Tuesday, June 24, 2008

Oil speculation is good, regulations bad

Alright, all you blockbuster government socialists who think that oil "speculation" aka futures trading is to blame for high gas prices, I'm going to have to bust out some Sowell on you. From Basic Economics, Chapter 12:

A tourist in New York's Greenwich Village decided to have his portrait sketched
by a sidewalk artist. He received a very fine sketch, for which he was charged

"That's expensive," he said to the artist, "but I'll pay it, because it is a great sketch. But, really, it took you only five minutes."

"Twenty years and five minutes," the artist replied.

Artistic ability is only one of many things which are accumulated over time for use later on. The Economist magazine defines investment as simply "spending today that yields a stream of income in the future." More broadly, it is not simply the spending of money but, as in the case of the Greenwich Village artist, the investment of time. If the earlier costs, sacrifices and risks are ignored, then the reward for what was done
within the present time period may often seem exorbitant. Oil wells can repay their costs many times over - but they must also cover the costs of all the dry holes that were drilled in the ground while searching in vain for petroleum deposits before finally striking oil.


Speculation as an economic activity may be engaged in by people in all walks of life but there are also professional speculators for whom this is their whole career. One of the professional speculator's main roles is in relieving other people from having to
speculate as part of their regular economic activity. Put differently, risk is inherent in all aspects of human life. Speculation is one way of having some people specialize in bearing these risks, for a price. For such transactions to take place, the cost of the risk being transferred from its initial bearer must be greater than the price charged for the transfer - and, at the same time, the cost to the recipient of the risk must be less than the price charged. The cost to the speculator may be lower either because of more sophisticated methods of assessing risk or be lower because the variety of the speculator's risks lowers his over-all risks.

When an American wheat farmer in Idaho or Nebraska is getting ready to plant his crop, he has no way of knowing what the price of wheat will be when the crop is harvested. That depends on innumerable other wheat farmers, not only in the United States but as far away as Russia or Argentina. If the wheat crop fails in Russia or Argentina, the world price of wheat will shoot up, causing American wheat farmers to get very high prices for their crop. But if there are bumper crops of wheat in Russia or Argentina, there may be more wheat on the world market than anybody can use, with the excess having to go into expensive storage facilities. That will cause the world price of wheat to plummet, so that the American farmer may have nothing to show for all his work and may be lucky to avoid taking a loss on the year. Meanwhile, he and his family will have to live on their savings or borrow from whatever sources will lend to them. In order to avoid having to speculate like this, the farmer may in effect pay a professional speculator to carry the risk, while the farmers stick to farming.

The speculator signs contracts to buy or sell at prices fixed today for goods to be delivered at some future date. This shifts the risk of the activity from the person engaging in it - such as the wheat farmer, in this case - to someone who is, in effect, betting that he can guess the future prices better than the other person and has the financial resources to ride out the inevitable wrong bets, in order to make a profit on the bets that turn out better.

Speculation is often misunderstood as being the same as gambling, when in fact it is the opposite of gambling. What gambling involves, whether in games of chance or actions like playing Russian roulette, is creating a risk that would otherwise not exist, in order either to profit or to exhibit one's skill or lack of fear. What economic speculation involves is coping with an inherent risk in such a way as to minimize it and to leave it to be borne by whoever is best equipped to bear it.


Economic speculation is another way of allocating scarce resources - in this case, knowledge. Neither the speculator nor the farmer knows what the prices will be when the crop is harvested. But the speculator happens to have more knowledge of markets and of economic and statistical analysis than the farmer, just as the farmer has more knowledge of how to grow the crop. My commodity speculator friend admitted that he had never actually seen a soybean and had no idea what they looked like, even though he had probably bought and sold millions of dollars worth of them over the years. He simply transferred ownership of his soybeans on paper to soybean buyers at harvest time, without ever taking physical possession of them from the farmer. He was not really in the soybean business, he was in the risk management business.

He goes on elsewhere to note that speculation, in turn, helps tell farmers what to grow when they are deciding what to plant during planting season. That is, if Farmer John can plant peas or corn, he is likely to consider the price of futures contracts for peas and corn, respectively, in deciding which to plant. Farmer John has no idea why corn futures may be up, while peas futures are down, and he does not care. In this way, agricultural futures actually help signal to farmers what should be planted.

Oil speculators are offering contracts to purchase oil in the future. As oil futures rise, this signals oil producers to invest more vigorously in new equipment, wells, pipelines, refineries and so on.
Regulations on oil companies, however, can prohibit them from responding to the rising prices of oil futures. It is not the speculators who are to blame for foreseeing that the price of a barrel of oil will almost certainly be higher three months from now than it is today. To the extent oil producers are unable to respond to higher oil futures prices by virtue of regulations on oil production, it is government, not speculators, who should be "blamed" for high oil prices.

And neither can speculators arbitrarily bid up the price of oil - if speculators set their contracts too high, they will eat dirt when it comes time to pay out and it turns out they have wildly overestimated the future price of oil. When this happens, you and I get the overbid oil that much cheaper. The primary losers from overly optimistic speculation are the speculators themselves.

Threatening to impose windfall profits taxes, nationalize oil companies, increase subsidies of alternative energy sources or increase regulation on the production of oil all simply contribute to further increasing the price of oil. Speculators are public enemy #1 only because futures contracts reflect the future cost of these regulatory follies today.

Thursday, June 19, 2008

A puzzle

The idea of voluntary communalism is an attractive ideal - when you see a piece of litter on the ground, you just do your part to pick it up and dispose of it, for example. In doing so, you are doing a public good, you are giving charity to the rest of us by taking on yourself the costs of picking up the litter yourself.

Totalitarian communism, by contrast, produces public goods by central control. The litter gets picked up because, ultimately, there is a faceless person in a remote Gulag somewhere who will execute you with a single shot to the back of the head and kick your lifeless corpse into a mass open grave if you disobey the government. And the government tells you when and where to pick up litter. Or make back scratchers.

I suspect that when leftists say "socialism has never been done right", they are expressing something akin to the belief that voluntary communalism is possible, it's just never been tried. It is logically possible for there to exist a society where people just do what needs to be done without regard to whether the individual doing the work is substantially benefitted by doing it, that is, a world where public goods are produced without the incentive of individual rewards. But logical possibility is a long ways from realizability.

Now for the puzzle. I find that most people believe that spontaneous, voluntary production of public goods is possible to one degree or another (I believe that charity is spontaneously produced in the absence of compulsion), but acquiesce to the "inevitable reality" that governments will abuse their populaces. I have been debating the issue of government coercion on discussion boards, and the refrain which I hear repeated again and again is that, if we want protection from foreign aggressors, we must accept some level of exploitation by those who are appointed to protect us. That is, while taxes and inflation may be indistinguishable from the identical crimes committed by private individuals (robbery and counterfeiting), we have to accept a certain level of robbery and counterfeiting in exchange for the security services which government provides.

What is puzzling to me about this is that someone who takes this position is implicitly accepting a principle of human behavior: that people will tend to coerce others to their own benefit to the extent they are able. In other words, governments will tax and inflate the currency to their own benefit because they can and we should not find this surprising. Yet, the belief that voluntary communalism is possible is founded on a rejection of the principle of human behavior that people tend to act in their own interests more than the interests of others. That is, voluntary communalism is possible because it is possible for humans - with the right education, culture or other factors - to shed their impulse to self-interest and simply cooperate for the common good. With armed coercion, we resign to the inevitability of criminal exploitation by the monopolists of power. But when it comes to economic competition, we feel that such competition is ultimately unnecessary because people can be expected to just spontaneously help one another, as a rule.

Violent coercion is inevitable but economic self-interest is not.

I suspect there could be an evolutionary explanation for this, however. People who refuse to acquiesce to conquest are more likely than others to die. So, there may be a selection pressure throughout the human history of war and conquest towards an inborn sense of resignation towards coercion, accepting its inevitability. Those born without this sense are more likely to perish without producing offspring. David Friedman supplies the other side of the equation in an article on evolutionary psychology and economics where he argues for an evolutionary origin for the popular notion of just prices. Basically, he argues that in economic competition for scarce resources, those who are more committed to "usual" prices in unusual circumstances (where demand or supply rapidly undergoes significant change), the party experiencing the shift is more likely to reap the benefits. If a buyer's demand increases greatly or a seller's supply decreases greatly then, by insisting on paying the "usual" price, the buyer reaps most of the benefit in the change of affairs. Vice-versa for sellers.

So, perhaps it is a consequence of human history that we naturally tolerate violent coercion while we bitterly resent economic competition, despite the obvious inconsistency of such a position. If anything, we should most bitterly resent and resist violent coercion while not only tolerating but encourarging economic competition since we each inevitably benefit from economic competition, while we each suffer from violent coercion (of anyone, even someone other than ourselves).

Wednesday, June 18, 2008

Thoughts on Global Warming

Government-promoted emphasis on the problem of global warming, in my view, is a desperate attempt of power players in industry and government to try to control the global market because they're scared to death of the idea of global competition. To justify global governance, there must be a public goods problem of global proportions which is so dire that nothing short of emergency intervention on the part of a global governing authority will suffice to prevent imminent annihilation. The global warming political narrative fits the bill perfectly.

As far as "scientific consensus" goes, it is better termed "academic consensus" since consensus has never been a part of the scientific method (Flood geology was once the consensus of science). That academic consensus aligns with the political ends of big industry and governments who want to control the global market is hardly surprising since Western academia is largely funded by government subsidy. The less control national governments have over the economy (as the economy becomes increasingly global), the less public revenue academia can command. Academia has a vested interest in having a "consensus" on global warming, so there is no reason to believe that such consensus reflects anything about the truth value of the propositions that global warming is caused by human action and that its consequences will be catastrophic.

Without a powerful global jurisdiction to heel the global market, national governments will increasingly be faced with the distasteful spectre of inter-governmental policy competition. Major national industry interests - in whose laps national governments ultimately sit - have every incentive to press for global cartelization lest their industrial empires be toppled by vulgar competition on the international market. Imminent environmental catastrophe is a rationale for global governance which is extremely difficult to argue against, true or not. Libertarians who oppose the trend of increasing government invasion of privacy and ever more flagrant violations of private property rights would do well to analyze the larger meta-narrative surrounding the political discourse on global warming. Even if global warming were debunked, there are a million other public goods problems which can take its place in the argument for controlling the global market place.

Tuesday, June 17, 2008

Why doesn't the public mind inflation?

I think the worldview problem with measuring inflation in terms of CPI (consumer price index) is that it presupposes that inflation is some kind of natural, inevitable aspect of any "normal" economy. If anything, money which is denominated in terms of some sufficiently costly to produce commodity, such as precious metals, should on balance be deflationary. If a quarter piece of gold could buy a week's worth of groceries in 1900, the same amount of gold should be able to purchase much more groceries today because, despite the modest increase in the world's gold supply in the last 100 years, the technological innovations which drive down the cost of producing food have followed an exponential curve that makes the world's gold supply look flat by comparison.

I expect that an empirical study could be performed to vindicate this view by estimating the amount of consumer goods which could be purchased with a unit of gold in 1900 versus the same unit of gold today. And this neglects the increase in the number of available purchasing options facing consumers that enables them to purchase what they want, not just the quantities they want.

I have been thinking about why the government (and the central banking system) can engage in inflationary policies without people minding and I don't think it's just that inflation is difficult to understand, because it's not really that hard to understand. I suspect that a more important reason is that it is human nature to form our future expectations on the basis of our past experiences. In the presence of exponential economic growth, this means that people's expectations of their future wealth will, on balance, be too low. If you grew up in the late nineteenth century, automobile transportation - which we take for granted to the extent that we treat it as a basic necessity (just look at all the hand-wringing about oil prices) - would have probably seemed an exotic luxury and the development of jet transportation was simply inconceivable and unforeseeable.

As remarkable as our past growth has already been, the trends indicate that we should continue to expect accelerating exponential economic growth for the foreseeable future. But most people, when polled, have a gloomy outlook about their economic future, expecting to be worse off in the near future than they are today. The reality is that as the world becomes more connected, trading in the world market will result in a massive decrease in consumer product costs (making us all wealthier) even if there are no future technological innovations. But we also have good reason to expect future technological innovations, the most spectacular of which will probably come from the fields of medicine and biology.

This means that, while the opportunity cost of hiding money under your mattress is always non-zero (it could have been loaned out and earned interest on capital investments) this should not result in a loss in real purchasing power unless that currency is being diluted by expansion of its supply. In other words, if you hid $1000 of gold under your mattress in 1900, it would have missed out on the growth opportunities of capital investment (at a modest 4% growth rate, it could be worth $50,000 - in 1900 dollars - today), but that gold would still be able to purchase many times more consumer goods today than it could have in 1900 because consumer goods have become so much less expensive. If, on the other hand, you hid $1000 USD under your mattress, you could purchase far fewer consumer goods with it today than you could have in 1900. Unfortunately, I think we don't appropriately distinguish between opportunity cost (which causes uninvested money to become less valuable relative to invested money over time) and inflation (which causes money to become less absolutely valuable over time).

Monday, June 16, 2008

Mommy and Daddy Government

Please take a look at this article discussing the fascism of the left.

I would extend the argument made in the article further to say that the federal state has become both our parents, both our Mommy and our Daddy. Conservatives (usually Republicans) are fans of Daddy government, comprised of the defense wing of the government. Liberals (usually Democrats) are fans of Mommy government, comprised of the health & human services wing of the government.

Take a look at the Budget Graph (you'll need to click on the graph to be able to zoom in and move around to view it). Astoundingly, the fellow that came up with the Budget Graph (Jess Bachman) found a way to place the incomprehensible Federal budget onto one wall chart, but most astounding is the pattern in which he has laid it out: defense-related agencies and expenditures on the left and health & human services agencies and expenditures on the right. The spending is about equal on each side. Daddy government is on the left side of the graph... roughly $1.5 trillion. Mommy government is on the right side of the graph.... roughly $1.5 trillion. We spend $5,000 for every man, woman and child in the US on defense or defense related spending (every year) and $5,000 for every man, woman and child in the US on health & human services and related spending for every man, woman and child in the US.

The total price tag for Mommy and Daddy government is $10,000 per year for every man, woman and child in the US. How much better off would we all be if we just bypassed Mommy and Daddy altogether and had a central computer programmed to extract the taxes and send the $10,000 check to every man, woman and child in the US? A family of four children would take in $60,000 from this mechanical wealth redistribution computer. I think I'd rather have my $40,000 (I have two children) than this Mommy & Daddy government that instead fritters away thousands of dollars of my money every year on unnecessary wars, pointless public works projects and a manifestly broken education system.

So, since liberals are fans of Mommy government and conservatives are fans of Daddy government, how about we work on stopping the sibling war by building a political truce whereby we scale back government by trading freedoms conditioned upon receipt of freedoms from the other side? Maybe after a while, we can wean ourselves from our psychological need for a great big Mommy and Daddy in the Sky.

For example, conservatives could agree to stop beseiging abortion if liberals agree to stop beseiging guns. If either side violates the truce (politically), then the agreement is called off and it's back to this self-punishing war of giving up our cherished liberties just for the satisfaction of also taking away the liberties we don't want others to have - in the name of our "values". There are infinitely many issues we could trade like this. We could barter for terms, i.e. perhaps abortion rights is worth gun rights plus removal of drilling restrictions in ANWR. Or whatever. I think it would be a whole lot more constructive way to do politics than this current method of destructively punishing ourselves in an attempt to punish "the other side" even more.

Friday, June 13, 2008

Myths of modernity

Here are some of the things (most of which I used to believe to one degree or another) which I have learned to be modern folk wisdom, and myths.

Scale is always an advantage

How many times have you heard, "Capitalism is unstable towards monopoly"? Implicit in this claim is the belief that scale is always an advantage. So, when Megacorp A merges with Megacorp B, the resulting MegaMegaCorp will be even more powerful and consumers will suffer without government intervention either to prevent the merger in the first place, or regulate the behavior of the resulting MegaMegaCorp once it has formed.

While the economy of scale certainly has advantages and has been the foundation of most of our economic growth for the past two centuries, at sufficient scales, the internal efficiency of an organization begins to break down. It is this downward pressure induced by organizational inefficiency which eventually completely swamps the upward pressures of capital investment, replication, automation and hierarchical organization.

I work at Intel, one of the world's largest corporations, employing 88,000 people (two years ago, Intel had peaked at 102,000 employees). Despite being under the constraints of profitability, the inefficiency in Intel's organization is unimaginable to an outsider. The corporate bureaucracy is every bit as inefficient as a government bureaucracy, filled with redundant departments and positions, requiring excruciating paperwork and multiple approvals to authorize the most trivial of tasks and squandering innumerable hours in pointless meetings formed primarily by peer pressure to not appear indifferent.

There have been many giant corporations which have gone completely out of business or have gone into bankruptcy protection through no result of dishonesty or corruption. There any number of reasons this may occur but one of the constants that can be identified in all of them is the inevitable inefficiency of large scale organizations.

The free market (what people usually mean when they use the term "capitalism" although the two are not even remotely synonymous) is not unstable towards monopoly. In fact, in the long term, a true monopoly cannot exist without government sustenance and the free market is the best way to limit monopolies since smaller, more efficient organizations will naturally outcompete and limit the scale of monopolies. This conclusion cannot be reached until it is first understood that, at a certain point, scale becomes a diseconomy.

Government regulations hurt big business

Another folk myth is this idea that the way to get at the rich or the powerful businessmen is to pass popular laws, such as tax increases on the rich or raising the corporate tax rates or raising the minimum wage.

Experience has shown that our complex tax code is most beneficial to the very wealthy who are best positioned to afford the army of tax laywers required to safely navigate the complex tax bureaucracy and tax codes. Congress raises the taxes on X, Y and Z and it is those cannot afford the legal or tax consultancy resources to avoid the taxes on X, Y and Z who are punished, not the most wealthy or most powerful individuals.

In his book "In Restraint of Trade: The Business Campaign against Competition 1918-1938", Butler Shaffer discusses the unholy alliance between big business interests and the War Industries Board during the WWI years resulting in a post-war appetite for business regulations and price control measures. Since those most knowledgeable of the particularities of a particular industry are those already in it, it inevitably occurs that these men are appointed to the bureau positions tasked with regulating those industries. Here, established business interests find a best of all possible worlds - new competitors are prevented from entering the market without their explicit permission and the existing competitive environment can be controlled by those with the most political clout, which is inevitably those with the most disposable capital for currying political favor.

Those who have the most to lose from competition are those who are already the most wealthy or powerful.

Think about it.

On a related note, we hear a lot of rhetoric about "market stability" but who does market stability most benefit? It most benefits the established business interests which are so large, inflexible and inefficient that disruptive changes in the market or rapid shifts in technology or other innovations are threats with which they are ill suited to cope. The desire for "stability" is a desire to protect their business interests from unpredictable changes in the market. Small businesses thrive off the unpredictable local fluctuations in market and technological conditions which occur over space and time. Very large corporations require relative uniformity and predictability in order to survive.

But every bit of progress which we have seen since the inception of the Industrial Revolution without exception has been unpredicted. No one could have predicted five years out the invention of the electric lightbulb, the advent of radio, television, the photograph, the phonograph, the steam engine, the automobile, the airplane or any number of other inventions and technological changes which have revolutionized modern life. Predictability is the antithesis of progress.

Far from being expressions of discipline on big business, government regulations of commerce are almost invariably an expression of the interests of the biggest businesses! Consumer protection rhetoric is ubiquitous in this regard. In an earlier post, I mention Miltion Friedman's quote where he says, "When anyone complains about unfair competition, consumers beware, this is really a cry for special privilege always at the expense of the consumer." Large business interests will act to protect themselves from that which they cannot predict (new innovations, new competitors) and that which they cannot compete with (small, responsive businesses).

Good people are largely selfless

I debunk this notion in my inaugural post on this blog. The reality is that most of us are mostly self-interested most of the time, even when we would ordinarily think we are acting selflessly.

Profits induce selfishness

Here's another common modern myth. The idea is that by acting for-profit, an organization becomes more "greedy" or promotes greed in its ranks. This is completely backwards!

By refusing to compete, monopolistic organizations act outside the constraints of profitability. Unlike the Postal Service, FedEx and UPS must actually take into account the fiscal consequences of their decisions. At the end of the day, the Federal government will always be there to bail out the Postal Service. Political monopolies must always seek the aid and support of the government - either directly through revenue support, or indirectly through regulatory intervention in the market - to prevent the entry of competitors into the market who can operate under the stifling constraint of profitability in the face of competition.

In other words, the monopolist - who dons the sanctimonious robes of being "not for profit" or "working for the public good" or some other such nonsense - is in fact acting in the most self-interested manner imaginable by seizing control of the entire market through force (government regulation). Instead of letting this duplicitous drivel stand, we need to challenge the orthodoxy and think critically about why others do what they do, rather than assuming that people generally make decisions for the same reasons we imagine we would have if we were in their shoes.

Operating not-for-profit or as a government monopoly does not make an organization less self-interested. Rather, it removes the constraint of profitability from the actions and decisions of the organization, allowing it to bloat to ridiculous proportions, a pattern we see repeated again and again. Not-for-profit corporations and government monopolies have nothing more than a license to waste the public's resources.

Public property can be well cared for without central control

This is a common fallacy that is so obviously false it is difficult to understand how it even became a myth in the first place. All one has to do is use the restroom at a rest stop on one of the interstate highways to comprehend the problem of public goods. Milton Friedman says, "No one takes care of the property of others as well as he takes care of his own property." This statement is so manifestly true and the evidence behind it so overwhelmingly unanimous that only an insane person can even debate it.

The inevitable consequence of this fact is that the only way to care for public property to any meaningful degree is through central control. The concept of communal property which is well cared for despite not being owned by individual and in the absence of central control or direction is a concept with no instantiation in reality. We can appeal to the evidence to history to show how many times this ideal has failed to be instantiated by those who have tried, but there is no need to even do this unless someone first deigns to show that Friedman's summary of the nature of public property can in some cases be false. That is, unless it is the case that the property of others can sometimes be cared for as well as one's own property, then it is not even theoretically possible to have well stewarded public property. Appeals to the historical evidence are just icing on the cake.

At the end of the day, what is most surprising is how dismally our leading thinkers have failed to engage in even elementary critical analysis of the issues facing the modern economy. Some of this could be due to the influence of ideological and partisan dogmas such as communism. The myths of modernity need to be challenged, analyzed and - wherever they simply disagree with reality - abandoned. Don't just accept myths because that's what was taught to you.

Why give welfare to the rich?

The $290 billion farm subsidy bill has the effect of giving welfare to the wealthy. The biggest beneficiaries of this massive wealth redistribution bill are large farm conglomerates, who were also instrumental in lobbying for the bill in the first place. How is taking $1000 for every man, woman and child in the US and giving it to a very small number of already wealthy farmers an example of helping the poor?

And this is clearly not a partisan issue as both Republicans and Democrats got this bill passed. It's a class issue, it's an issue of rich people with lots of lobby dollars using government to take money from the poor and give it to themselves. It's sickening to think there are people that profoundly greedy, but wherever government coercion is, you will always find these bottom dwellers.

This is perhaps the most glaring example, but the US Federal budget is chock full of such redistribution. Disaster assistance, for example, is abused by wealthy individuals as a massive insurance subsidy, locating expensive dwellings on scenic property too dangerous to be privately insured. We take money from the neediest (minimum wage workers in East LA for example) and redistribute them to the wealthiest. Blackwater, Halliburton, aerospace defense contractors, the "military industrial complex."

This is the opposite of the intention of socialism, but it is both inevitable and utterly predictable.

Why?Well, it's quite simple, really. We know that, as a rule, businesses (and individuals) will act in their own interests - for businesses, this is always monetary profit (in the case of individuals, it may be more complex since people have lots of ways to achieve their self-interest). I believe it was Adam Smith who argued that businesses will work in their self-interest by attempting to control the market because, if they can control the market, they can exempt themselves from the relentless spectre of competition and they can set terms of trade favorable to maximizing their profits.

If you're a farmer, what could be better than legally forcing taxpayers to buy produce from you which will be simply plowed under? This is no better than an aristocracy, if you think about it. The farmer planted the crop knowing full well it would simply be destroyed. The crop is just a story which serves to make this look different than simple aristocracy. If you're a wealthy homeowner, what could be better than forcing the taxpayers to insure your scenic beachfront spread built so close to the water that collapse in a severe storm ("natural disaster") is inevitable?

Milton Friedman says, "When anyone complains about unfair competition, consumers beware, this is really a cry for special privilege always at the expense of the consumer."

It should be obvious that since wealthy individuals and large business interests have the most money to lobby the government with, most regulations which redistribute wealth will benefit those special interests, perhaps - or should I say always - in non-obvious ways. Do not safety regulations benefit manufacturers of safety products? If you had to guess, who do you think the foremost lobby of these regulations would be? Minimum wage laws benefit labor cartels (unions) by the effect of substitution (if an employer can employ two MW employees or 1 union employee and the MW rises, it may be cheaper to fire the two MW employees and hire a single union employee). Who do you think one of the biggest lobbies behind MW laws are?

I would go so far as to say that if you support wealth redistribution, market regulation or economic interventionism, you are a stooge for the wealthiest and most powerful individuals and business interests who wish to convert their wealth, through the mechanism of government, into controls on the market which decrease the likelihood of future competition and enable the maximization of profits by restructuring the market in favor of their interests.

I wonder who the biggest lobbies are behind the push for universal health care? Certainly not the American Medical Association or its affiliates!

Monday, June 9, 2008

Who says Bush has cut taxes?

Most of the subject matter discussed in this blog post is also discussed in an article on the money supply written in 1995 by Murray Rothbard, available here. Please read it.

The Federal government in the last two years has embarked on a massive taxation campaign. Because people often make the (false) assumption that money at a grand scale (in the trillions) works substantially different than money at small scales, they shroud governmental monetary policies in an aura of glorious mystery. While the complexity of the economy itself may defy most analyses, the government is just a big organization, and organizational decisions are never so complex as to be utterly inexplicable.

So, how has Bush raised your taxes? What about all those kickers and tax cuts for the corporate fat cats? Isn't Bush a tax cutting conservative?

Well, the Federal government has been raising your taxes by playing with the discount rate (an interest rate on loans from the Federal Reserve to private banks in the Fed system). As this interest rate is lowered, the toal amount of money in the economy is increased by the private banks who get more loans from the Fed and in turn grant more loans (they can grant more loans because the cost of money to them is less). These loans from the Fed are just "virtual money," money that the Fed just declares exists. This has a similar effect as if the Federal Reserve had simply fired up a printing press and started printing cash for government revenue expenditures, as I will explain below.

Let's break this down step by step, so you can follow it. Don't let the billions and trillions intimidate you, money works the same at large scales as it does at small scales. I'll walk through the discussion in the layman's terms in which I understand the issues and hope you find the discussion useful.

What is inflation?

Let's go back to the old days. You are a king and you have a currency, that is, gold or silver (or copper, or whatever) coins, probably with your image stamped onto them. The image helps commoners assess the value of the coin without having to do the (costly) business of melting the token down to assess its true value. If I, a commoner, trust you my king, I trust that your silver pieces are made completely of silver, so when another commoner hands me a silver piece with your image on it in payment for a basket of wheat, I am confident that I have not been shortchanged or conned. I have been payed in full.

But you want to go to war and war is expensive. You have already raised taxes many times on your lords and they won't have any more tax increases without trouble stirring at home. So, you get a bright idea - what if instead of putting 1 oz. of silver in each silver coin, you put .9 oz. of silver in each silver coin and made up the difference with some other alloy metal? Then, with 1000 ounces of silver, you could make 1,111 coins. That's 111 free silver pieces! Then, you could pay your armorers and merchants who purchase the goods necessary for war (possibly from foreign merchants) with these new coins, but you could make more coins with the same amount of silver.

This is called "debasement." By diluting the amount of precious metal in each coin, you increase the total number of coins (the total amount of precious metal in the world is nearly constant since only a very small amount of precious metals are mined each year). But, when you increase the total number of coins you simultaneously reduce the value of each of those coins. You might not believe this is the case, but history amply illustrates that the marketplace is highly responsive to debasement. As a government debases its currency, merchants will insist on more of the debased pieces to pay for the same good.

Debasement is a form of inflation.

So, if I have 100 silver pieces and you (you're still king) release a glut of debased coinage into the market (by paying for goods and services with them), merchants will become suspicious and conservative, assuming that all silver pieces are the new, less valuable ones. If I was foolish enough to hold onto my silver pieces instead of spending them as soon as word got around that you were debasing the coinage, I will be stuck with 100 coins that now only have the purchasing power of, say, 90 coins because merchants will require that I hand over more coins for the same goods and services. If the debasement is drastic enough, I may actually bring the old coins into a precious metalsmith to have them smelted and sold as bullion for payment in the new, debased coins. In this way, I may avoid some of the effects of the debasement, but I still have to pay a metalsmith, which still imposes costs on me.

The point, however, is that most people don't do that, and the debasement is rarely so dramatic that it's worthwhile to smelt down old coins into bullion for payment in new coins.

So, what is the net effect? The net effect of debasement is that you, the king, have more money to spend to prepare for war, while the money I have will purchase less goods than it would have before debasement. It's as if money just magically disappeared from my hands and appeared in your hands. Debasement is a surreptitious tax.

Is all inflation a surreptitious tax?

The answer is no. Imagine that everyone only ever used gold to do transactions (never paper money, never anything other than gold). If you bought a pair of pants in 1850, they would have cost you significantly more (in real income) than an equivalent pair of pants today, which is why people can afford more clothes (if they want) today than they could in 1850. Due to technological advancement, the real cost of goods has gone down... a LOT. Let's say that the government minted gold coins in various sizes (denominations) such that a pair of pants cost 1 gold penny in 1850 (pretend this fictional gold penny is the smallest denomination). Over the course of the next 50 years, due to the cotton gin, textile innovations, transport innovations, etc. the cost of a pair of pants goes down in real terms. Now, you need a new pair of pants (after 50 years, that first pair has finally given out). So, you go back down to the general store. Since the government refuses to change its currency (gold standard and all that jazz), the smallest denomination is still one gold penny. But you can buy a lot more with one gold penny than you could fifty years ago. In fact, you can now buy three pair of pants for the price of one gold penny. And since all you have in your pocket are gold pennies, you cannot purchase less than three pair of pants. That is, you can't buy just one pair of pants because you don't have any denominations that small.

If an inflated currency were available, it would sure be convenient, since you could use that inflated currency (less value per unit denomination) to purchase just one pair of pants, since one pair is all you need. Currency inflation (printing more money, minting alloyed gold coins, etc.) allows the advantageous devaluation of denominations to allow fine-grained purchases as everything in an economy becomes less expensive.

In other words, because technological progress makes the goods we buy ever cheaper, we have a constant need for ever smaller units of money to purchase things with! But people who hold on to the original currency still get hurt by this process. That's why money "under the mattress" actually goes down in value.

Why is counterfeiting bad?

You own a 7-11. You're minding the till while your employee takes a lunch break, when someone comes to the counter to buy a carton of smokes and gives you two, crisp fake 20's. You immediately hand them back, cuing from the appearance of the individual whether to bawl them out and call the cops, or just let this one slide. Either way, you're not taking the counterfeit bills.

But why? What difference does it make to you? If we all just chose not to care whether a bill was counterfeit or not, then it wouldn't matter, right? But it would matter. So, why is counterfeiting bad?

Well, in the extreme case, it's easy to see why counterfeiting is bad. Let's say there is 1 million dollars of cash in the whole economy. If someone prints out $1M of counterfeit money that is so good, it can't be distinguished from the real thing, what happens? Well, what happens is that the counterfeiter is $1M richer, but if you have a bank account with $1000 in it, it is now effectively worth only $500. Why? Because merchants can't tell the difference between the genuine bills and the fake bills, but bear the risk that they will be caught with the hot potato (i.e. that the bank or the Mint or whoever will determine that their bills are indeed counterfeit and they get confiscated without recompense), so they price that risk in to their inventory. When everybody does this across the economy, prices overall rise (in this case, they should approximately double). So, counterfeiting causes prices to rise, which reduces the effective buying power of the savings (and future income) of everyone. Counterfeiting magically makes money disappear out of everyone else's hands and into my hands.

Sound familiar? Counterfeiting is a form of inflation.

The key lesson to take away from both debasement and counterfeiting is that the debaser or counterfeiter only benefits to the extent that everyone else using the currency loses. As the saying goes, money doesn't grow on trees.

Why does the Federal Reserve exist?

The Federal Reserve exists for a bunch of really complicated reasons most of which I don't understand, but probably the most important function the Fed performs is setting the federal funds rate and discount rate. By changing these rates, the Fed can (the theory goes) control or influence inflation. By preventing inflation from getting out of control - or spurring inflation to increase the availability of credit - the Fed is supposed to prevent economic catastrophes like the Great Depression from occurring.

The last time the Fed drastically cut interest rates - under Alan Greenspan - after the slump induced by 9/11 and the tech bubble burst, inflation did not greatly increase. This is because there was a real tightening of credit availability, so the extra money which the Fed put into the economy went into making loans for which there was a high demand. I'm not sure whether that makes it a good thing but it's at least not the most horrible thing ever.

But this last bout of rate cuts has been made in the face of too much credit, as evidenced by the mortgage "crisis." So what purpose do these rate cuts serve? There can only be one purpose, and that is to increase the available Federal funds (financed through debt) - that is, the government is essentially printing money by earning interest (from the private banks in the Reserve network) on loans of fictitous money. The government uses these inflation dollars to pay for the war machine, write Medicare and Social Security checks and so on.

But the amount of goods and services which you can buy with the money in your bank account goes down as a direct consequence. Sound familiar? It should, because the government is surreptitiously taxing you just as surely as if it were minting alloyed gold coins and stamping ".9999 fine" on them. The difference is that it takes a lot of words (like this post) to explain how they're doing it. So, most people don't get it.

Fractional Reserves

Let me fill in a gap. Exactly how does lowering interest rates create more money in the economy? It seems like a change in interest rates should just change the price of money (the interest rate on a loan is the "price" of the money which is being loaned.)

Well, this happens through something called fractional reserve banking or lending. Imagine you start a bank. You happily take in deposits, until you have $1M in deposits. One day, Farmer Joe comes in for a $100,000 loan. You grant it. Then, Contractor John comes in for a $100,000 loan. Should you grant it? What if more than 80% of customers came in to your bank demanding their deposits right now? What do you do? This limit (the percentage of deposits which you will not loan out) is the reserve ratio.

Banks in the US cannot legally operate at less than a 10% reserve ratio (they can lend out no more than 90% of what they have in actual deposits).

Now, here comes the tricky part. The Reserve network is a network of banks which give loans to businesses, individuals and each other. By loaning to one another, they can actually leverage the total amount of money to well above the amount they all hold in deposits.

Here's how it works. Bank A can loan out up to 90% of its $1M and Bank B can also loan out up the 90% of its $1M. So, Bank A makes a $900,000 loan to Bank B, raising Bank B's total deposits up to $1.9M. Bank B can now loan up to 90% of its $1.9M, or a total of $1.71M, in deposits. If Bank B makes this loan to Bank A, Bank A's total deposits now come to $2.71M. Bank A now can now loan up to $2.44M. With each loan to the other, the banks magically create money so that Bank A, despite having only $1M in deposits, can actually loan out $2.44M in loans. I'm not familiar with the relevant law, but I would suppose that this blatant example is probably prohibited. Nevertheless, the exact same leveraging effect can be achieved by sufficiently indirect loans involving many banks. In essence, the banks in the Federal Reserve network have the power to arbitrarily inflate the money supply.

When the Fed lowers interest rates, it has the effect of lowering the reserve ratio of the private banks by enabling them to borrow more money from each other or from the Reserve itself. So, more loans are made. It's almost as if the banks have printing presses and start printing money when the interest rate goes down, (the reverse happens to an extent when interest rates go up, but obviously there is more time delay since it takes longer to call in loans than to give them out).

Is fractional reserve banking theft?

The answer is, it depends. A better question is, if there were a free market in banking, would fractional reserve banks exist? In the past when the US banking system was less monopolized, fractional reserve banks did exist and issued their own currencies. So it is clear that the market demands fractional reserve banks, and if that is what the market demands then it cannot be called theft since it is the money which the members of the market hold which is being diluted by the fractional reserve banking which the market demands!

I speculate that the reason the market demands fractional reserve banking has to do with the problem of denomination sizes. As the amount of money required to purchase a lollipop shrinks in absolute terms, finer grained currency is required. This creates a natural pressure for the money supply to expand (slightly devaluing currency in that money supply). As long as money is not sitting under a mattress (it's being loaned out or doing other useful work), it will not be harmed by this creeping expansion.

So long as consumers are free to choose which bank's currency they will accept and which they will not (on the basis of its fractional reserve reputation), then the leveraged crediting is voluntary between the bank and its customers and users of that bank's currency.

However, if there is a banking monopoly and only one bank with the privilege of printing banknotes (currency), and there is no freedom to refuse that bank's notes in the satisfaction of debts (legal tender), then fractional reserve lending is theft. It is indistinguishable from counterfeiting. The Federal Reserve's ability to simply declare there to be more money (and earn interest on this imaginary money, which it loans to private banks) is surreptitious taxation, or theft. Its effect is indistinguishable from every other kind of historical inflation, whether debasement or paper money inflation.

When the Federal Reserve monkeys with the interest rates, or just declares there to be more money and loans that to banks in the Reserve network, it is running an electronic version of the old paper printing press, to exactly the same effect.

As always, this can only benefit the Federal government (who shares some of the benefits with private banks in the Reserve network) at the expense of everyone who uses the currency, that is, all of us. Even for something as complicated as the Federal Reserve, money still does not grow on trees.

What can we do about it?

I don't think there's much that anyone can do about it. Abolishing the Federal Reserve would probably be harder than abolishing the IRS and that's harder than making 2 and 2 equal 5. I suppose that a more important question than asking what can we do about it, is what can you and I each do to protect our own savings from erosion due to inflation.

Unfortunately, most economists treat the Federal Reserve as a given, or worse, view it as an obligatory feature of our economy. The reality is that the Federal Reserve is just a banking and currency monopoly with the power to inflate the currency, which it is doing at an accelerating rate.

Bush has raised taxes more than ever

There are an infinite number of creative ways in which the Federal government finances itself, but the Federal Reserve enables the government to make up shortfalls by creating new money in the form of the interest on loans of fictitious money that it creates, and other means. Government spending has increased more than ever under George W. Bush. The myth of being a conservative, tax-cutting, small government President would be laughable, if it weren't so sad that as much as 50% of the public believes it.

The monopoly on banking and currency which the Federal Reserve system represents is the fiscal expression of our nation's fascist sickness. In terms of controlling the executive, every four years we play this game of seeing who gets to impose their view of the way it oughtta be on everyone for the next four years, conservatives or liberals. But really, our fiscal policies express this situation 365 days a year. Approximately 50% of the Federal budget is spent on defense or defense-related expenditures, and approximately 50% is spent on health & human services, that is, welfare. We're having this big debate over whether to socialize health care (i.e. increase government spending in the HHS wing of the Federal budget), where we were just debating 6 years ago whether to have this global war on Terror and establish a "Department of Homeland Security" (i.e. increase government spending in the DoD wing of the Federal budget).

It's a sick joke - the government bureaucracies funded under the DoD wing of the government got 50% of the US public saying to the other 50%, "What? Do you think we should just let Osama bin Laden get away with murder and do nothing to protect our country? Have you no patriotism?" and the government bureaucracies funded under the HHS wing of the government have that other 50% saying to the first 50%, "What? Do you think poor people should be kicked to the curb and left to die by an ER if they don't have money to pay for their treatment?" all the while all 100% of us are footing the bill for these government expansionists. We each believe we're saving the world and the nation by arguing for funding our favored government programs, while we're really just being soaked by the whole bureaucracy.

And please don't mistake this as a conspiracy theory. It could not be further from a conspiracy. It's the opposite of a conspiracy, it's utter mayhem. It's the inevitable consequence of taking what is privately owned (individual income) and making it publicly owned (tax revenue). Milton Friedman says, "People never take care of the property of others as well as they take care of their own." We're voluntarily impoverishing the nation by taking what will be well cared for (individual income) and converting it to that which will be wasted (tax revenue) by the very government bureaucracies it funds for the sole purpose of justifying yet more waste (tax revenue).

Government spending equals taxation. The Republican narrative for the last eight years has been "Oh, we're spending, but don't worry, we're cutting your taxes to increase government revenues and make up the difference on increased economic activity." This is just dog-wagging.

Why is the dollar weakening?

People keep talking about the "weak dollar" as if this has something to do with the American economy weakening for some mysterious reason, or a softening of our strategic power. This is hogwash, the weakening of the dollar is probably a very good way to measure just how much we are being taxed through the Federal Reserve. It's easy to illustrate why:

You are a money changer, you convert dollars to Yen (fictional). Let's say there are 1 million dollars in the world and 1 million Yen in the world. As a money changer, this means you will convert the currencies 1 to 1 (1 dollar for 1 Yen and vice versa) less fees. Now, let's say a counterfeiter dumps $1 million of high quality bills into the economy. If you are a money changer, are you going to stick with the official numbers and keep changing 1 to 1? You'd be a fool to do so. What you will do is start "weakening the dollar" until you will probably changing very close to 2 to 1, that is, two dollars for one Yen.

Do you see the logic? If there are the same number of Japanese Yen in the world today as there were two years ago, but a lot more US dollars than there were two years ago (because the Fed is flooding the market with them to generate Federal revenue), the dollar is automatically going to "weaken" that is, money changers will no longer exchange one dollar for the same amount of Yen as they would have two years ago.

It's simple arithmetic. Money is just numbers, the size of numbers doesn't change the arithmetic.

We need to throw the bums out, all right, once and for all.

For follow-up reading, I highly recommend this latest article from Lew Rockwell from the Ludwig von Mises Institute.

Sunday, June 8, 2008

I am an anarchist, here's why

While I still have a large anarchist's standard library reading deficit (I have read zero Spooner, Tucker, Thoreau, etc.), I am quite convinced that anarchy is the correct global organizational principle.

Let me clear away the stereotypes. I am not an angry teenager, I have a career, I am married and I have children. I do not want chaos, I want my children and grandchildren to live in the best of all realistically possible worlds. I am not emotionally maladjusted, I have a normal relationship with my parents, I don't have a problem with authority, having only been fired once (for love!) and my most serious run-ins with the state have been speeding tickets (none in the last five years). I am not an atheist, I believe in God and I am deeply religious.

The 2000 Presidential election was the first time I was old enough to vote and, as a good Republican, I cast my vote for W. I was raised a small-government conservative and I believed that the Republican party genuinely stood for small-government conservatism since that had been its platform since at least the time of Ronald Reagan. In the eight years which have passed since I first voted, I have seen Federal spending balloon to unprecedented heights. For six years, Republicans controlled both Congress and the Presidency. The Republicans broke record after record for fastest budget growth, largest total Federal budget ever and so on. It became painfully obvious that the Republican Party was using the same recipe the Democrats had used to hold Congress for nearly forty years before 1994: buy the incumbency. But if the party of small government used exactly the same tactics as the Democrat party once they obtained power, instead of using their power to scale back the Federal government, decentralize and delegate power back to the states and so on, then neither party represented small government. The idea of a small government party was a myth created by Republicans to obtain power in the first place. That is, the Republican party talked about small government only because they knew there were a lot of disaffected folks out there who wanted smaller government who would vote for anyone who appeared to be in favor of scaling back government.

Then it struck me that it was a matter of course. Why does someone go into politics except to govern? And once power has been achieved, by whatever means, what incentive is there to scale back one's own authority? Granted, such principled people have existed, for example, George Washington demonstrably chose less power than he could have had. By contrast, Franklin D. Roosevelt rode his wave of popularity to a lifelong Presidency (think about it). The vast majority of people, if given a groundswell of popular fervor like that which greeted Washington and FDR during their Presidencies would have made the same choice as FDR - ride it out for as long as it lasts. Every generation, there may be a Washington or two out there but those people would never choose to go into politics because, for the politician, politics is about self-aggrandisement, which is repulsive to the rare Washingtonian personality. We all like to imagine that, given the choice, we would choose like Washington, not FDR but this is just a symptom of our own narcissism. We love to flatter ourselves on how selfless, giving, and others-oriented we are. When you look at the historical record, and how people actually choose when really faced with the choice between power or self-restraint, the choice, with extremely rare exceptions, is power.

Sometime before Christmas last year, I was at Barnes & Noble and I happened to be looking at the discount books. I noticed a pile of political books and, since I fancy myself a philosopher of religion, politics, etc. I gravitated towards it. One book, Basic Economics, caught my eye both because I had been thinking I needed to better understand how the economy works, and because I noticed its author was Thomas Sowell, who I had heard interviewed on radio and TV on several occasions. I had been impressed with his concise reasoning and no bullshit mentality. I bought the book, hurried home, and started reading voraciously.

As I began reading, I began to have my mind blown by the simplicity and far-reaching consequences of economic philosophy. Sowell's book has no math equations and does not present a mathematical case for a particular school of economics. Rather, his book makes philosophical arguments about human behavior. The first principle he introduced which thoroughly rewired my way of thinking was this: People tend to do more for their own benefit than for the benefit of others. I have since run into this principle in many different forms. Milton Friedman in an old television interview I saw on YouTube says it this way, People never take care of the property of others as well as they take care of their own property. Or, stated another way (David Friedman, Milton Friedman's son): People have goals and tend to make the choice among the alternatives facing them which best achieves those goals. When these principles are consistently applied to all people - whether police, government bureaucrats, elected officials, charity workers, clergy or business owners - the change in one's perspective is revolutionary. I would go so far as to say that, despite finishing a bachelor's degree in computer engineering, I had not really learned to think critically until I began studying economics. I had never learned to analyze the "irrational" choices that other people make which I would not have made in their circumstances. I assigned the "crazy" actions of other people to wickedness, stupidity, ignorance, insanity, corruption or any other number of human maladies. While human behavior is not completely predictable, there are predictable elements to it. By assigning the choices which people make that I don't understand to irrationality, I was giving up and failing to think critically about why, really why they make the choices they do.

I think part of the reason for this sloppy thinking is what I call the myth of vulgar altruism. That is, we each like to believe that we are George Washingtons, not FDRs. We each like to believe we are humble, selfless, self-effacing, giving, altruistic, caring, trustworthy individuals. If such attributes are as rare as George Washingtons are, then we are very special. But since most of us don't fancy ourselves as being that special, we suppose instead that most (good) people are like us: selfless, giving, caring, etc. The reality is that pursuit of self-interest often underlies even our apparently selfless acts. I don't think I really need to belabor the point that much as I know you know what I'm talking about. A biblical example is Jesus's discussion of the Pharisees who make a pretense of giving, but blow a trumpet before doing so to make sure that everyone around sees how good and laudible they are. This is an obviously self-interested act, since it is motivated by the desire to be perceived in a certain way by others. It is the result of a simple cost-benefit analysis: the benefit of being perceived as good by other people exceeds the cost of the money being deposited into the temple treasury. This hardly seems like true self-sacrifice, giving despite pain and real, net loss to oneself. Jumping on a grenade to sacrifice oneself to save the lives of nearby soldiers, on the other hand, is clearly an act of absolute altruism.

But in most of the "selfless" things we do, we are more like the Pharisees than the grenade-smothering soldier. Whether it be to prop up a certain mental self-image or to create a certain perception of selflessness and virtue among others, we usually act in what is our self-interest, despite appearances to the contrary. Common selflessness or vulgar altruism is simply a myth which we all agree to perpetrate to maintain an artificially inflated self-image of virtue.

This is all rather cynical, of course. Is no one virtuous, is no one truly selfless? Of course people exhibit real virtue, real selflessness, but I think the bar is higher than we like to imagine. Jesus said, "Love your neighbor as yourself." I like to read this as "Love your neighbor as selfishly as you love yourself." What Jesus is calling for in the second greatest commandment is real altruism, that utter emptying of one's self-interest to the point of offering yourself to be consumed by the selfishness of your neighbor. The idea that you can just go to church every Sunday and achieve this kind of morality is utter hogwash. Maybe the Church needs its own Medal of Honor to give Christians a sense of what real sacrifice means. There are a few people out there who really do it. The rest of us are just pretending.

To bring this back to the Republican party, I began to think critically about why government had grown more under the Republicans than it had under the Democrats when a vital component of the Republican platform had been to scale back government once they attained power. 9/11 is no excuse for the overall budget growth we've seen. The reason, really, is simple: Both Democrats and Republicans have an interest in increasing the size of government. The difference between them is which government programs they champion. That's it. Since people tend to act more in their own interest (political gain) than in the interests of others (constituency), it is inevitable that elected leaders - whether R or D - will always increase the size and scope of government.

That's when I realized that there is no hope for limited government. The Libertarian Party and other independents sit on the sidelines waiting for the "some day" when Americans start voting for something other than Republicans or Democrats, but it was clear many years ago that this is futile. There is no political solution to the problem of political government. Government, by virtue of the fact that there is no force which may oppose it, always grows.

So, I began to think about what if there were no government. What would happen? Would chaos ensue? Would we have "nature red in tooth and claw" or the all-against-all jungle predicted by Hobbes? I think the answer, given sufficient qualification, is no. I will explore why I think the answer is "no" in future blog posts, as this post is already too long.

I will try, however, to compress into one sentence the basic reason why it is possible to imagine a realistic (not idealistic), ordered anarchy. The reason is this: The free market can provide all the services which government currently provides to maintain peace, law, order, safety and the public welfare at a lower cost, better quality or both by inducing organizations which perform these services to compete with one another under the constraint of profitability.

Books have been written to explain how this can be achieved, what the limitations are and, most importantly, how to get there from here. I have not yet even begun to put a dent in those books but, as I learn along the way, I intend to regurgitate what I have learned - along with my own interpretations and improvisations - here. I learn by explaining, so explaining things (on a forum, blog, in conversation, etc.) helps cement ideas and concepts in my mind. So, I'm not really wasting time on this blog, I'm actually acting in my own self-interest, after all!

Sunday, June 1, 2008


OK, this is my new blog. I am a horrible blogger, but I might start just publishing some of the old articles and forum posts that I have stashed on my hard drive to fill the gaps between the times when I actually have the wherewithal to write some new content.

The name of the blog, to those who are curious, is a reference to randomness as defined in the Kolmogorov-Chaitin sense of an incompressible program. Not that you cared. I plan to blog on whatever strikes my fancy. In the past, this has included topics from theology, philosophy, politics and mathematics. I have been studying economics lately, and I suspect a large portion of my posts will have to do with that.