very different animals.

No one (of merit) calls the President a dictator, but does that mean he has not become a de facto dictator? Between the executive branch and the Federal Reserve, is there anything which is truly outside their power to do? I think it's time we started becoming much more paranoid of our government, no matter which party controls it at the moment.

Finanacial War Crimes

We all know that finances are a key component of how terrorists and mobsters fund themselves. Money can be, in itself, a weapon, especially when it is used to destabilize an economy.

If the claims in this article are true, I want to know whether we could bring up the responsible parties on charges of crimes against humanity or other war-crimes level charges?! Destroying hundreds of billions or trillions of dollars of wealth must certainly have very deadly consequences to those left begging on the streets, without medical care, in its wake. Is this not waging war on the poor and downtrodden? Is this not just blatantly corrupt, criminal behavior?! Why is there zero outrage about this? Why doesn't the media care? Why is Congress asleep? You're all arguing about McCain versus Obama while these bilge rats are stealing everything we own. Are you all a bunch of brainwashed zombies? What is wrong with you people!?!?

This is all starting to feel just a little surreal. I think I'm going to go down this week or next to get myself and my family passports. This is beyond scary.

Panics, Bank Runs and Public Goods

I have been watching the cable news networks with some amusement as the financial empty suits have been repeatedly calling for "calm" and "trust." I cannot count how many times I've heard it stated, "this is a crisis of confidence - the worst thing we can do is to lose faith in the system because it will become a self-fulfilling prophecy." FDR said essentially the same thing when he said that "the only thing we have to fear is fear itself." This quote is often seen on TV in connection with the rise of Nazism, but it had nothing to do with that - it was the banking crisis that Roosevelt was talking about.

It is the nature of fractional reserve banking that if all depositors do demand all their demand-deposits at once, the banking system will collapse. Note that the uniform sort of fractional reserve banking we have today only exists in a regulatory environment which makes it less profitable to pursue other reserve ratios by protecting the low reserve banks from losses and failures by socializing risk (pushing off the costs of bank runs or massive loan defaults onto the taxpayers).

In a free market of banking, we would expect to see a wide variety of reserves from the extremely risky to the extremely conservative with most depositors placing their money somewhere in the middle - just like the stock market. Each bank - and each depositor in each bank - would be taking sole responsibility for the risks they accept in return for the rewards they reap (in terms of higher interest rates earned by means of lower reserve ratios). When the credit system became too wound up, people would eventually get jittery (just as they do today) and start pulling money out. Those banks who had overextended their positions would collapse and those banks who had restrained themselves from overexpansion of credit would survive. After a few months, the market would readjust and, lessons learned (painfully, for the most risk-prone), be improved.

So, that brings me back to the issue of confidence. David Friedman discusses exactly this problem in the context of the battlefield in a fascinating little article, The Economics of War which discusses the economic decisions facing the individual soldier on the battlefield. He says,

"We do not know all of the objectives that any individual has, but we do know that for most of us, staying alive is high on the list. The general commanding an army and the soldier in the front line have, in one sense, the same objectives. Both want their side to win, and both want both of them to survive the battle. The soldier, however, is likely to rank his own survival a good deal higher and the general's survival a good deal lower in importance than the general does. One consequence of that disagreement is that the general may rationally tell the soldier to do something and the soldier may rationally not do it. Neither is necessarily making a mistake; each may be correctly perceiving how to achieve his ends.

Consider a simple case. You are one of a line of men on foot with long spears; you are being charged by men on horses, also carrying spears (and swords and maces and...). You have a simple choice: you can stand and fight or you can run away. If everyone runs away, the line collapses and most of you get killed; if everyone stands, you have a good chance of stopping the charge and surviving the battle. Obviously you should stand.

It is not so obvious. I have described the consequences if everyone runs or everyone stands, but you are not everyone; all you control is whether you run or fight. If you are in a large army, your decision to run will only very slightly weaken it. If you run and everyone else fights and wins, some of them will be killed and you will not. If you run and everyone else fights and loses, at least they will slow down the attack - giving you some chance of getting away. If everyone runs and you stand to fight, you will certainly be killed; if everyone runs and you run first, you at least have a chance of getting away. It follows that whatever everyone else is going to do, unless you believe that your running away will have a significant effect on who wins (unlikely with large armies), you are better off running. Everyone follows this argument, everyone runs, the line collapses, you lose the battle and most of you get killed.

The conclusion seems paradoxical; I started by assuming that people want to live and correctly choose the means of doing so and ended by predicting that people will behave in a way that gets most of them killed. But rationality is an assumption about individuals, not about groups. Each individual, in my simple example of the economics of war, is making the correct decision about how he should act in order to keep himself alive. It so happens that the correct decision for me (running away) decreases the chance of being killed for me but increases it for everyone else on my side, and similarly for everyone else's correct decision; individually, each of us is better off (given what everyone else is doing) than if he stood and fought, but we are all worse off than we would be if each of us had failed to reach the correct conclusion and we had all stood and fought."

Now, this is very much like the problem of confidence in the banking system. If we all keep our money in the system, it will not collapse and we will all be pretty much OK. If we all pull our money out, the system will collapse and we will all be economically devastated. But I am not everyone. If I pull my money out, that will not in itself cause the system to collapse. So reasons each of us, we each pull our money out and the system collapses. Confidence in the fractional reserve banking system is what economists call a "public good" - most of the benefit of taking the risk of leaving your money in the system goes to others.

The most unimaginative and blunt solution to any public goods problem is the use of force - and this is the solution typically favored by the voting public. Friedman also discusses the use of force to create the public good of "holding the line" on the battlefield:

"So far I have discussed the economic problem of war without saying anything about solutions. Obviously I am not the first person in history to realize that soldiers sometimes run away, or even the first to suggest that they do so, not because they are struck with some mysterious panic, but as a sensible response to the circumstances they find themselves in. Commanders throughout history have been confronted with the problem and have come up with a variety of ways to make it in the interest of their soldiers to fight and, if possible, in the interest of the enemy soldiers to run away.

One solution has become proverbial. You march your army across a bridge, line it up for the battle with a river (hopefully unswimmable) behind it, then burn the bridge. Since there is now nowhere to run to, much of the argument for running away disappears. Of course, if you lose the battle, you all get killed. This is called burning your bridges behind you."

Closing the gold window in 1971, anyone? Or banning short sales?

"Another solution is to punish soldiers who run away. One way is to have a second line of soldiers whose job is to kill any member of the first line who runs. This unfortunately ties up quite a lot of your army; if the front line all gets killed, the second line runs away, unless there is a third line to kill them for doing so. A less expensive (but also less effective) solution is to keep track of who runs away and hang them after the battle. In order for this to work, you have to have a pretty good chance of winning the battle, or at least surviving it with your command structure intact; an army that has just been routed is unlikely to have time to punish the soldiers who ran first. This suggests one reason why some commanders are so much more successful than others; once a commander has won a few battles, his soldiers expect him to win the next one. If the battle is going to be won, it is prudent not to run away - and since nobody runs away, the battle is won. This is what is called a self-fulfilling prophecy. A French military theorist, Ardant du Pica, argued that the traditional picture of a charge, in which the charging column smashes into the defending line, is mythical. At some point in a real charge, either the column decides that the line is not going to run and stops, or the line decides that the column is not going to stop, and runs.

This brings me to the much-maligned British army of the eighteenth century, We all learn in elementary school about the foolish British, who dressed up their troops in bright scarlet uniforms and lined them up in rigid formations for the brave American revolutionaries to shoot at. The assumption (as in the nationalistic histories of most nations) is that we were smart and they were dumb and that explains it all. I am in no sense an expert in eighteenth-century military history, but I think I have a more plausible explanation. The British troops were armed with short-range muskets and bayonets, hence the relevant decision for them, as for the spearmen of a few centuries before, was to fight or to run. In order to make sure they fought, their commanders had to be able to see if someone was starting to run; rigid geometric formations and bright uniforms are a sensible way of doing so.

Bright uniforms serve the same purpose in another way as well√£they make it more difficult for soldiers who run away to hide from the victorious enemy, and thus decrease the gain from running away. Of course the fugitive can always take off his uniform, assuming he has enough time (perhaps that was why they had so many buttons), but young men running around the countryside in their underwear are almost as conspicuous as soldiers in red uniforms."

I think this last section best describes the solutions that the establishment would prefer. We need to mark and punish those who withdraw their money during a panic. I wouldn't be surprised if something like this is proposed. In fact, if you think about it, FDR's gold seizure was just such an action. Holding gold was the same as withdrawing your money from "the system" in 1933... those who did were severely punished.

All I can say is that those who think you can have people "voluntarily" maintain confidence in a system, where such confidence is a public good are delusional. You either use the blunt instrument of threat of violent force to maintain discipline, or you accept that people will break rank and run or hide when things get scary. Personally, I'd rather not live in a fascist society. Most Americans today, it seems, disagree.

Bailouts accomplish the opposite of stated goal

Frank Shostak of the Ludwig von Mises Institute discusses the bailouts of Fannie Mae and Freddie Mac in his article Are Fannie and Freddie Too Big to Fail?

Leaving aside the obvious problem of moral hazard (in this case, foreseeable and widely exploited moral hazard), Shostak explains how the bailout actually causes more immediate damage to the economy than would allowing these institutions to fail,

"The view that some institutions are far too big to be allowed to go under is another fallacy. According to the popular way of thinking, if a large institution is allowed to go under, this could cause severe damage to the economy, since the failure of a large institution would generate large disruptive shocks. Since everything in an economy is interrelated, this means that a major shock could end up in a massive disaster.

In a market economy, a business that reaches the state of bankruptcy is most likely pursuing activities that do not contribute to real wealth but rather squander wealth, i.e., activities that make losses. Since such activities cannot support themselves, it means that real savings must be taken away from activities that do generate real wealth.


We can infer from this that a large misallocated business is too big to be kept alive rather than too big to be allowed to fail, as the popular thinking has it.

"The government intends to restore their cancerous creatures to "normalcy" with help from the Fed - which means they intend to continue the absurd "business" of insuring the uninsurable. The reason Fannie and Freddie failed is that they are fundamentally inviable businesses which were knowingly leveraged by the mortgage industry, foreign governments and others to create a massive misallocation of resources, knowing full well that they would be bailed out when the time came to pay the piper.

He also dispels the myth that US government debt will become worth less by not bailing out Fannie and Freddie than it otherwise would become:

"The argument that the government seizure of [Fannie and Freddie] prevented the downgrading of US Treasury debt by foreigners is suspect. The key factor that has been providing the high rating to US government debt is the perception that the US economy is still very wealthy. Every investor implicitly or explicitly holds that, without support from private-sector wealth, US Treasury debt would have been worthless.

As long as the economy still generates wealth, the government debt will be considered safe. Once the pool of wealth starts to shrink, foreign buyers of US government debt are likely to abandon the sinking ship, irrespective of government "rescue" plans. If the US pool of real savings is falling and the housing market remains depressed, then this will result in the US Treasury incurring large losses in order to maintain so-called credibility, i.e., by not allowing [Fannie and Freddie] to go under. Needless to say, this is likely to further undermine the pool of real savings and the process of wealth formation. We suggest that a less wealthy US economy is going to hurt all other economies through the channel of international trade."

In other words, regardless of how much the US government has degraded its status as a borrower through its destructive fiscal policies, further impoverishing the US economy by perpetuating the misallocation of resources that got us into the mess cannot possibly help.

These bailouts only serve one group: the politically well-connected, established players. Obama has (alone) called for the management and shareholders not to be bailed out, but we'll see how it actually goes down. The whole purpose of these actions is to bail out the politically well-connected, senior stakeholders in these firms. Somehow, I think Obama is either not going to be President, or if he wins, will have a revelation and suddenly realize that we cannot afford to punish our "most experienced" financial leaders by forcing them to bear their losses... it might hurt the market!

Noah's Ark and Misanthropy

hatred, dislike, or distrust of humankind.

There are always those among us who are so overwhelmed with such a sense of self-loathing, that they project their disgust onto the rest of mankind. These people are misanthropists. Today, we typically think of radical Islamic fundamentalists as misanthropists. They are driven by a general hatred of humanity, fueled by their own self-loathing. Certain theological sects within Christianity, especially among Calvinists, use theological arguments to justify a general loathing of humanity.

But it is not only the ignorant, backward or social rejects who are misanthropists. The wealthy and powerful harbor misanthropy, as well. What was Hitler's Holocaust fueled by if not misanthropy? The pseudo-science of eugenics which was once very fashionable among the wealthy elite (and which is still alive and kicking today, though it has gone underground and today calls itself "social biology") is fueled by a caustic mixture of misanthropy, self-loathing and narcissism. Population control. Deep ecology. All these movements attract the misanthropic among us, and the wealthy and powerful are among their members.

Here's an example from Prince Philip of England, "In the event that I am reincarnated, I would like to return as a deadly virus, in order to contribute something to solve overpopulation." Ted Turner expressed the desire to see the world's population reduced by 95% but has softened in his old age and has recently revised his target to a mere 67% reduction in world population. Henry Kissinger advocated the use of food incentives to encourage 3rd world countries to adopt population control measures.

So, you have to ask yourself - who is more dangerous to human survival, a bunch of goat herders armed with AK-47's and RPGs, or wealthy and powerful individuals with self-esteem problems and a penchant for reducing the human population by 95%? Personally, I lose more sleep over the latter, but you make your own call.

This brings me to Noah's Ark. I read an economist who suggested that the reason the Cold War did not end in nuclear holocaust is that the costs and benefits of nuclear warfare are much different than conventional warfare. In the case of conventional warfare, the decision making class (the wealthy, and powerful politicians) are very unlikely to lose money, family or friends in the war. The reason is simple: if the risks of loss to property, family or friends in an aggressive war were too great, it would likely lose support among the decision-making class, and the decision would be made not to go to war. In short, aggressive conventional warfare is common because the decision-makers reap the benefits (booty, increased political power, natural resources, etc.) but do not bear the costs (money spent, lives lost, etc.) By contrast, the decision-making class is very likely to bear the costs of a nuclear war. If anyone survives, it will likely be natives on some remote island, or anyone not living in any civilized area... where the decision-making class lives. So, the decision-making class feels the costs as well as the benefits of a decision to engage in total nuclear war and is much less likely to do so, as a result.

Back to Noah's Ark. While it is a fascinating scientific project and could conceivably be of use in some extremely unlikely natural disaster scenarios, e.g. a massive volcanic eruption or direct comet strike, I question the wisdom of lowering the costs to the wealthy and powerful (who are the decision-making class, and therefore control things like the Svalbard Global Seed Vault) of misanthropy. While not all wealthy and powerful individuals are misanthropists, certainly, a few of them are. These individuals are extremely dangerous as they have the means, resources and connections to realize their ideas and goals, where goatherders in Afghanistan largely do not. Maybe it would be better to not prepare for a (highly improbable) natural extinction event in order to avoid increasing the probability of an (already much more probable) artificial extinction event.

Just a thought.

Saturday, September 6, 2008

Tolerate Liberty

When you hear the word "liberty" today, you might think of romantic paintings of colonial heroes replete with white stallions, waving flags and tricorn hats. Or, you might think of an eloquent speech by your favorite visionary. Or, you might think of the gun-obsessed paranoid living in some backwater. Most importantly, you are probably thoroughly convinced that you are free, that you have liberty.

Today, liberty is more of an abstraction, an obsession of a few complainers for whom nothing will ever be good enough. Today, the only people agitating about liberty are the grumbling misers who don’t want to pay their fair share of taxes along with everybody else or who want to maintain a private collection of dangerous military weapons with no conceivable use of social value. After all, haven’t we achieved equal rights for almost every imaginable social group? Sure, there remains more work to be done, but blacks are no longer openly and formally oppressed, women are paid a far larger percentage of men’s income – still not parity, but a lot better than a hundred years ago – and homosexuality is no longer illegal, or even categorized as a mental illness. So, what are these supporters of Ron Paul, these scary-looking libertarians, complaining about?

But is liberty really an abstract ideal? Sure, we can define a free society as one which follows the non-aggression principle or a hundred other equivalent, theoretical definitions. But freedom is something much more palpable than this. Freedom is hunting, fishing, dancing, drinking, reading, speaking, laughing, worshipping and painting. It is watching your favorite team sport on a Sunday afternoon. It is starting that used book store on the beach you’d always dreamed of, or buying that Mustang you wanted since you were in high school. It is volunteering at the homeless shelter and sharing your faith, getting an education and sharing your ideas with a new generation, or conceiving a child. Every one of these ordinary activities – and many more – has been prohibited at some time and place in human history. Millions of people have been slaughtered for engaging in them, or even on the suspicion of engaging in them.

In America, we believe that we have liberty but do we? It is undeniable that, in the United States, we are in many respects free and were even freer in the past. But we are not truly free. We do not have true liberty because we still tolerate state injustice and slavery. On the face of it, this is an extreme statement. The land of the free and home of the brave is ruled by a state whose democratic populace tolerates injustice and slavery? Be reasonable, you say, this is ludicrous. But is it? We tolerate state injustice because we have allowed the state to monopolize the courts, so that the state is the judge even in conflicts to which it is party. This is a conflict of interest, which is to say, it is unjust. We tolerate state slavery because we have granted the state the power to take some of everyone’s property. How much property the state will take is decided by the state itself so that, in principle, the state owns all our property. We have use of our own property only by the good graces and dispensation of the state. Without property, we cannot live, because food is property. If I do not own outright the labor I do with my body, which I use to sustain my body, then I do not own my body at all since I will perish without sustenance. What is slavery but not owning your own body? We have ended overt, chattel slavery in the West, but we continue to tolerate covert, in principle slavery.

In the United States, we have gone through a period which some term the Cultural Revolution. When you think of the Cultural Revolution, you might think of the 1960’s, protestors, hippies, potheads and deadheads. The watchword which we inherited from this revolution is tolerance. We should tolerate the lifestyles of others, even if we disagree with them. Tolerance is crucial to liberty because, without tolerance, there cannot be liberty. It is easy to sweetly serenade Liberty when you are speaking of the liberties which you cherish. The hunter speaks of the right to hunt, the clergyman of the freedom to worship God and the atheist of the freedom from state molestation in affairs of religion. But it is something else entirely to sing the praises of liberties for which you have no use. Like the woman you eloped with after a night of heated romance, you wish to annul your union with Liberty as bitterly as you pined for her once you discover her repugnant side. It is one thing to praise the liberty to own a firearm, it is quite another to praise the liberty of two men to sleep together. It is one thing to work for the liberty of women to be fairly treated in a court of law and protected from spousal abuse like any other human being, but it is quite another to work for the liberty of an individual to hoard money and be miserly, or own and operate an international corporation.

We do not have liberty because we do not want liberty. We each want the side of Liberty that we find attractive but we would each rather do without Liberty altogether than accept her in all her beauty and ugliness. It is time that we learned the meaning of the phrase, tolerate liberty. Until we learn to tolerate the liberties of others, until we learn not only to respect diversity and alternative lifestyles, but also to respect the property of others, until we learn to love all of Liberty, we shall have none of her. We must tolerate liberty or remain slaves-in-principle to an unjust state.

Perhaps we have had too grandiose a vision of liberty. Liberty is not the robed goddess, like Justice, but a playful child. Liberty is so simple and childlike. Liberty is nothing more than doing the things that you want to do and allowing others the same dispensation. Like dancing in a crowded night club, however, toes will get stepped on by accident, and sometimes fights might break out. But when the majority of dancers respect the personal space of others around them, they each become free to dance however they like and the more, the merrier. There cannot be liberty without mutual respect of each other’s persons and property. Every student of liberty should have as his or her first priority to spread the gospel of an uncompromising commitment to property and tolerance. Until social values shift in this direction, we will not have liberty.

Maybe people don’t want liberty, you object. How do we know that people want liberty, in the first place? People want liberty because liberty is one and the same as the fundamental desire to get pleasure and avoid pain. Liberty is driven by hedonism. I am using the term “hedonism” in its widest possible sense – even the ascetic chooses his lifestyle of self-abuse because that is more pleasing to him than enjoying sensual pleasures. Each person in the world seeks what pleases him. Each person in the world pursues his own goals, which is his pleasure in the old-fashioned sense of the word. Pleasure is the only reason anyone ever wanted liberty. Hedonism should not be confused, as it often is, with gluttony. God created us with a healthy desire for pleasure and a healthy aversion to pain. The pain of hunger and the pleasure of eating impel us from birth to take in sustenance and live. This principle of seeking what we desire and avoiding what we dislike is the drive that agitates for liberty. Without it, our children would not survive past infancy and the human race would die off.

Liberty has many enemies. Of course, no enemy of liberty ever says, “I’m an enemy of liberty!” just like the foreign spy never says, “I’m a foreign spy!” But the moral fascists, the statists and the corporatists who pervade society have replaced the old guard of monarchs, nobles and dragoons as the new enemies of liberty.

A common rationalization given by moral fascists for oppressing the liberties of others is a failure to see what purpose or good respecting the liberty of others serves. The person who falls asleep at the movies wonders what good actors do society. The person who is repulsed by professional sports wonders what good sports stars do society. But acting and sports are no more frivolous from an objective point of view than any other human activity. If you are a devout, fundamental Christian, do you think there is any more gravity to the Hindu’s worship of Ganesh than a game of checkers? I assure you, the Hindu feels the same about your taking of the Lord’s Supper. If you dismiss his liberty to worship as not deserving protection from state coercion and he likewise dismisses your worship, who will be able to worship according to their own conscience? Only those who hold the reigns of power or grovel to them will worship according to their conscience.

It does not matter to the principle of liberty whose worship in fact pleases God more. What matters is that we each respect the pleasure of one another. If it pleases you to worship Lord Ganesh then, by all means, do so. I will not pretend to like or be interested in your religion. I will not treat your religious beliefs as if they are equally valid with my own. But you will have my blessing and wishes of peace upon you. If it pleases you to play a game of checkers, or pray the Rosary, or watch a movie or sports, or sleep with someone of the same sex then, by all means do so, without fear of reprisal, aggression or coercion from me. You have my best wishes and assurances of peace, whether or not I agree with your behavior, or would participate in it myself. In short, I value all liberties, even those for which I have no use or which I find disgusting, repulsive, heretical or immoral.

The moral fascists who seek to use state power and aggression to enforce their own sensibilities about what behaviors comprise legitimate liberties and what behaviors do not must be renounced as the enemies not only of tolerance, but of liberty. God has endowed us, Bastiat says, with a “providential social psychology” so that human society may “develop harmoniously in the open air of liberty.” We do not need to arm our clergy to have just and moral society. Men of the cloth who seek the power of coercion have renounced liberty and, if they are Christians, have likely renounced their faith.

The power brokers seek to destroy liberty by keeping it in the realm of abstract ideals. So long as liberty remains a utopian idealization, society will identify the lack of oppression of specific behaviors here and now relative to other times and places as liberty. They must manufacture every kind of substitute for liberty imaginable. Democracy, they say, is liberty. But liberty is not the product of any form of government. It is simply individuals doing what they want to do. Liberty is not an export, as the Bush administration has sought to make it. Only a grandiose, abstract ideal – like democracy – could be exported by a government to a foreign country, like poor Iraq. Liberty is only exported by example. Pursue your dreams as you see fit and leave your neighbor alone to do likewise. That is the sum of liberty. The Iraqis know that liberty requires nothing more than a soccer ball and an open field.

The corporatists tell us that the American dream, defined by its uniquely chrome-plated flavor of materialism, is liberty. We are each free to have our piece of the pie, our slice of the American dream. One day, when you have labored your life away, you too can hope to have a house of your own, two cars and plane tickets to a Florida resort. Then, you will have liberty. But for now, keep your head down, work hard, and trust that the Year-To-Date SSI column of your pay stub is going into a “lock-box” and your piece of the American dream will be secured once you have given up the best years of your life to your employer and your government.

Democracy is not liberty. It’s just another excuse for state parasitism and plunder of the productive class. The American dream is not liberty. It’s a carrot on a stick. The power brokers sell us these cheap, saccharine substitutes for Liberty to keep us distracted while they quietly strangle her to death.

Who are these enemies of liberty? How could anyone be so anti-humanist in this enlightened age as to oppose liberty? We often speak of the opponents of liberty as if they were the faceless boogey-men of comic books, sociopaths, hell-bent on inflicting pain and misery on others for no particular reason. But they are no fiction, and they are motivated by the principles of human action which Smith, Bastiat, Mises, Rothbard and others have clearly explained.

We each seek to have pleasure and avoid pain. Since working for a living entails pain (that is, it is undesirable), each man seeks to push the pain of work onto others. There is only one way to avoid the pain of work, and that is to rob others of the work they have done by consuming the fruits of their labor. Of course, no one wants to be robbed of their labor, so the parasitic class must find a way to legitimize it. The state is the mechanism by which robbery and plunder is legitimized.

For the parasitic class, liberty in itself is not the enemy. Sure, there are sick individuals with power who want to control every detail of everyone’s lives so they can play God but these psychopaths do not constitute the majority of those who oppose liberty and a free society. Rather, the majority of the parasitic class oppose property rights. It is property rights that are the enemy because property rights are the opposite of legal plunder. Without legal plunder, the parasitic class is culled of politicians, corporatists and the unproductive masses and reduced to beggars, purse-snatchers and burglars. If no one owns my body and the fruits of its labor but me, then no justification can be offered for taking it from me involuntarily without also incidentally morally justifying slavery. Property is a precondition to liberty. So, those who oppose property rights incidentally oppose liberty and espouse slavery.

Many of the corporatists – those who have amassed wealth through private enterprise –also oppose liberty. They want stifling regulations on their industries and stringent protections for consumers. The stated motivation of these regulations and protections is always the desire of the corporation to be a “good citizen” and promote “community spirit” and other such nonsensical drivel. The real purpose, we know, is to restrict competition. What could be more logical? The major players in any industry would prefer to take a modest hit in profits but secure safety from competition through regulations that make entry into the industry prohibitively expensive for newcomers. So it is that the biggest beneficiaries of free trade – liberty – become its greatest enemies. They love Liberty when she favors them, but cannot stand the sight of her once they learn that she has no partiality and does not regard birth, title, rank or net worth.

The statist, the corporatist and the moral fascist alike cannot tolerate liberty. They cannot tolerate liberty because liberty is just and liberty presupposes property. Justice and property are enemies to the parasites whether they wear a hood and sag their pants or wear snappy uniforms, badges and guns. The only enemies of liberty ought to be criminals because only a criminal has a good reason to hate liberty. Only those who seek to live at the expense of others through the use of coercive force have a good reason to hate liberty. All other people naturally desire the liberty to live their life as they see fit.

Libertarians have taught liberty, but not always with tolerance. Cultural reformists have taught tolerance, but often without liberty. We need to go back to the principles of the enlightenment espoused by Thomas Jefferson and the great, classical liberals. We need to learn to tolerate liberty.

Saturday, August 30, 2008

Health care and the unseen

Frederic Bastiat wrote a now-famous essay titled What is Seen and What is Not Seen. In it, Bastiat discusses the principle of economics that inspired Henry Hazlitt's one lesson in economics: "From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." (Economics in One Lesson) These long-range consequences, or the consequences for all groups mostly consist of Bastiat's unseen. Because these consequences are unseen, it is easy to discount them in the public discourse.

There has been a great deal of discussion on the problems of health care and education, among other issues of social concern in the US during this Presidential race. What I wanted to discuss in this post, in terms of the seen and unseen, is the propensity to focus on a single issue and discuss ways that government revenues could be used to thoroughly solve that problem. A kind of tunnel vision sets in with each issue in turn: health care, education, the environment, national defense, and so on.

Let's start with health care. The Federal government collects more than $2 trillion a year in revenues. With $2T/yr. we could provid free, gold plated health care several times over to every citizen. Or could we? Let's consider brain surgeons. If we spent $2T/yr. on health care, would there automatically be enough brain surgeries to go around? Would there be enough of the latest CT scanners to go around? More money - in itself - does not create more health care. Granted, as we poured trillions of dollars into healthcare, new students would flock to the field, new medical schools would open by the bunch and medical technological investment would skyrocket, etc. After some time, there would be a great deal more brain surgeons than there are today, a great deal more CT scanners than there are today and even the poorest person could go in for the kind of health care that a US Senator or billionaire investor gets... every day of the week.
But what of education, or defense, or any of the other things which the government spends money on? Clearly, if we're spending the Federal budget on health care, we can't be spending it also on education and defense.

In the case of health care, the additional health services that could be purchased by the poor with government subsidy are the seen effects. The unseen effects are all the resources which must be diverted to purchase the additional health care resources. Spending the entire Federal budget on health care is an intentional hyperbole to illustrate the point that every increase in spending on one thing is a decrease in spending on something else. Every smart kid that becomes a brain surgeon didn't become a groundbreaking physics researcher. Every hospital that is constructed is some number of corn silos or factories that weren't. Ambulances are built instead of a grain harvester. In other words, the more money the government spends on one thing, the more resources that are diverted from other things.

In general, the government cannot do anything to make more resources. The things that it could do (for example, building factories or subsidizing births), it turns out that governments are extraordinarily bad at (cf the Soviet experiment). It's one thing to wish there were more resources and that there were no human wants. In most parts of the West, this goal has been achieved many times over, depending on when you set your point of reference. If we asked an early 19th century American whether there were any poor people left in America, the answer would likely be "no." But over against wishing is the problem of actually creating more resources.
Economists speak of two problems: how to slice up the pie and how to increase the size of the pie. The problem of taxing and spending is partof the problem of how to slice up the pie. But while slicing up the pie of government revenues (which account for as much as 50% of the nation's entire economic product), we have to be aware of two factors: the more revenues we divert to any one use, the more we are diverting away from other, possibly more important uses and not all uses are equally valuable.

This should be obvious, but people sometimes get confused on this issue when it comes to "make work" projects like those of the New Deal. The Civilian Conservation Corps (CCC) employed people clearing trails through forests and doing other menial tasks. Those people who were employed received a good deal (seen), they were employed. But the monies used to pay them could have, perhaps, paid other workers doing more valuable work than clearing trails in the forest. Many employments can be surmised to have been more valuable than clearing paths through the forest - perhaps baking bread or planting corn during a time when people were literally starving to death. The point is this: when resources are diverted from a more valued to a less valued use, society as a whole is impoverished that much.*

Let me give a specific example of this "tunnel vision" effect whereby we focus in on the seen while ignoring the unseen. I watched a History channel presentation on the Indonesian tsunami some time back. The head of the UN department which is tasked with blowing hot air about natural disasters said something to the effect, "This should have never happened. It could have been prevented and we must make it a priority that such a disaster never occurs again."

Basically, what he's saying is that the US has sonar early warning systems that would likely have prevented many deaths from occurring in Indonesia had similar equipment been installed in that region. His call to "make it a priority that such a disaster never occurs again" (paraphrase) is basically a plea to have international monies used to install such early warning systems throughout the world.

Now, let's go back to the brain surgeon vs. physicist dilemma. You can either install more early warning systems throughout the world, or you can spend more on health care. But you can't do both simultaneously, all things else being equal. Which do you choose? It doesn't matter to me, for the sake of this discussion, which you think is more important, all that matters to me is that you understand that it is a choice.

This brings me to the issue of the good which government spending does. It is often mentioned that when the government builds a road, for example, the road benefits us because we can travel over it and transport goods across it, thereby reducing the costs of doing business, and so on. But no one argues that government spending does no good whatsoever. The money which a purse snatcher spends out of the snatched purse also "does good" in the same sense. Rather, what is at issue is whether the money is being put to its most valued use in building a road.

So, when debating how we could use some number of billions of tax revenues to fix healthcare or some other number of billions to fix education, or some number of billions to build ever more baroque national defense weaponry, keep in mind that spending more on one thing means spending less on another, unless the amount of resources are increased - something which only occurs through capital investment (and new births). What we should be asking is not whether a decent society will stand by while someone dies for lack of money for a life-saving surgery, since it is always possible to divert ever more money away from other uses into medical expenditures. Rather, we should be asking: For each of the $3T the government spends each year, is the thing the government spends it on its most valued use? That is, does society garner the greatest incremental benefit from that dollar being spent on X insteady of Y, Z and W?

Some people protest that such mundane calculations are evidence of a mind which is cold and uncaring, but I say it is exactly the opposite. The one who refuses to face reality and count the costs of his decisions is an ignoble fool, no matter how loudly he protests his desire to "save humanity", "feed the poor", "educate the masses" or "provide universal health care to all." Willful ignorance and waste of much-needed resources** through carelessness are not virtues in my book.

Do not count only the seen, but also the unseen.

*I want to make clear that when I say "society as a whole is impoverished" I am not speaking of some kind of average wealth whereby a few can be super-duper wealthy while the rest live in squalor, balancing out to a decent, "average" wealth. The loss of the production of more valued resources to the production of less valued resources generally hurts the poor the most because each contraction of the resource pie will hurt the poor by proportion more than it hurts the wealthy. The rich capitalist might forego commissioning that yacht he'd been dreaming up, but the poor forego food, water and medical services.

**During the height of the Great Depression, tons of food were destroyed by the government to enforce agricultural price supports while people were dying of starvation. Waste - which so many armchair policy debaters casually dismiss when raised as an objection to government policies - can be a matter of life and death.

Saturday, August 23, 2008

In a retrospective article on the Russian-Georgian conflict, Lewellyn Rockwell discusses Washington's attempt to resurrect WWI-era rhetoric. He quotes a 1915 book written by Francis Neilson, "How Diplomats Make War":

"During a war it is no easy task to prevent your sympathy clouding your reason. The whole social system seems to be organized against any individual attempt to concentrate the attention dominantly upon the causes of the war. Governments, churches, theatres, the press, and local authorities, direct their efforts, in the main, warwards; the whole thought of society and commerce seems to be occupied with war; and all desire to question the reasons given by statesmen for participating in the war must be suppressed. It has been ruled already by certain 'leaders of thought' that it is unwise, unpatriotic, and un-English, to suspect the motives of Governments, or waver for a moment in swearing wholehearted allegiance to the authorities: you must think only of the war. If you dare ask for the truth, you are helping the enemy; if you suggest an early peace, you are hindering the militarists who desire no peace until their enemy is utterly crushed. Insidious, bewildering, and plausible, are the reasons given by statesmen and journalists for inflicting a humiliating defeat; without it, they tell us we must not hope for disarmament. No patriot is supposed to ask if disarmament is at all probable. No one must ask if a single statesman really believes such a blessing will follow if the enemy be annihilated."

What is particularly interesting about this Russian-Georgian conflict is that it is ultimately about preventing secession - the Georgians attempting to prevent South Ossetia, Abkhazia and other provinces from seceding. I am particularly interested in the link between pacifism and secession.

Ask yourself, if a nation has to use military force to keep a political region unified, isn't that an indication that there's something wrong? You could argue that there may be moral imperatives that justify use of military force to maintain unification, as in the Civil War, but there are serious complications with this position. Should any state have the right to make war on any other state for perceived immoral activities? If so, and states acted on this right, the world would be in a constant state of war. Even more important, if governments have a duty to use military force, if necessary, to prevent the violation of certain moral principles (as in the case of slavery), should they not apply this right consistently or not at all? If the state only punished murderers of a certain race, we would consider this unjust - the government doesn't have a right to not punish certain criminals on the basis of some arbitrary metric, such as race. If the US government has a moral duty to prevent the occurrence of slavery, then by what standard of justice do we apply this moral duty only to certain states (e.g. the Confederacy) but not others?

In short, if a smaller body politic wishes to secede from a larger body, I cannot think of any good moral justification for the use of military force. Every such artificial unification is ultimately imperialistic in nature. It seems to me that pacifists need to rethink their (usual) support for ever more centralized governments and ask whether every local region should have the right to peaceably and without molestation secede from the larger political organization to which they belong. If so, then pacifists should oppose US support of Georgia (and the implied threat of military force to protect her) and her oppression of the South Ossetians and Abkhazians who simply wish to live in their own, independent state. They speak different languages, for goodness sake.

As an aside, I think that a crucial element of human psychology on which imperial resistance to secession depends is the hubristic conviction of most individuals that they - or their identity group - know the way it oughtta be. If people just did things our way, why, there wouldn't be so many problems in the world. It's OK that my nation subjugates other, more ignorant and backward nations because we are tutoring them on how to run a civilized, decent human society. The Romans said exactly the same thing.

So, to those who oppose war (who doesn't oppose war?), I ask: How do you justify the use of military force to prevent secession? I just don't see it.

Thursday, August 21, 2008

Credit unwiding: good or bad?

This article has been making the rounds. The author, Paul McCulley, argues that as the banks deleverage their balance sheets they are counter-acting each other. As bad mortgages are sloughed off, the prices of homes generally fall, driving down the asset columns of all banks' balance sheets simultaneously.

He has a point, but this is a symptom of the fraudulent nature of fractional-reserve banking and money multiplication, not an indictment of the sound practice of sloughing bad assets to shore up one's balance sheet. McCulley proposes a band-aid solution that only serves to perpetuate the root problem: shifting the bad assets off of the banks that took them on and forcing taxpayers to foot the bill.

The moral hazard of socializing investment risk should be obvious. Frank Shostak of the Mises Institute gives a detailed response to McCulley's article here.

A key difference between McCulley and Shostak is the mainstream (Keynesian) view of savings versus the Austrian view of savings. In the mainstream view, savings are a reduction in someone else's income (McCulley alludes to this in his discussion of Keynes's paradox of thrift). Savings, then, always result in decreased productivity. On this view, if everyone starts saving money (perhaps because they are fearful or uncertain about the future), this is unhealthy for the economy. In the Austrian view, savings are deferred consumption. When I save money, I am simply exchanging present consumption in favor of future consumption. Shostak explains this view in his article.

What is crucial to understand is that when you consume in the present, you are employing resources to satisfy your present consumption. When you defer consumption (save), you are freeing the resources you would otherwise have employed to satisfy your present consumption. These resources are then free to be employed in other ways, perhaps at a lower price. In an uncertain economy, the first things on which people cut spending are luxury goods. People cancel their premium cable and go to basic cable or broadcast TV. They get fewer manicures and buy less fashionable clothes.

It might be argued that this is the worst possible thing that can happen in an uncertain economy - people are getting laid off and jobs are being destroyed. But this is not the case at all. The demand for money increases which drives down prices (making necessary goods and services more affordable) and human and capital resources are freed from more frivolous sectors (luxury goods) and can be repurposed to production of the more in-demand basic necessities. In an uncertain economy, this is exactly what should happen. When people are uncertain about the future, dancing and making merry is madness.

As people become less uncertain as the economy recovers, the demand for money decreases, savings decrease, spending increases, consumption increases, prices rise, and the sale of luxury goods returns to its normal levels quickly. Without monetary savings, the recovery would be hampered by a lack of liquidity. As Shostak argues in the article, there is no paradox of thrift - or paradox of deleveraging - in the real world, only in the fantasy land of Keynesian economics. Just as thrift is exactly the right medicine for an uncertain economy, so deleveraging is exactly the medicine our credit-saturated economy needs to take. Pushing the consequences of our drunken credit binge out onto the public purse only ensures the next hangover will be even worse.

Wealth & Money

What is money? Money is a human invention that solves the problem of a double coincidence of wants in a barter (primitive) economy. Man's earliest form of trade was barter: my rock for two of your bones. The problem with barter - as anyone who has been to a swap meet will understand - is that I have to want something you have and I have to have something you want. What if I don't want any bones and all you have to exchange for my rock is bones? Money emerges from barter as the good which is in greatest demand, or the most marketable good. The reason for this is simple: if you are going to accept a good which you don't want for its own sake (money) in exchange for something you have, you want to be sure that you can get rid of that good to someone else in exchange for something they have that you really want. You can only be confident that this will be the case if the good you are accepting in exchange for what you have is very marketable.

There are other properties which money has which are more technical. What is most important to understand is that money emerges from barter, it is the most marketable good and it takes on the role of the medium of exchange in an economy. Many things have functioned and function as money. Seashells, tobacco, pelts, gold, silver, tokens, currency, banknotes, checks and cigarettes are a few examples. In each case, however, money always emerges from barter as the most marketable good. What the market chooses to be money is not arbitrary. Money cannot be created by fiat and never has been.

Today, this is somewhat confusing because market money has largely been coopted by legal money. Legal money is a medium of exchange whose marketability is not derived from its innate physical properties, but from its special legal status. Gold and cigarettes are physical objects which serve the function of money in certain markets by virtue of their physical properties which make them suitable for consumption as human luxuries (gold as adornment, cigarettes for neurological pleasure.) Modern fiat currencies serve the function of money by virtue of their special legal status combined with their historical connection to gold and silver. It is the fact that modern fiat currencies have a historical connection to gold and silver that differentiates them from any other kind of piece of paper with special legal status and makes them money.

What is wealth? Typically, when we think of wealth, we think of money, or perhaps material possessions or maybe even land. Wealth, however, is even more broad than this and includes every aspect of one's circumstances which brings pleasure to oneself. Living across from a well-manicured park may make you wealthier, even though the park or its state of upkeep is not among your possessions. There are a vast variety of intangibles which are a part of wealth. What is important is to understand that wealth and money are not synonymous - you are wealthier than the amount of money you have. Also, wealth and money do not vary linearly. A multi-millionaire will not be twice as happy upon earning his second million dollars as he was earning his first million. There is a decreasing marginal utility for every good, including money.

Also, we must be careful to distinguish between individual wealth and social wealth. More money held by an individual increases that individual's wealth. More money in an economy, on the other hand, has either no net change or a negative effect on social wealth. This is because money plays a different role for the individual and the economy as a whole. In the economy as a whole, money is the solution to the problem of double coincidence of wants - you can always exchange money for something you want. Increasing the amount of money in the economy does not help the problem of double coincidence of wants get solved better. It is equally well solved by any finite amount of money. For the individual, any increase in the amount of money which he holds is an increase (though not linear) in his wealth.

Unfortunately, this is the source of a great deal of confusion, in my opinion. People assume that as wealth increases, the amount of money should increase as well. But there is no reason for the amount of money in the economy to increase. There are arguments to the effect that there are benefits to increasing the amount of money in the economy, but none of these arguments claim that more money helps better solve the problem of double coincidence of wants.

So what does increase social wealth? Social wealth increases as a society becomes more productive. Aliens looking down on humans from space could discern that people living in 2008 just have more things of all kinds than people living in 1608. Increases in productivity are the consequence of social and technological innovations. New business processes like the assembly line and new technologies like the steam engine enable society to greatly multiply its productivity. The benefits of this process of innovation spill over onto everyone. If you are a young adult, you will become wealthier throughout the duration of your working life even if you never move up in the business world. The equivalent (inflation-adjusted) income will buy more and more over time as an inevitable consequence of productivity innovations.

Social wealth also increases with trade. Two people only trade if each values the thing they receive in trade more than what they traded to get it. I'll only trade my rock for your two bones if I value the bones more than the rock and vice-versa for you. After we have traded, the total social wealth has increased.

I will take a diversion to explain by what measure social wealth increases. Economists use the word "value" or "utility" to describe the degree to which something is useful to a particular individual. The subjective theory of value (the predominant view) holds that no good or service has intrinsic value but what is conferred upon it by subjective, human valuation. iPods are valuable because humans desire to have them very much (doesn't matter why). That is, humans have a high subjective preference for iPods over other things like dirt, rocks or fingernail clippings. This preference is revealed whenever an individual exchanges something he has (e.g. money or labor) for something he wants (e.g. iPod or money). If you own many things I would prefer to have and I own many things you would prefer to have, when we exchange, the utility of the things we own increases, that is, our wealth increases.

Comparative advantage and specialization also play a crucial in the exchange of services. If you are a painter and I am a mechanic, and your car needs repair and my house needs painted, it will be more efficient if we agree to exchange services - the car will have been fixed and the house painted with less total expenditure of human time and effort. As a consequence of trading, we have economized our time and more total houses can be painted and more total cars can be repaired.

Social wealth also increases with consumer choice. A millionaire living in Dar Es Salaam is hardly as wealthy as a millionaire living in New York City - there are so many more choices available of how to spend one's money in New York City than in Dar Es Salaam.

What is key to understand is that wealth is not a zero-sum game. That is, when you and I trade, we both become wealthier. When Apple charges me $200 to purchase their iPod, I am happier with the iPod than I was with the $200 and Apple is happier with the $200 than they were with the iPod they just manufactured. Unlike money which cannot grow indefinitely (though the inflationists have always given it their best shot), wealth can grow indefinitely.

People sometimes speak of relative wealth (net worth percentile) versus absolute wealth. Some studies suggest that people would rather have greater relative wealth (higher social status) than greater absolute wealth. Would you rather live as a king circa 1608 or live in the lower-middle class in 2008 with things like iPods, internet, jet travel, and modern medicine? Fortunately, social status is not measured solely by the amount of money one has or earns. Wealth, beauty, fame and prestige are among the most universal measures of social status, but they are not universal. Clearly, if we measured relative wealth in terms of net worth percentile or income percentile, we are dealing with a zero-sum game. In order for me to move up, I must displace someone else.

However, since there are an abundance of measures of social status, relative wealth is also not a zero sum game. All the money in the world could not buy the world chess championship, and the world chess champion is top-dog in the world he cares most about. Given the choice between being the richest man in the world or the world chess championship title, I doubt even one world chess champion would accept the money instead. This is not because chess champions are more selfless than rich people, but because chess champions measure their relative wealth in a different way than someone like Paris Hilton.

In summary, remember these two principles:

- Money is a medium of exchange, not a measure of wealth (even though "wealth" and "money" are synonymous in colloquial usage)
- Wealth is not a zero-sum game (even if income percentile is)